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There are three distinct phases in the life of a SPAC: SPAC formation and IPO, SPAC target search, and the SPAC merger (de-SPAC). Management teams need to plan ahead and be prepared for the financial reporting and SEC filing requirements in much the same way as for a traditional IPO.
SPAC formation and IPO
A SPAC is formed by a management team, or a sponsor, with nominal invested capital (commonly known as founder shares). The SPAC subsequently issues “units'' in an IPO, which results in approximately 80% of the outstanding shares being held by public shareholders and approximately 20% of the shares being held by the founders. Each unit consists of a share of common stock and a fraction of a warrant.
Founder shares and public shares generally have similar voting rights, with the exception that founder shares usually have the sole right to elect SPAC directors. Warrant holders generally do not have voting rights and only whole warrants are exercisable.
Securities issued by the SPAC in its IPO are registered on a Form S-1 and are subject to the SEC staff review process. The SPAC is required to file a current report on Form 8-K shortly after the IPO with an audited balance sheet reflecting the receipt of proceeds. The SPAC is subject to the normal SEC reporting requirements upon the effectiveness of the Form S-1 (e.g., Form 10-Qs, Form 10-Ks).
The IPO proceeds are held in a trust account that earns interest while the SPAC conducts its search for a target company. A SPAC generally has very limited operating activity and the financial statements consist of cash, deferred offering costs, shareholder’s equity, and general and administrative expenses associated with start up activities and operating as a public company during the target search.
SPAC target search
The SPAC formation agreements typically specify a period of 18 to 24 months to identify a target company and complete the acquisition. After identifying the target, the SPAC will execute a letter of intent, complete due diligence, and negotiate the terms of the merger agreement, including the proposed transaction structure and governance of the combined entity.
A SPAC may need to secure additional financing to fund the SPAC merger or shareholder redemptions of common stock. A SPAC can secure additional funding for a SPAC merger in various ways, including:
  • Private investment in public equity (PIPE) deals, typically forward purchase commitments by affiliates of the sponsor or institutional investors to purchase common stock
  • Additional common stock offerings to the public
  • Preferred equity investments
  • Debt financing (e.g., registered notes, private placement, term loans, revolving credit facilities)
Once the terms of the merger agreement are finalized, the SPAC announces the transaction and files a current report on Form 8-K under Item 1.01 - Entry into a material definitive agreement, within four business days after the occurrence of the event.
SPAC merger (de-SPAC)
To solicit a shareholder vote on the merger, the SPAC will prepare a proxy statement on Schedule 14A (a proxy statement), which may include the following additional proposals:
  • Amendments to the SPAC’s articles of incorporation
  • Election of directors
  • Re-domiciling of the SPAC
If the SPAC registers securities as part of the merger transaction, it will file a joint registration and proxy statement on Form S-4 (Form S-4/proxy statement) in lieu of a proxy statement. Additional information required in the proxy or Form S-4/proxy statement includes:
  • Financial statements of the SPAC
  • Financial statements of the target company and its significant business acquisitions and equity investees
  • Pro forma financial information to reflect the merger transaction
  • Management’s discussion and analysis (MD&A) of the SPAC and the target company
  • Comparative per share financial information of the SPAC and the target company
  • Risk factors
  • Background of the merger
  • Information about the target company (business section)
  • Selected Financial Data under S-K 301
Note: In November 2020, the SEC amended Regulation S-K to eliminate the need to provide selected financial data (Regulation S-K, Item 301). The amended rules were published in the Federal Register on January 11, 2021 and become effective on February 10, 2021. As with any change in administration, there is the possibility that the Biden administration could postpone the effective date of these amendments. Companies should discuss with their advisers whether there have been any changes in the effective date. See In depth US2020-09: SEC amends MD&A and eliminates selected financial data, for discussion of the amended rules.
The SEC staff review process related to the merger transaction follows the process of a typical IPO in that the SEC staff will review the filing and issue comment letters, which could result in multiple rounds of comments. The SPAC will solicit proxies from shareholders (mailed 20 days before the shareholder vote) and hold the vote on approval of the merger. When the merger is consummated, a current report on Form 8-K is required to be filed within four business days that includes historical financial statements and associated pro formas. That is, the 71-day grace period afforded certain information required in Form 8-Ks is not available when the legal acquirer/issuer is a shell company. This Form 8-K is known as a “Super 8-K” because it includes the information that would be required for a Form 10 registration statement. See Figure 1-3 in the Super 8-K section for the related reporting items.
As the registrant only has four business days to comply with this filing requirement, it is important that all required information, including the related financial information, be prepared in advance of the transaction being consummated.
Public shareholders of the SPAC have an opportunity to redeem their common shares prior to the close of a merger if they do not want to be invested in the target(s). Warrants issued to these shareholders are typically not forfeited on redemption of the common shares. If the SPAC does not identify a suitable target company or the proposed merger is unsuccessful, the SPAC liquidates and the remaining IPO proceeds are returned to the public shareholders.

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