D.1 | DART – Deloitte Accounting Research Tool

A SPAC is a newly formed company that raises cash in an IPO and uses that cash or the equity of the SPAC, or both, to fund the acquisition of a target. After a SPAC IPO, the SPAC’s management looks to complete an acquisition of a target (the “transaction”) within the period specified in its governing documents (e.g., 24 months). In many cases, the SPAC and target may need to secure additional financing to facilitate the transaction. For example, they may consider funding through a private investment in public equity (PIPE), which will generally close contemporaneously with the consummation of the transaction. If an acquisition cannot be completed within the required time frame, the cash raised by the SPAC in the IPO must be returned to the investors and the SPAC is dissolved (unless the SPAC extends its timeline to complete an acquisition through a shareholder vote).

Before completing an acquisition, SPACs hold no material assets other than cash and cash equivalents; therefore, they are nonoperating public “shell companies,” as defined by the SEC (see paragraph 1160.2 of the FRM). Since a SPAC does not have substantive operations before an acquisition has been completed, the target becomes the predecessor of the SPAC upon the close of the transaction, and the operations of the target become those of a public company. As a result, the target must be able to meet all the public-company reporting requirements that apply to the combined company. Many of the requirements discussed in this appendix are related to the fact that the target is considered the predecessor to an SEC registrant (i.e., the SPAC).

Since a SPAC’s shareholders are generally required to vote on the transaction, the SPAC may file a proxy/registration statement before the transaction is consummated. The final proxy/registration statement must be filed at least 20 calendar days before the shareholder vote on the transaction. These documents must include the target’s financial statements, which are expected to comply with public-company GAAP disclosure requirements as well as SEC rules and requirements. For annual periods, the financial statements must be audited in accordance with PCAOB standards.

If the SPAC’s shareholders approve the transaction, the acquisition will close, and the combined company has four business days to file a special Form 8-K (a “Super Form 8-K”) that includes all the information that would have been required if the target were filing an initial registration statement on Form 10. Accordingly, the SPAC and the target should take care to ensure that the acquisition is not closed until all the financial information required for the Super Form 8-K, including financial statements that comply with the SEC’s age requirements, is available and annual financial statements are audited in accordance with PCAOB standards.

The discussion herein applies to SPAC transactions in which (1) a domestic SPAC merges with a domestic target and (2) the SPAC has identified only one target for the transaction. Additional complexity may arise in SPAC transactions when foreign entities or multiple targets are involved. Further, views on the accounting requirements for SPAC transactions continue to evolve. While the discussion below reflects our understanding as of the date of this publication, because of the complexity involved in SPAC transactions and evolving views, we recommend regular consultation with accounting advisers.

D.1 Background