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04.21.21

SPACs: Considerations and benefits

BY , Gregory M. O'Shaughnessy

Recent developments during the pandemic have brought a new focus on public companies. Our latest NP Connects panel dives into SPACs, discussing what they are, who they benefit, and key considerations for sponsors. Our conversation includes perspective from John Hoffman (Managing Director, Equity Capital Markets at Credit Suisse), Sumeet Mehra (Managing Director at PTK Acquisition Corp), John McCarthy (Partner at Marcum LLP), Richard Langan (Partner at Nixon Peabody LLP), and Michael Smith (Partner at Nixon Peabody LLP).

Highlights from our conversation:

Why did SPACs become such a significant portion of the capital markets?

  • SPACs are an attractive way for companies to come to the public market
  • SPACs provide investors an opportunity to invest publicly in younger companies, and provide companies an attractive alternative to an IPO listing

What are the benefits of SPACs to both companies and investors?

  • SPACs allow broader engagement—price discovery process is done confidentially, allowing more bespoke and thoughtful conversations with investors at a more measured pace
  • Unlike traditional IPOs, the company has an opportunity to build institutional investor interest, engage the public buy-side community, and host an investor day after announcing its merger with a SPAC
  • Complicated stories can be told more easily as PIPE investors have more time to diligence a company, thus allowing greater understanding of complicated stories
  • Company management teams stay intact

How should a target company evaluate a potential SPAC counter-party and auditor?

  • Evaluate a sponsor’s track record, domain expertise, institutional relationships, and ability to execute the transaction
  • Look for an audit firm with experience in this area as speed and accuracy are key
  • Beware of conflicts

What are some of the emerging trends and issues surrounding SPACs?

  • Cost of D&O insurance has become very expensive for SPACs because many do not have qualified directors, the number of carriers writing these lines is finite, and there is not a deep reinsurance market for this coverage
  • The demerger process and its conflicts will require more fairness opinions and focus directors’ fiduciary obligations
    • CFIUS rules have expanded to critically sensitive industries, including biotech, and could ensnare PIPE investment pending committee review

Tags: SPAC

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Author

Christopher P. Keefe

Partner

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Author

Gregory M. O'Shaughnessy

Partner

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