Special Purpose Acquisition Companies (SPACs): What You Need to Know

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From top investors to celebrities and notable hedge fund managers to athletes, it seems like everyone has buzzed about Special Purpose Acquisition Companies (SPACs) in the last few years. In 2007, SPACs made up about 14% of the IPO market versus 50% of the market share in 2020.

In 2020, more than $83 billion was raised via SPACs; more than all other years combined. But what is a SPAC, why did they become so popular in 2020, why did they decline, and what is the future for organizations looking to invest?

What is a SPAC?

A SPAC (Special Purpose Acquisition Company), also known as a “blank check company,” is a shell corporation used to buy a private business and take it public. It has no commercial operations and is formed to raise capital to acquire an existing company.

A SPAC is a way to go public without the expense, time, and regulatory oversight traditionally required in an IPO. Many notable companies jumped at the chance to enter a SPAC, but since 2020, that trend has died down substantially.

The De-SPAC Index is down 71% in the past 12 months along with the annual volume decreasing to only 76 SPAC IPOs raising $12 billion by mid-September 2022.

Why have there been a decline in SPACs?

After two years of massive growth, during which investors poured $250 billion into SPACs, interest rate increases, the world climate, and rising inflation have made investors more cautious. In addition, regulators are stepping up scrutiny of SPACs.

The Securities and Exchange Commission has opened many investigations into SPACs and is now proposing tighter rules.

Increased regulation would make SPAC deals less attractive for the big investment banks that arrange these transactions because they would have to commit more resources to comply. They, too, have begun pulling back.

What’s next for SPACs?

Is there still a market for SPACs? Most likely! However, scrutiny won’t be going away anytime soon. Good due diligence and willing investors are key to successful transactions no matter what route you take.

Given economic pullback and new regulations, more due diligence is key to making a SPAC deal that stands the test of time.

Despite the setbacks, there is money to be invested. More than 2,000 financial deals were made in 2022 in the US, with a total value of about $2 trillion.

The key is finding the right partners. The right team can decrease risk and increase the likelihood of a successful outcome.

Talent is crucial to any transaction, and we can help

Whether your key employees are working on a transaction and you need to backfill some key employees, you want to hire full-time talent as you go public, or you simply need consultants to help you, we can assist with many of your technical accounting resource needs. DLC and Addison Group finance & accounting teams are happy to discuss our interim resources and executive recruiting offerings.

Ann King, Regional Vice President, Finance & Accounting and Managing Director of DLC San Francisco

Ann King joined Addison Group in 2014 when her company, CVPartners, was acquired. Ann’s deep knowledge of the market comes from her 25-year career recruiting in the finance and accounting space. She currently manages the West Coast finance and accounting consulting operations for Addison. Her teams specialize in higher level positions in the CFO/Controller’s organization.

She joined DLC as Managing Director of the San Francisco Bay Area practice in January 2020. In this role, Ann oversees the Bay Area consulting team and is responsible for new business development as well as recruiting and retaining new talent for the practice. She has also been instrumental in growing DLC’s internal team in San Francisco.

She is a CPA and started her career in the audit practice at KPMG in San Francisco where she specialized in leasing and transportation and SEC registrants. She left public accounting as a Senior Manager to begin her career in high level finance and accounting recruiting.

Ann is a proud, native San Franciscan and a graduate of the University of San Francisco.

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