The continued rise of SPACs and related regulatory considerations

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By: Adam Weaver, Senior Manager, Hancock Askew & Co.

A special purpose acquisition company (SPAC) is an enticing alternative for a company to go public while avoiding all of the paperwork of a traditional initial public offering, or IPO. This type of transaction can be arranged by a company while maintaining increased control over the deal terms, allowing more certainty around the pricing and potentially accelerating the timeline. Essentially, the sole purpose of this newly created company is to raise money through IPO proceeds and private investment in public equity (PIPE) transactions and then acquire or merge with a private company. These are often referred to as “blank check companies” or “public shells” and have been around since the 1990s but have increased significantly over the past decade in terms of both volume and size.

SPAC IPO Issuances Since 2017 (Data source: SPACInsider as of April 17, 2021)

Year Number of IPOs Amount Raised
($ in billions)
Average IPO Size
($ in millions)
2021 (to date) 308 99.8 324.2
2020 248 83.3 336.1
2019 60 13.8 229.5
2018 46 10.8 233.7
2017 34 10.0 295.5


Companies that are looking to go public should consider both the traditional IPO, private equity and the use of a SPAC IPO. With so many SPAC suitors in the arena of today’s market, it is pertinent to know your potential business partner and the circumstances of going public.

SPAC developmental timeline

Typically, after the formation and IPO phase, the proceeds are placed into a trust account, and the SPAC has between 18-24 months to identify and complete a merger with a target company. This is often referred to as de-SPACing. When a target company is identified, a proxy statement or Form S-4 filing will need to be prepared, and the shareholders will need to approve of the SPAC merger. Within this compressed SPAC merger timeline, the reporting requirements are voluminous and the period from the diligence/negotiation phase to the closing of the transaction can be as short as three to six months.

The next phase is completion of the Super 8-K being filed within four business days of closing. The target company must be prepared and able to meet public company reporting obligations, and normally the completion window is a few months. This is a much shorter timeline when compared to the traditional IPO route. The target company should assess its preparedness for public company readiness, including capabilities in areas such as:

  • accounting and financial reporting.
  • budgeting and forecasting.
  • tax matters.
  • internal controls and internal audit.
  • enterprise risk management.
  • technology and cybersecurity.
  • legal and compliance.
  • human resources.

Management’s report on internal control over financial reporting (ICFR)

Management’s report under Section 404(a) is required for all SEC registrants. The SEC states that a “newly public company” is not required to provide management’s report until its second annual report and is defined as a registrant that had neither been required to file an annual report for the prior fiscal year with the Commission nor had filed an annual report with the Commission for the prior fiscal year.

Given the abundance of questions surrounding this in regards to SPACs, the SEC staff provided clarification within its interpretive guidance regarding the potential to exclude recent acquirees from management’s assessment of ICFR. The SEC indicated that this potential for exclusion does not apply to a public shell company’s acquisition of a private operating company that is accounted for as a reverse acquisition. Further clarification by the staff noted that the surviving issuer is not a “newly public company” and therefore does not qualify for the omission of management’s assessment of ICFR pursuant to S-K Item 308(a) in its first annual report filed subsequent to the consummation of the transaction.

However, the staff acknowledges that it may not always be possible to assess the private operating company’s ICFR prior to the end of the fiscal year in which the acquisition is consummated. They also recognize that the internal controls of the legal acquirer may no longer exist as of the assessment date, or the assets, liabilities and operations may be insignificant compared to those of the consolidated entity. In these instances, the staff may not object if the registrant excludes management’s assessment of ICFR from its annual report on Form 10-K for the fiscal year in which the transaction is consummated. It’s important to note that when the transaction is consummated, shortly after year-end the surviving issuer is required to file an amended Form 8-K to update its financial statements for its most recent year-end. That filing is equivalent to the first annual report subsequent to the consummation of the transaction, and future annual reports should not exclude management’s report on internal control over financial reporting.

Hancock Askew has assisted many companies in complying with Sarbanes-Oxley Section 404 requirements. Our professionals bring extensive experience and cross-training in both internal audits and public company financial statement audits. During this process, our team has helped clients design systems that also improve business processes, not only meet compliance requirements.

Based in Georgia and Florida, Hancock Askew & Co. is a full-service tax, audit, accounting and advisory firm with more than 200 professionals. Hancock Askew also provides advisory services such as internal audit, IT risk assurance, SOC examinations, transaction advisory, business valuations and other critical business consulting services.

Adam Weaver, CPA, CIA, CISA, is a senior manager for Hancock Askew & Co.

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