The SPAC market experienced continued momentum throughout 2021 with 613 IPOs, totaling over $163 billion in gross proceeds. With just under 200 de-SPAC transactions completed in 2021 and another 267 announced, the SPAC market is primed to continue its upward trajectory in 2022. Given the proliferation of SPACs, scrutiny of this vehicle is likely to continue to increase. SPAC executives and sponsors will need to ensure they are in compliance with regulatory reporting requirements and have sufficient governance policies in place to withstand added scrutiny and potential litigation.
On April 12, 2021 the SEC issued a new Staff Statement on Accounting and Reporting Considerations for Warrants Issued by SPACs. While SPACs have typically classified warrants on their balance sheets as equity, the SEC has highlighted that under certain circumstances U.S. GAAP would require warrants to be classified as a liability that is measured at fair value every quarter, with changes in fair value reported in earnings. SPACs that have misclassified their warrants as equity may be required to restate their financial results if the impact is deemed material. As a result, the SEC has effectively halted all in progress offerings, business combinations and new IPO filings until SPACs resolve the accounting and related valuation questions with respect to their warrants issued. Read our client alert for more information.
Kroll is working with SPAC clients and sponsors on determining the fair value of the warrant liability in connection with reclassification as a liability on the balance sheet at the IPO date and at subsequent quarterly reporting dates. As the leading independent valuation services firm in the world, we are uniquely positioned to provide the requisite fair value determination to support a SPAC’s financial reporting obligations in a timely manner. We can also assist in responding to valuation questions from auditors, other stakeholders and regulators.
In addition, Kroll offers a full suite of services to SPACs, including valuations for financial reporting and tax purposes (i.e., business combinations, warrant valuations, etc.), valuations of interests in SPACs (including founders’ interests, PIPES and restricted shares), fairness opinions, reputational and buy- and sell-side due diligence, contracts and privacy compliance reviews, corporate compliance risk and governance, conflict disclosures and fiduciary obligations analyses, among others.
What We Offer
Transaction Opinions
- Fairness Opinions rendered to the Board of Directors of the SPAC on de-SPAC transactions
Transaction Advisory
- Financial due diligence on de-SPAC targets
- Buy-side due diligence on the target acquisition company including key management
- Sell-side due diligence on the SPAC sponsors/founders
- Audit and analysis of reasonableness of the financial projections of the SPAC target
Valuation Advisory
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Warrant valuations for financial reporting
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Valuation of target for Initial Business Combination for regulatory or exchange requirement
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Valuations for business combinations / purchase price allocation for financial reporting
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Valuation of interests in SPACs (Founders’ interests, PIPES, restricted shares)
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Tax valuations and transfer pricing
Governance, Risk and Compliance
- Extracting and reviewing contract clauses for potential risks in legal agreements
- Assessing security and privacy compliance
- Analyzing sponsor incentives, conflict of interest disclosures, and sponsor fiduciary obligations to SPAC and to other clients
- Reviewing controls surrounding the receipt of material non-public Information
- Evaluating SPAC's corporate governance and reporting
- Conducting pre- and post-transaction financial due diligence
- Assessing fraud risk of internal controls to determine the appropriate policies and procedures
- Providing investigative support resulting from identified internal malfeasance
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Cyber Risk
Incident response, digital forensics, breach notification, managed detection services, penetration testing, cyber assessments and advisory.
