Merging with a SPAC

Special purpose acquisition companies, known as SPACs, are increasing in popularity because they offer a viable alternative to traditional IPOs. Private operating companies that opt to go public by effecting a SPAC merger are required to provide certain financial and nonfinancial information in related SEC filings, which is similar to what the company would include in a traditional IPO registration statement. Our Viewpoint on SPACs, Merging with a special purpose acquisition company (SPAC), focuses on accounting and reporting considerations related to such transactions. The publication describes information that is required for private operating companies in Form S-4/merger proxy statements as well as in post-merger SEC filings, and discusses accounting considerations related to issues common to SPAC transactions, including the following:

• How to determine the acquirer for accounting purposes, which may differ from the “legal” acquirer;
• How to account for reverse acquisitions and contingent consideration in SPAC transactions;
• Considerations for cheap stock that may apply to the operating company’s historical financial statements; and
• Whether warrants and share-settled earnout arrangements that arise in SPAC transactions should be classified as debt or equity.

Since we originally published this Viewpoint, we have updated the publication to

• Incorporate a discussion related to a recent SEC staff statement on accounting and reporting considerations for warrants issued by SPACs;
• Provide an expanded discussion on determining the accounting acquirer in the initial business combination between a SPAC and a private operating company; and
• Discuss temporary equity classification of SPAC equity instruments and elaborate on the classification on SPAC warrants.

Complete with practical examples and insights, our Viewpoint can be downloaded here.