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The SEC’s pre-Thanksgiving rulemaking frenzy gave my colleagues Liz & Lynn plenty to blog about over the last couple of weeks. In contrast, the well has been a little dry this week in terms of breaking news. That’s left me scrambling a bit for blog topics. I knew I had a couple of SPAC-related blogs in the hopper, but SPACs aren’t a topic with broad appeal outside of the folks in the IPO and M&A crowd. So, I wanted to hold off on them until I found a lead blog that would make the topic more relatable & interesting.

Fortunately, I recently stumbled across just what I was looking for – a SPAC story featuring a bona fide A-List celebrity! That’s because no less than Jay-Z himself has decided to participate in the SPAC boom.  According to this Bloomberg article, he has signed on to serve as an officer for a cannabis SPAC:

Subversive Capital Acquisition Corp., a special-purpose company that’s growing in the cannabis business, said it acquired two California companies and named Shawn “Jay-Z” Carter as its chief visionary officer. Subversive is buying Caliva, a cannabis brand with direct-to-consumer sales, and Left Coast Ventures Inc., a producer of cannabis and hemp products. The deals will create a new holding company and include $36.5 million of equity commitments from new and existing shareholders.

The holding company, which will be called TPCO Holding Corp., expects revenue from the combined entities to be $185 million in 2020 and $334 million next year. The deals’ aim is to “both consolidate the California cannabis market and create an impactful global company.” The new company aims to reach 75% of California consumers and Jay-Z will run its brand strategy and work on a related project to reform criminal justice.

Jay-Z may be the only A-lister to become an exec at a cannabis-related business, but he’s far from the only celeb backing one. We’ve already blogged about Snoop Dogg’s venture capital activities targeting “The Chronic”, and the cannabis beverage brand Cann recently announced a number of its own celebrity investors, including the likes of Gwyneth Paltrow & Rebel Wilson.

If you think I get unduly excited when I find an excuse to blog about celebs – well, you’re probably right.  The truth is that I’m a frustrated gossip columnist who would dearly love a gig on TMZ or Page Six.

To SPAC or Not to SPAC? That is the Question. . .

This Cooley blog has a lot of information about how the SPAC market continues to grow & evolve, but there’s one aspect of it in particular that I thought readers of this blog might find interesting – a discussion of the differences and similarities between a SPAC transaction and a traditional IPO. This excerpt addresses timing considerations:

Despite common misconceptions, the timeline for completing a de-SPAC transaction and an IPO are comparable—often between four to six months, although that timeframe can vary depending on SEC review and comment. In a SPAC transaction, parties can expect to take approximately four to six weeks to negotiate a business combination agreement and line up a PIPE, and then another two to four months to prepare and file a joint Form S-4/proxy and deal with any SEC comments. Just as it would in a traditional IPO, the target must be prepared to provide the required financial information and other documentation necessary to operate as a public company, including PCAOB financials.

Other topics addressed include lockups, SEC review, Rule 144 limitations applicable to SPACs, & governance matters. The blog also addresses key trends in de-SPAC transactions, which represent the biggest difference between the SPAC & traditional IPO route to the public market.

SPACs: Auditor Market Share

One of the interesting things about SPAC deals is the relative absence of the involvement of Big 4 audit firms. In fact, as this Audit Analytics blog reviewing auditor market share for SPACs makes clear, the market is dominated by two non-Big 4 firms:

When it comes to blank check initial public offerings (IPOs), two firms dominate the market: Withum and Marcum. Together, these two firms account for 90.2% of all blank check IPOs from January 1, 2019 to September 30, 2020, with 156 companies raising over $47.7 billion. Only two Big Four firms audited a blank check company at the time of IPO during this period; KPMG, with three clients, and PwC, with one.

What accounts for the relative absence of Big 4 firms from the blank check/SPAC market? An earlier blog suggests some reasons:

While blank check IPOs and SPACs have raised billions and can offer a quick public offering, the type of transaction can pose unique challenges, especially for auditors tasked with preparing the necessary filings. There are special considerations and nuances for these transactions and based on these complexities; it is not surprising that some audit firms have specialized teams for SPACs, while others prefer to focus business elsewhere.

Non-Big 4 firms’ dominance of this part of the IPO market isn’t a new development. The blog says that while the Big 4 had over 70% of the market share for all IPOs from 2004-2019, they had only 6.5% of the market share for blank check IPOs.

– John Jenkins