You’ve probably heard a lot about special purpose acquisition companies (SPACs) lately. This is because in the last few years, they’ve become a preferred way for many experienced management teams and sponsors to take companies public. SPACs are a way for companies to fast track going public by raising capital through an initial public offering (IPO) for the purpose of acquiring an existing operating company. Subsequently, an operating company can merge with (or be acquired by) the publicly traded SPAC and become a listed company in lieu of executing its own IPO. This allows trading as quickly as 30 days after IPOs, which is much faster than the traditional IPO which requires 180 days.
Why SPACs Matter Right Now
SPACs have been enjoying their moment the last two years. Although SPACs have been around and in use since the early ’90s, they really grew in popularity in early 2020, the numbers don’t lie. From 2013 to 2019, there were only 194 SPACs issued, but 2020 saw 248 SPACs raising over $83.4 billion. This year started with a boom with more than 200 SPACs going public raising $68.5 billion by the end of Q1. But April 2021 brought a noticeable change in the SPAC tempo, with both the volume of SPAC deals and the value of SPAC stock dropping significantly.
This slamming of the brakes is due to increased scrutiny from the United States Securities and Exchange Commission (SEC) along with plaintiff stockholder class action law firms. Directors and officers (D&O) insurance carriers are now also adjusting their premiums and policy terms to account for these increased risks in using SPACs. Such rising concerns are only heightened by recent news reports of gaps in certain deals between returns for insiders versus later investors who suffer losses after a company becomes public via a SPAC.
When it comes to SPACs, the SEC is expressing concerns about having adequate disclosures surrounding the target company in the de-SPAC process. Another issue the SEC identified is that to raise capital, SPACs often issue warrants. These warrants give investors the right to buy more shares at a pre-set price in the future. While SPACs have typically classified warrants on their balance sheets as equity, the SEC recently issued a public statement where they indicated these warrants, in many cases, should be classified as liabilities. With this increased scrutiny, SPACs and SPAC targets are seeing a rise in SEC inquiries and stockholder lawsuits. This means that if you are looking to take your company public through a SPAC, you’ll need to make sure they can overcome these obstacles set out by the SEC.
How Certent Equity Management Helps
Certent Equity Management (EM) can help you overcome these obstacles by offering everything you need to manage, administer, account for, and report on equity compensation plans so you can streamline your equity management, tighten compliance, minimize risk, and improve your productivity. Here are five benefits Certent EM can offer you to comfortably bring your company public through the SPAC process.
Hit the Ground Running
Certent EM helps by offering fast implementation. Companies and investors choose the SPAC route because speed and simplicity are top priorities for their IPO. Going fast requires a team with experience to do most of the heavy lifting. While most individuals may only participate in an IPO at most a handful of times in their career, Certent EM’s equity management service team has extensive experience in the area and a track record for excellence.
The Certent EM team will work with you to ensure that you’re informed and prepared so you can align the interests of your boards, management teams, employees and other stakeholders when it comes to appropriately timing the granting of awards to mitigate any potential impact on the grant date fair value of awards and the exercise price of stock option awards. Certent EM can start your implementation much more quickly than competitors who are often booked out well in advance. The efficiency of our process and the experience of our team allows us to get you started so quickly. Certent EM also offers data conversion and data loading for you, which many other providers don’t offer.
Scalable and Flexible Software
As late-stage private companies complete their pre-IPO preparations, they often find that their current solution just can’t handle the needs of a public company. A newly public company’s needs around auditability, compliance, reporting, and participant servicing are entirely different from when they were private. Many private companies that are being acquired or going public via a SPAC are running their equity management programs via platforms designed with an emphasis on small scale private companies. These platforms are rarely capable of scaling to support the company’s needs once it goes public. Certent EM is a uniquely scalable and flexible solution which can meet all your newly public company’s needs while still being able to grow with you as you continue to evolve and scale as an organization.
Enjoy Broker Choice
Most of the biggest platforms for equity management are owned by broker dealers. Use of these platforms comes with a requirement that the company must also use their brokerage services, as well. This is referred to as broker “lock-in.” With Certent EM, there are no broker “lock-in” restrictions, but instead flexible service models, and easy integration with other applications, including payroll. For you, this mean eliminating the need to change equity platforms if you decide to change your preferred broker.
Offload Your Day-to-Day
Picture this: you arrive in a foreign country without a reservation for a rental car. All you know is you only have an hour to get there. In this time, you can either choose a rental agency, pray they have a car, and hit the road with hopes of getting to your destination on time. Or, you can have a town car with a knowledgeable driver waiting to take you to your destination assuring you 15 minutes to spare. Certent EM administration services is that town car.
With Certent EM, equity professionals are always on hand to answer your questions as they partner with you to deliver your equity plan. Certent EM works alongside your current broker and other broker partners, and our flexible options make it easy to customize your services to suit your business needs. Using Certent EM reduces your risk and ensures compliance with a transparent and documented stock plan procedure manual, stronger controls, and optimized processes, all backed by regularly scheduled reviews. This means we’ll take care of stock grant refreshes and financial reporting for ASC 718 while helping with your other day-to-day administrative responsibilities.
With commitment to neutrality, Certent EM offers pre-integrated, certified connections with leading brokers, that allows our software to integrate with most of the major brokerage firms. You will be able to share data with your broker trading system of choice to provide equity plan participants with a seamless experience. Synchronize important tax and employee demographic information with your payroll system to shrink your payroll cycle and reduce the risks associated with hand-keying employee data.
And partnering with Certent EM means you have the flexibility to change broker partners, should the business need arise, without disrupting your equity administration and accounting processes. The bottom line is that Certent EM works very closely with its broker partners to do the heavy lifting for you. Certent EM is committed to completing the integration as quickly as possible, in some cases as fast as two weeks.