SPAC FAIRNESS OPINION

A SPAC is special purpose acquisition company designed to expedite a merger of a target seller into a publicly traded entity. The incredible expansion of SPAC funds has somewhat saturated U.S. markets; these funds are now broadening into foreign markets.

De-SPAC mergers must be consummated within two years of initiation, a short window to apply the funds and trigger an IPO. SPAC is a funded sponsor shell company with no operating entity. The investors are free to vote against any proposed acquisition or redeem their shares and opt out of the SPAC. Similar to a reverse merger into a public shell, the issuer of the SPAC receives an expedited SEC review process; thus, the process is simpler and less expensive.

Recent SEC guidelines require registrants and their independent auditors to evaluate any error previously filed in financial statements and amend them, as necessary. To preclude or mitigate the threat of potential litigation, a SPAC should retain an independent financial advisor to perform a fairness opinion. Though not required by law, the opinion by a reputable firm protects the board, management, and shareholders. The board can rely on the fairness opinion to show they complied with their “duty of care.” In effect, a credible opinion serves as an additional insurance policy against a lawsuit(s).

Operating companies acquired via a de-SPAC and the SPAC itself should be very circumspect about their forward financial statements. These projections must be vetted and thoroughly documented and supportable. Current SEC rule changes eliminate the prior safe harbor for forward-looking statements. In effect, if the current financials of the operating firm can justify a de-SPAC merger, cash flow projections should be avoided.