乐鱼（Leyu）体育官网

Insights

Fresh thinking and actionable insights that address critical issues your organization faces.

Learn more

Resources

Services

乐鱼（Leyu）体育官网's multi-disciplinary approach and deep, practical industry knowledge help clients meet challenges and respond to opportunities.

Services to meet your business goals

Technology Alliances

乐鱼（Leyu）体育官网 has market-leading alliances with many of the world's leading software and services vendors.

View all Alliances

Industries

Helping clients meet their business challenges begins with an in-depth understanding of the industries in which they work. That鈥檚 why 乐鱼（Leyu）体育官网 LLP established its industry-driven structure. In fact, 乐鱼（Leyu）体育官网 LLP was the first of the Big Four firms to organize itself along the same industry lines as clients.

How We Work

We bring together passionate problem-solvers, innovative technologies, and full-service capabilities to create opportunity with every insight.

Learn more

Careers & Culture

What is culture? Culture is how we do things around here. It is the combination of a predominant mindset, actions (both big and small) that we all commit to every day, and the underlying processes, programs and systems supporting how work gets done.

Learn more
Relevant Results
Sorry, there are no results matching your search.
Autocomplete suggestions are available. Use up and down arrows to review and enter to select.
See more results

SPAC insights: Sellers' market

Too many choices can make it harder for a company to identify the right SPAC partner to go public with.

Download PDF
Share

An article from the聽乐鱼（Leyu）体育官网 SPAC Intel Hub.

The large number of SPACs looking for merger targets is giving rise to a sellers鈥� market. Today, a private company may find itself being wooed by several SPACs at once. But while all the attention may be flattering, too many choices makes it harder for a company to identify the right SPAC partner to go public with. This heightens the importance of carefully vetting SPAC suitors and negotiating favorable terms for a potential deal.

1

Diligencing SPACs

Companies now have more SPACs to choose from than ever. 乐鱼（Leyu）体育官网 research shows that in 2020 a record 250 SPACs raised $76.2 billion鈥攁n amount nearly matched in just the first quarter of 221, when 229 new SPACs raised $68.6 billion. Most of these SPACs must make acquisitions in the next two years. Key questions companies should ask themselves when these SPACs come knocking include:

  • Do they have the ability to raise PIPE1聽(private investment in public equity) investments?聽PIPE investors, who are often long-term institutional investors, are needed to fill gaps in capital to close the merger. PIPE transactions also help validate the valuation of the target company.
  • How do they account for warrants?聽Warrants are issued to SPAC sponsors and investors to purchase common stock after a SPAC merger as a potential upside for them. Not only is this dilutive for other shareholders, but it may also need to be accounted for as a liability rather than equity upon issuance and subsequent measurement periods2. Reviewing this as part of the SPAC鈥檚 balance sheet may be insightful for accounting and economic considerations.
  • What is the reputation of the SPAC?聽Not every SPAC is of the same quality. Is it backed by a successful team of well-known investors? Have they sponsored multiple SPACs?
  • Who are the sponsors/anchor investors?聽Do they have a long track record of creating value, partnering with and potentially serving as board members for the merged company? Are they private equity, venture capital or hedge fund investors with brand names? Long-term anchor investors can be symbiotic, but also can limit the churn in shareholders.
  • Do they have prior SPAC experience?聽If not, do they have significant prior M&A experience?
  • What industry experience do they have?聽What sector focus do they have? Do they have the ability to bring expertise to management, post-merger? Historically, SPACs targeted traditional industries such as energy, travel, and industrial, but now the focus is on potentially disruptive and high-growth sectors such as technology (software, cloud-based service providers, collaboration tools, analytics, etc.), telecom, electric vehicles, online gaming, healthcare, and fintech, among others.

2

Negotiating details

Sellers in today鈥檚 market should be aware that they may have the upper hand since buyers likely outnumber targets. They have leverage to negotiate, and they should use it in the following areas:

  • Founder shares:聽This 鈥減romote鈥� is the amount of equity in the merged entity that goes to SPAC sponsors and related parties (historically around 20 percent for both SPAC sponsors and PIPE). But sellers may be in a position to give up less equity as deal value increases. Some recent deals saw promote amounts equate to around 5 percent of the combined entity after the deal closes. When comparing a sample of deals from 2020 to 2021, the average promote appears to be dropping, likely due to higher deal values requiring sponsors to give up more equity to attract PIPE investors (Exhibit 1). In some of these cases, the sponsors may still get a bigger slice if the combined entity鈥檚 share price performs well, creating an incentive for the sponsors and aligning interests.

Exhibit 1. Average sponsor & related parties (promote) percentage share, 2020 vs. 20213

  • PIPE funding:聽A minimum cash balance including proceeds from PIPE financing must exist prior to the SPAC merger. This cash balance is determined in the negotiation process (Exhibit 2). This can be a major hurdle for SPAC mergers because holders of public shares have the right to redeem their shares before completing the merger.

