Why PE is on the SPAC inside track

   

In this episode, Karim Anani and Alex Zuluaga, EY Global SPAC Practice Co-Leaders, explore why SPACs attract PE investors and advise how they should manage SPAC transactions.

Contact Karim: [email protected] 
Contact Alex: [email protected] 

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Special Purpose Acquisition Companies (SPACs) are rapidly evolving from an interesting option to a desired path of taking a company public. This malleable vehicle is becoming better understood, more widely accepted and is proving to be a highly adaptable way to meet the needs of both operating companies and investors. A key factor in this flexibility is because a SPAC transaction is a merger, not an IPO.

Unlike a traditional PE fund vehicle in which a fund invests in multiple companies, a SPAC will instead effectuate a single transaction. As a result, a PE fund’s investment philosophy, strategy and approach for a SPAC differs from its traditional investment model.

A SPAC appeals to private equity (PE) investors for several reasons:

Speed at which capital can be raised Opportunity to expedite entry to public market Ability to tell the story with the aid of future projected earnings of the company Opportunity to explore a different investment thesis Potential for significant upside as SPAC sponsor Definition of minimum cash and financing structuring options on the front end create a lower risk of deals falling apart

PE funds interested in utilizing a SPAC as an exit vehicle should consider the following recommendations:

Define transaction goals and value drivers Choose a SPAC that aligns with the industry of operating company “Get your house in order” to be more attractive for a SPAC exit Attend to backward-looking compliance procedures Ensure company is able to function like a public company from an operational and talent standpoint Anticipate the regulatory and compliance landscape to continue evolving