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On March 31, 2021, the Securities and Exchange Commission (SEC)
provided public statements from Acting Chief Accountant Paul Munter and from
the Division of Corporation Finance addressing
Special Purpose Acquisition Companies (SPACs). Although each of the
statements were distinct and addressed different issues, the
primary focus of both was to raise awareness of critical
accounting, financial reporting and governance considerations that
a private operating company should carefully consider and address
prior to consummating a business combination with a SPAC.
SPACs are shell companies that raise capital through an initial
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One of the hottest going-public trends in 2020 and 2021 has been the rise of SPACs – Special Purpose Acquisition Companies – as a vehicle for private companies to go public. SPACs are shell companies that are formed, funded and taken public for the purpose of later acquiring an operating company. By merging with a SPAC, the private company effects a reverse takeover, inheriting the SPAC’s existing cash and taking over its management. SPAC mergers have quickly increased from being occasional to outpacing the number of traditional IPOs.
A SPAC merger involves different players that can have different motivations than a traditional IPO. In a traditional IPO, a private company may slowly prepare to become a public company, augmenting staffing and systems over a period of years, before engaging with underwriters that will conduct an initial public offering of securities for the company. By comparison, in a SPAC merger, t