Insight

Getting SPAC governance right

Why you need serious board members

Dean Bell

Dean Bell

Transaction Services Service Line Leader, KPMG US

+1 212-872-5527

An article from the KPMG SPAC Intel Hub.

The business that emerges from a SPAC transaction must instantly deliver on its public company responsibilities. Making sure that it doesn’t fall short is ultimately the job of the board.

Whether a company goes public through a SPAC merger or a traditional IPO, becoming a publicly listed entity means operating under a lot more regulatory and market scrutiny. There will be quarterly, annual, and ongoing reporting requirements. And, all too soon, there will be discussions with investors and analysts. The opportunities for management to stumble are many, so board oversight must be a priority from the get-go.

However, board governance is one aspect of public company readiness that may not always be top-of-mind during a SPAC transaction. Compared with an IPO, SPAC deal speed is fast and furious, and there are many details to work out in a matter of just weeks.  

The importance of setting up an effective board cannot be overstated. This was the focus of a recent KPMG-moderated panel on public company readiness at the SPAC Conference 2021. The panelists—from NASDAQ, Woodruff Sawyer and The Deal—all stressed how critical board readiness is. They also pointed out the risks of launching into life as a public company without proper board governance. 

The SPAC board should be composed of directors with deep experience—leaders who have operating and public company experience—and should have proper committees, including an audit committee comprised of objective directors that meets regularly. Board directors from the SPAC acquirer, some of whom may stay on as directors of the combined company, should keep close tabs on the due diligence of the target company and think about how to mitigate any potential downside risks, in particular, those related to environmental, social, and governance (ESG). Indeed, in many class-action suits that are brought when post-transaction prices plummet, investors accuse the board of being asleep at the wheel during due diligence.

The liability that SPAC board members face when something goes wrong is reflected in the high price of D&O (directors and officers) insurance for SPAC directors. Many companies in the process of de-SPACing are surprised to learn that their D&O coverage can cost tens of millions of dollars—much more than what companies that register for a traditional IPO pay.

 

To learn more on public company readiness and other key issues related to SPACs, please go to the KPMG SPAC Intel Hub. For more on governance-related topics, please refer to the KPMG Board Leadership Center.