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In a SPAC merger transaction, an important accounting judgment is the determination of which entity is the accounting acquirer. The accounting acquirer is the entity that obtains control of the reporting entity and may be different from the legal acquirer. If the transaction is between entities under common control (for example, the same entity or individual controls the target company and the combined entity after the transaction), acquisition accounting would not apply. Refer to Chapter 7 of PwC’s Business combinations and noncontrolling interests guide for guidance on common control transactions.
If the SPAC merger is effectuated primarily by transferring cash or other assets or by incurring liabilities, the SPAC is usually the accounting acquirer. If the target company is a variable interest entity (VIE), the entity that is the primary beneficiary and consolidates the VIE is the accounting acquirer (i.e., if the SPAC becomes the primary beneficiary as a result of the merger, the SPAC would be the accounting acquirer). Refer to Chapter 2 of PwC’s Consolidations guide for guidance on VIE analysis. Also see Section 3.5.4 for consolidation considerations when assessing limited liability companies and other similar entities.
If the voting interest model applies and the SPAC merger consideration is equity or a combination of cash and equity, it may not be clear which entity is the accounting acquirer and further evaluation may be required. These situations require consideration of all pertinent facts and circumstances. The guidance in ASC 805-10-55-11 through ASC 805-10-55-15 includes factors that may indicate which party is the accounting acquirer, including:
  • relative voting rights in the reporting entity,
  • existence and size of a single minority voting interest in the reporting entity,
  • composition of the governing body of the reporting entity,
  • composition of senior management of the reporting entity,
  • terms of the exchange of equity interests (entity that pays a premium), and
  • relative size of the entities.
No one factor is determinative. In some cases, determining the accounting acquirer may require significant judgment. See Section 2.3 of PwC’s Business combinations and noncontrolling interests guide for information on how to determine the accounting acquirer.
If the SPAC is the accounting acquirer, it would recognize the assets and liabilities of the target company at fair value in accordance with ASC 805, Business Combinations. The pro forma financial information included in the proxy or Form S-4/proxy statement on Form S-4 would reflect the acquisition accounting and transaction costs would be expensed.
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