SPAC Mergers and Acquisitions: Structuring and Deal Terms, SEC Scrutiny

Description

De-SPAC transactions are usually structured as mergers of the target company with the SPAC, but SPAC deal terms vary significantly from standard M&A deals. The capital structure of the merged entity will depend on how many SPAC shareholders elect to participate or redeem their shares. Since a SPAC will take a private company public through a merger, the private operating company will need to comply with securities law disclosure requirements. Deal counsel must address all of these issues in the de-SPAC merger process.

Among the key terms negotiated in the merger agreement are the valuation of the target company (and any earn-out or price adjustments), the form of consideration (stock, cash, or a combination), recourse to the target company, “fiduciary outs” and termination fees, and other terms. SPAC M&A terms continue to evolve, so counsel will need an awareness of what is "market."

As a condition to closing, a target company may require the SPAC to have a minimum amount of cash available after any redemption of the SPAC's shareholders at closing. SPACs can raise capital through PIPEs to ensure there is cash available. Target companies will want to include provisions in the merger agreement that ensure sufficient committed PIPE financing available.

While there are certain advantages to pursuing a de-SPAC transaction as opposed to an IPO, the SEC has recently indicated it intends to review target company disclosures to the same extent as those provided in an IPO. The SEC will carefully review the disclosures by SPACs and target companies in the proxy or registration statement, including the projections and valuations contained in these filings.

Listen as our authoritative panel discusses these and other issues counsel must consider in negotiating and closing a de-SPAC merger.