Why PE is on the SPAC inside track

Special Purpose Acquisition Companies (SPACs) are rapidly evolving from an interesting option to a desired path of taking a company public. This malleable vehicle is becoming better understood, more widely accepted and is proving to be a highly adaptable way to meet the needs of both operating companies and investors. A key factor in this flexibility is because a SPAC transaction is a merger, not an IPO.

Unlike a traditional PE fund vehicle in which a fund invests in multiple companies, a SPAC will instead effectuate a single transaction. As a result, a PE fund’s investment philosophy, strategy and approach for a SPAC differs from its traditional investment model.

A SPAC appeals to private equity (PE) investors for several reasons:

• Speed at which capital can be raised
• Opportunity to expedite entry to public market
• Ability to tell the story with the aid of future projected earnings of the company
• Opportunity to explore a different investment thesis
• Potential for significant upside as SPAC sponsor
• Definition of minimum cash and financing structuring options on the front end create a lower risk of deals falling apart

PE funds interested in utilizing a SPAC as an exit vehicle should consider the following recommendations:

• Define transaction goals and value drivers
• Choose a SPAC that aligns with the industry of operating company
• “Get your house in order” to be more attractive for a SPAC exit
• Attend to backward-looking compliance procedures
• Ensure company is able to function like a public company from an operational and talent standpoint
• Anticipate the regulatory and compliance landscape to continue evolving 

For your convenience, full text transcript of this podcast is also available. Read the transcript.