Exhibit 2. Average PIPE percentage share, 2020 vs. 20213

  • Warrant structure:聽Strong investor demand for SPACs means warrant coverage is falling. The exchange ratio used to be one warrant for one share of stock but now, 3-for-1 or more is common.
  • Earnouts (contingent consideration):聽Earnouts, where additional shares or cash may be issued post-merger to SPAC sponsors or the seller鈥檚 shareholders if certain targets are met, were structured in over half of SPAC mergers completed in 2020.4聽In most cases, additional shares vest after the combined company stock meets or exceeds certain price thresholds within a set time-period; multiple tranches with increasing price thresholds are common. Vesting of earnout shares leads to dilution of existing shareholders鈥攕ellers should carefully consider the terms of earnouts and their downstream effects.
  • Safety nets:聽The SPAC sponsor may be obligated to compensate the seller鈥檚 expenses if the merger fails: for example, the SPAC shareholders鈥� failure to approve the merger.

1

Bottom line

Not all SPACs are created equal. In matchmaking your company with the right SPAC partner, you need to tick off as many negotiation聽points that will help you succeed in your new life as a public entity. To do so, you must get the details right. Try to work them out as聽collaboratively as possible but at the same time, don鈥檛 shy away from utilizing market trends going in your favor.

Footnotes

  1. PIPE is the buying of shares of publicly traded stock at potentially a price below the current market value per share directly from the company.
  2. See Securities and Exchange Commission, 鈥淪taff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (鈥淪PACs鈥�),鈥� April 12, 2021.
  3. Percentage share of the combined entity after a SPAC merger. Transaction data for 2021 is for YTD through March 12. A sample of 45 and 41 SPAC merger deals were analyzed for 2020 and 2021, respectively.
  4. Freshfields, 鈥�2020 De-SPAC Debrief: A comprehensive review of all de-SPAC transactions that closed in 2020,鈥� January 2021.

Dive into our thinking:

SPAC insights: Sellers鈥� market

For your convenience, this article is available as a PDF.

Download PDF

Explore more

Meet our team

Image of Chad Seiler
Chad Seiler
Partner, TMT Consulting Industry Leader, 乐鱼（Leyu）体育官网 US
Read bio
Image of Joshua Potter
Joshua Potter
Partner, Advisory, 乐鱼（Leyu）体育官网 US
Read bio
Image of John Lambert
John Lambert
Partner, Accounting Advisory Services, 乐鱼（Leyu）体育官网 US
Read bio
Image of Ron Elkounovitch
Ron Elkounovitch
Principal, Valuation & Business Modeling Services, 乐鱼（Leyu）体育官网 US
Read bio
Image of Jason W. Woon
Jason W. Woon
Managing Director, Tax, Economic & Valuation Services, 乐鱼（Leyu）体育官网 LLP
Read bio
Image of Chad Seiler
Chad Seiler
Partner, TMT Consulting Industry Leader, 乐鱼（Leyu）体育官网 US
Read bio
Image of Joshua Potter
Joshua Potter
Partner, Advisory, 乐鱼（Leyu）体育官网 US
Read bio
Image of John Lambert
John Lambert
Partner, Accounting Advisory Services, 乐鱼（Leyu）体育官网 US
Read bio
Image of Ron Elkounovitch
Ron Elkounovitch
Principal, Valuation & Business Modeling Services, 乐鱼（Leyu）体育官网 US
Read bio
Image of Jason W. Woon
Jason W. Woon
Managing Director, Tax, Economic & Valuation Services, 乐鱼（Leyu）体育官网 LLP
Read bio

Sign up for our Capital Markets Readiness updates

We'll notify you via email when we release new insights or schedule webcasts and other events.

Subscribe

Thank you

You are now subscribed to Capital Markets Readiness Updates and will receive a confirmation email in your inbox.

Subscribe to Capital Markets Readiness updates

Sign up for our Capital Markets Readiness Updates, which will let you know when new material is published.

By submitting, you agree that 乐鱼（Leyu）体育官网 LLP may process any personal information you provide pursuant to 乐鱼（Leyu）体育官网 LLP\'s .聽

An error occurred. Please contact customer support.

Explore other services tailored to your business

Service
Acquisitions
Read more

乐鱼（Leyu）体育官网. Make the Difference.


Some or all of the services described herein may not be permissible for 乐鱼（Leyu）体育官网 audit clients and their affiliates or related entities.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. 乐鱼（Leyu）体育官网 LLP does not provide legal services.

The information contained herein is not intended to be 鈥渨ritten advice concerning one or more Federal tax matters鈥� subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

漏聽2025 乐鱼（Leyu）体育官网 LLP, a Delaware limited liability partnership and a member firm of the 乐鱼（Leyu）体育官网 global organization of independent member firms affiliated with 乐鱼（Leyu）体育官网 International Limited, a private English company limited by guarantee. All rights reserved.

For more detail about the structure of the 乐鱼（Leyu）体育官网 global organization please visit聽.

Thank you!

Thank you for contacting 乐鱼（Leyu）体育官网.聽We will respond to you as soon as possible.

Contact 乐鱼（Leyu）体育官网

Use this form to submit general inquiries to 乐鱼（Leyu）体育官网. We will respond to you as soon as possible.

By submitting, you agree that 乐鱼（Leyu）体育官网 LLP may process any personal information you provide pursuant to 乐鱼（Leyu）体育官网 LLP\'s .聽

An error occurred. Please contact customer support.

Job seekers

Visit our careers section or search our jobs database.

Submit RFP

Use the RFP submission form to detail the services 乐鱼（Leyu）体育官网 can help assist you with.

Office locations

View locations

International hotline

You can confidentially report concerns to the 乐鱼（Leyu）体育官网 International hotline

Press contacts

Do you need to speak with our Press Office? Here's how to get in touch.

Headline