The SEC Division of Corporation Finance staff ("Staff") issued guidance on accounting, financial reporting and governance issues that operating companies should consider prior to undertaking a "business combination" with a special purpose acquisition company ("SPAC").
Staff recommended that private companies engaging in business combinations with SPACs consider that:
Staff stated it is important for a SPAC and the private operating company to consider that books and records and internal control requirements applying to SPACs prior to a business combination will generally apply to the combined company post-merger. These requirements include, among others, (i) annual or interim reporting requirements, (ii) SEC rules and disclosure requirements and (iii) new accounting standards in the financial statements required in the business combination or the subsequent Form 8-K that are not yet effective for private companies. In the statement, Staff explained that SPACs that are listed on a national securities exchange must fulfill quantitative and qualitative initial listing standards following a business combination.
Further, Staff noted that private companies considering a merger with a SPAC must plan for how they will comply with the SEC and securities exchange requirements.
In a related statement, Acting SEC Chief Accountant Paul Munter highlighted some of the key considerations related to the unique risks and challenges of a private company entering the public markets through a merger with a SPAC. These include:
Available only to Cabinet Premium subscribers.
Combining regulatory and enforcement news, analysis, and practical work tools on an easy-to-use digital platform.