Special Purpose Acquisition Companies (SPACs) have grown rapidly as an alternate vehicle to take a company public without going through the same rigor as in the traditional IPO process. For the calendar year 2021, there were a record 613 SPAC IPOs totaling over $163 billion in proceeds, with an additional 575 SPACs active and seeking targets and 272 SPACs currently filed to IPO 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 the added scrutiny and potential litigation.

Kroll, offers an array of valuation services to support a SPACs financial and tax reporting as well as to establish founders’ interests for a variety of purposes. We offer practical insights into key valuation issues of concern to clients, auditors, investors and regulators. As the leading independent valuation services firm in the world, we are uniquely positioned to support SPACs with their valuation needs throughout their lifecycle as highlighted below.

Warrant Valuation

On April 12, 2021, the SEC issued a 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 and measured at fair value on a quarterly basis. Changes in fair value would need to be reported in earnings, and SPACs that have misclassified their warrants as equity may be required to restate their financial results if the impact is deemed material. We are working with our SPAC clients and sponsors on determining the fair value of the warrant liability, in connection with the reclassification, at the IPO date and at subsequent quarterly reporting dates.

Valuations for Business Combinations

SPACs are required to make an acquisition within two years of inception or return the money raised to their investors. We can assist with financial reporting valuation for business combinations (ASC 805 and IFRS 3) as well as valuations for tax purposes (IRC 1060). Kroll is a market leader in performing this service, providing deep industry and functional specialization to every engagement.

Valuation of Interests in SPACs

We regularly assist in the valuation of interests in SPACs, including founders’ interests, PIPES, warrants, as well as restricted shares, including calculation of the appropriate discount for lack of marketability.