GROWTH THROUGH ACQUISITION: USING SPACs AND PE TO RAISE FUNDS By LAURA M.
CROWLEY, CPA, MBA
CITRIN COOPERMAN
ERIC M. DIEFENDERFER, CPA
CITRIN COOPERMAN
Private companies have various options to raise capital when compared to public companies. These options are quite different from one another, so it is important to determine which option suits a particular business best and will allow it to grow successfully.
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SPRING 2022 | NEW JERSEY CPA
There are various avenues a private company can take to acquire the capital it needs to grow its business. Some popular options include taking on a private equity (PE) investor or being acquired by a special purpose acquisition company (SPAC). These options have different requirements the acquiree must meet in order to have a successful transaction, and they carry different risks to the private entity seeking an investment. SPAC ACQUISITION CONSIDERATIONS In anticipation of a merger with a SPAC, a private operating company needs a plan for the additional regulations that it will be required to adhere to after becoming a public company through the business combination, which includes complying with public company disclosure requirements on an accelerated basis when compared to the typical timeframe for private companies. This would include disclosures regarding the company’s merger with the SPAC, which is made known prior to the deal close. One of the regulatory requirements that the operating company will need to have
in place prior to the transaction closing is to have an audit under Public Company Accounting Oversight Board (PCAOB) standards to comply with Securities and Exchange Commission (SEC) requirements for financial reporting. The SEC has indicated they will not review a registration statement for a private company and SPAC merger if the registration statement does not have an opinion signed by an auditor registered with the PCAOB. In addition, the operating company may need to engage a new auditor, as the existing auditor may not satisfy auditor independence under SEC rules or may not be registered with the PCAOB. After the acquisition transaction, the operating company will be subject to the exchange listing requirements that apply to the SPAC it transacted with. These requirements will include corporate governance oversight, which may include requirements such as an independent board of directors and audit committee with specialized experience regarding financial reporting matters. Another consideration the operating company must address is that, as a public company, management has to set up and maintain sufficient internal controls over financial reporting and adhere to the public company financial reporting requirements. Additionally, certain members of management will be required to provide a quarterly certification to its financial reporting and the related internal controls. If the operating company does not have proper planning to address these items, it may experience ongoing delays or possibly not be in compliance with public financial reporting requirements.
