There’s a lot of talk about SPACs, blank-check companies that raise money to fast-track a private company into the public market. What doesn’t get discussed as much is the de-SPAC transaction — the second part of that process. This is the part after the SPAC has identified a target business that it would like to acquire and it goes through a typical M&A process, signing a transaction agreement to acquire it. If that is ultimately approved by the SPAC shareholders, the de-SPAC processes solidifies it as a public company going forward. And just like a typical M&A process, de-SPACing comes with risks.
“What's unique is that even though it's the acquisition of a target company by this public SPAC, it really looks just like any other M&A transaction,” says Matthew Wiener, managing director and R&W practice leader at Aon. “You've got a buy-side group, which could be comprised of the SPAC sponsor along with pipe investors or other investors in that process. And really they're going to be doing what we would consider to be traditional due diligence on the target, making sure they're comfortable, that they understand what they're looking to acquire.”
As they're going through that due diligence process, Wiener says the purchase agreements that are used to make these acquisitions undergo a typical M&A process, where the parties are negotiating all the various provisions, including representations and warranties.
“What's unique is that even though, more often than not, the target is going to be a private company, we have seen the risk allocation can actually emulate what you would see in a typical public style deal, where a public entity is being acquired,” he says. “And in those public-style deals, there is no recourse for any breach of a rep or warranty. So for the most part, a buyer in that type of transaction in a public-style deal is really required to go naked on risk after closing.”
De-SPAC transactions, even though they involve a private company seller, still more often than not you are structured as if it was a public-style deal, with no real recourse. There are also variety of issues including tax complications and other types of contingent liabilities, which may or may not have insurance solutions to address those risks.
Wiener, along with Benjamin Popson, vice president and account executive at Aon, spoke on the Smart Business Dealmakers Podcast about de-risking the de-SPAC transaction. Hit play on the podcast below to hear the full conversation.
