Why SPACs Have Become Popular | Insights | NMS Consulting
The SPAC structure provides sponsors with great flexibility and few constraints.
Special Purpose Acquisition Companies (SPACs) are publicly traded investment vehicles that raise funds via an IPO in order to complete a future acquisition. They provide private companies with a unique way to access the public markets, while offering investors a way to invest side-by-side with best-in-class sponsors. To start the process, a new company is formed without assets or operations. The company registers with U.S. Securities & Exchange Commission (“SEC”) to offer and sell stock and warrants. The new company will find a targeted operating company to buy using IPO proceeds during a specified time frame, but does not have to specify industry or geographic focus.
Today, many sponsors and investors view SPACs as more intriguing and better alternatives to traditional IPOs. SPACs offer a much simpler IPO process than the traditional method, saving time and on costs. SPACs also give sponsors a lot of flexibility when the time comes to determining what target companies to merge with or acquire. Merger consideration and valuation are set when merger agreements are executed, but repricing may be possible due to market volatility or other reasons. Also, a SPAC may be willing to undertake a transaction with a company that is earlier stage than the typical IPO candidate. SPACs offer certain protections, such as giving an investor the right to withdraw capital, with interest, at the time of a proposed business combination. This provides the investor with a practically riskless free option, and is one of the reasons why SPAC issuances have increased dramatically in recent years, especially starting in 2019.
Furthermore, SPACs offer targets’ shareholders greater certainty in terms of valuation. This gives shareholders the ability to take more money off the table when compared to a traditional IPO, because in the traditional method, underwriters may set an initial price below the market’s actual valuation. Another benefit of SPACs when compared to traditional IPOs is that the timeframe for SPACs from the start of the process through to the closing is much shorter. Traditional IPO timing is typically 12-18 months, while the SPAC process usually does not exceed 6 months.
How NMS Can Help
NMS Consulting advises corporate clients on creating value through SPACs by drawing upon our team’s extensive transactional expertise. Our services for target companies who are seeking to be acquired by a SPAC include:
- Preparation for being a public entity (due diligence, financials, tax structuring)
- SPAC Sponsor Group identification
- Structure negotiation
- Internal controls, governance, and review
- Addressing regulatory and compliance requirements
Our services for SPAC Sponsor Groups include:
We advise the Sponsor Group on the most suitable legal entity structure and offering terms. We are also able to help the Sponsor Group in developing and refining their corporate strategy, industry sector analysis and corporate message for both the capital markets and targets. In addition, in certain cases, we are able to make introductions to parties who may provide additional sponsor capital investment and join the Sponsor Group.
It is important that the SPAC have a strong management team comprised of professionals with the necessary experience in both the target industry/sector and public markets. If needed, NMSC is able to provide members of its own team to serve on the SPAC management team as part of our interim management services, or introduce qualified individual(s) to supplement the overall team. Target companies may also have a need for an interim management service, to better position themselves for an acquisition.
We are able to introduce and screen the most qualified professionals taking into consideration track record, availability and costs for the sponsor team. This primarily consists of accountants/auditors, lawyers, insurance providers and investment banks/underwriters/placement agents.
Sponsor teams are able to benefit from our expertise in regard to the preparation of all requisite marketing materials, financials preparation, regulatory and corporate governance controls working in conjunction with the SPAC auditor and law firm:
- Preparation of the initial SPAC financial statements
- Preparation of pro-forma financials and models
- Management discussions and analysis (MD&A)
- Dilution and capitalization tables for S-1
- Drafting for Form 10Qs and 10Ks
- Drafting of internal control and review
- Drafting of corporate governance program
- Assist in drafting and preparing certain sections of the prospectus (legal cost savings)
- Preparation of all SPAC sponsor’s marketing for the underwriters and the sponsor investors
- Preparation of target landscape analysis
NMSC is able to provide comprehensive consulting services to the Sponsor Group for the entire life cycle of the acquisition process.
- Target identification and outreach
- Due Diligence (Financial, Operational, Regulatory and Technical)
- Financial analysis and transaction support to professional service providers
- Preparation of investor presentations, pro-forma financials, combined financials presentation of proposed business combination
NMSC specializes in providing the following ongoing consulting services to the management team following the completion of the business combination to ensure a seamless transition to ensure success:
- Creation of integration strategy and approach to maximize shareholder value
- Identification of cost savings/synergies
- Organization design for leadership, controls and workforce optimization
- Change management
- Corporate Governance – Board of Directors, Regulatory and Compliance
- Enterprise Resource Planning (ERP)
- Digital Transformation
- Tax Advisory
- Interim Management (Financial, Operational, Digital)
Mr. Mansourian has a 12-year track record as both a management consultant and investment banker, advising clients on valuation, capital markets, structured financing, mergers, acquisitions and divestitures and general corporate strategy. Mr. Mansourian served as Vice President while at NMS Capital Advisors, when the company achieved cumulative sales growth of over 5,100% with annual compounded sales growth in excess of 120% from 2012 to 2017. With over $5 billion in completed transactions, the investment bank consistently ranked among the Top 10 investment banks by the Los Angeles Business Journal. Mr. Mansourian holds an MBA from USC’s Marshall School of Business and a Bachelor’s Degree from UCLA, and the CIPP/US certificate from IAPP.