Global Law Assembly Technical Report Series concerning the entire exercise of estimating and the process of valuation get compounded when multiple companies are combined in one SPAC. 30 This happens since there are complexities for synergizing several aspects of valuation which may also have provided a primary impetus to the deal. Furthermore, the executives are also required to determine the proportionate holding of the SPAC shareholders in the acquired company and determine the ratio of converting the warrants that the shareholders held in the SPACs into equity in the postacquisition. Since warrants can be sold or traded, it becomes important to consider that the same has to be accounted for in a correct manner, failing which there can be a problem in share dilution and post-merger acquisition.
Challenges Concerning Legal Framework and Regulations Firstly, there can be issues concerning conflicts of interests which may be real or artificial. In the United States of America, since the promoter’s shareholding will be reduced to nothing if SPAC fails to acquire the target company within the time-frame of 24 months (and 36 months in India), in order to protect their own interests, there can be a possibility wherein the promoters pay a higher price in order to complete the acquisition. This results in inflated valuation of the target company before acquisition and becomes detrimental to the minority shareholders upon the acquisition. This can prove to be a threat in the Indian context as well if sufficient safeguards to tackle this issue are not implemented. While it is true that there are safeguards concerning the same wherein the board of directors and the promoters have to demonstrate that the price paid is not in substantial variance with the fairness value that is estimated, in the Indian context this aspect would require higher scrutiny since even appointment of independent directors in companies have been bundled with its own challenges. 31 Secondly, the
Dayton Nordin and Mayis Kirakosyan, ‘Three SPAC M&A Risk Factors and Ways to Mitigate Them’, (E&Y, 19 May 2021) <https://www.ey.com/en_us/strategy-transactions/spac-m-a-risk-factorsand-ways-to-mitigate-them> accessed 19 September 2021. 31 Monika Prajapat, ‘Independent Directors as Watchdog of Companies: Key Role and Challenges’ (The Indian Commercial Law Review and Practice Blog, 26 30
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