Characteristics of a Good SPAC Acquisition Target
Many private companies now choose to go public by merging with a Special Purpose Acquisition Company (SPAC) because it is relatively easier, quicker, and smoother compared to the traditional initial public offering (IPO) process.
However, identifying a suitable company with which a SPAC should merge or acquire for the purpose of going public is not always a straightforward task, particularly when the company doesn’t rely on experts such as an audit firm in Singapore.
Therefore, the goal of this article is to identify the characteristics of a good SPAC acquisition target. First and foremost, let us review the basics of a SPAC.
What is a SPAC?
A SPAC is a type of blank-check company that goes through an IPO to raise funds and then uses these funds to acquire a target company.
However, a SPAC is typically formed without any specific target in mind and has about 18 to 24 months to merge with another entity or acquire a private company.
It is common for many business owners to assume that SPAC is something that can fix their financial problems quickly. However, not all companies are meant to go public, so it is critical to identify high-quality SPAC acquisition targets.
Business owners who want to go public view a SPAC fund as a shortcut or “magic bullet” to financial prosperity.
Just like not all companies should go public, not all companies are high-quality SPAC acquisition targets when considering the following factors:
Factors to Consider in Acquiring SPAC Target
1. An Efficient and Experienced Management Team
The trend shows that the most successful SPAC transactions are the ones that take place with a company that has an efficient and experienced management team. The target company should have a proper hierarchy of management, including key positions such as CEO, CFO, etc.
Moreover, a company with a strong legal team is highly likely to succeed in this process because it will be prepared to face the public scrutiny and challenges that often come with SPAC transactions.
Once the transaction is complete, the acquired company will become a public entity, and it will have to carry out proper financial reporting to comply with legal requirements. Hence, a strong management team is required to fulfill these key roles and responsibilities.
2. A Reliable Financial System
Most private companies do have efficient accounting systems and financial policies in place. However, there is a huge difference between the financial management of a private company and a public company.
A public company is expected to have a robust accounting system with detailed financial reporting procedures. Even if the company does not have an internal team, it can rely on a professional audit firm in Singapore to deal with the auditing and accounting processes.
Moreover, experienced accountants and auditors will be able to guide the company through the various disclosures it has to make during the process of going public via SPAC.
Ultimately, if a private company already has strong accounting protocols, it can succeed as a public company as well.
3. Focus on Corporate Governance
The importance of organizational culture in the success of a company cannot be denied. A target company must be laser-focused on implementing all the relevant rules and regulations during the SPAC transaction and after it becomes public.
Companies can also rely on audit firms in Singapore to ensure they are following all the relevant rules, laws, and regulations that will help them work as a public company without any issues.
4. Company Lifecycle
When it comes to choosing a high-quality SPAC acquisition target, it is important to consider the maturity of a company’s lifecycle. It is understandable that buyers typically look for a company with strong growth and a proper plan for a sustainable future.
It is also important that the target company is large enough to go public and that there are enough shares for liquidity. Ultimately, high-quality target companies with a mature lifecycle are bound to attract SPACs quickly and easily.
5. Growth Opportunities
Other than having a strong history of growth, a private company with strong potential for growth is highly attractive to investors.
Such companies are also great candidates for going public because they can attract more customers with their products or services and also impress investors.
Therefore, a SPAC target company should have plans for future growth. These plans can be related to launching more products, research, and development, or any other aspect of the company.
There are several factors to consider when a SPAC is merging or acquiring a company. Ultimately, a company with a strong management team, a mature lifecycle, greater growth opportunities, and a reliable financial system is an ideal SPAC acquisition target.
Professionals, like audit firms in Singapore, can facilitate private companies and SPACs in finding each other and making the entire process successful through their expertise.