These are exciting times for your enterprise! You’ve been acquired by a special-purpose acquisition company (SPAC) to become a public company, and proceeds are in hand. The negotiations and business combinations are behind you, and your securities have been registered. Along the way you completed a Private Investment in Public Equity (PIPE) transaction, so you have the cash you need to grow. Your growth strategy is in place, and you’ve shared it broadly and communicated it well. You’re more recognizable in the market now, which will only help you gain more customers and expand.
Still, you face challenges and risks. Are you fulfilling your SEC reporting requirements and managing the reporting rigor? Are your internal controls in place and effective, including the internal audit function? Have you been working with your outside independent auditor to properly schedule the reviews of quarterly financial statements and planning for the annual audit? Are you complying with all the tax laws?
On the operational side, have you invested enough in your human capital? Do you have sufficient resources and the right people in place to meet your ongoing requirements and your growth targets? Consider your technology. Is it sufficiently gathering and analyzing your financial data on a timely basis? Finally, how is your enterprise risk management function?
How about your stock price? Is it performing well in the market? Are you prepared for any potential litigation given the newfound public scrutiny your company is now under?
Enhanced Governance and Transparency
As a public company, you now face greater levels of accountability and transparency. Management is accountable for its decisions and the company’s performance, and significant transparency is now required surrounding all decision-making and risk management. The entire marketplace now sees your executive decisions, and you'll be held more accountable than when your company was privately owned. You need to ensure that you provide timely and accurate information to all your stakeholders and balance transparency with risk management so that disclosures are fact-based as much as possible.
In addition, you must now adhere to the governance and risk management requirements put forth by the New York Stock Exchange and NASDAQ, while operating under an appropriately constituted board of directors, including an independent audit committee, and an independent compensation committee.
Read: Corporate Governance Foundations for Each Lifecycle Stage
Rigorous SEC Reporting Requirements
Now that you are a public entity, all of the SEC’s reporting obligations and timelines apply. One of the biggest challenges newly public companies face is the establishment of policies and procedures for the accounting department and finance team to close the books in a timely manner and prepare quarterly (10-Qs) and annual financial statements (10-Ks) as well as any current reporting requirements on a Form 8-K.
Internal Controls Over Financial Reporting (ICFR)
ICFR is another area that requires significant attention for newly public companies. Right after the close of your SPAC transaction, ongoing disclosure requirements kick in. On a quarterly basis, you must evaluate and disclose any material changes to your company’s ICFR, with your CEO and CFO certifying that the disclosure controls are effective. Any deficiencies and material weaknesses in the effectiveness of your internal controls must be disclosed to the auditor and audit committee, along with any fraud. Be sure to understand when you (and perhaps even your auditor) may be reporting on internal controls in the Form 10-K, as it may be sooner than you think.
Read: After De-SPACing: When Must Management Report on ICFR?
Adapting to Market Volatility
Now that you're publicly traded, your senior executive team must get used to the market’s swings. With your valuation now tied to the market, management has to cope with volatility. We advise that you try not to spend much time monitoring the markets and calculating your gains and losses. Instead, work with an investor relations firm and continue to do roadshows to educate investors about your company. Often, companies want to increase their public float to build a robust market for their shares. The more trading volume, the better coverage you may earn.
Strategies for Public Financing
To boost future liquidity, consider establishing a Rule 10b5-1 plan to establish predetermined sales of shares that are held by insiders. By selling shares at regular intervals, you help avoid accusations of insider trading if in possession of material nonpublic information, and doing so helps you remain diversified. In this way, you get more shares into more hands in the market with the hope that the price will continue to rise. This is a strategy to help your company access larger amounts of follow-on proceeds to execute on your business plan.
We are here to help you navigate the hurdles of being a publicly traded company. A myriad of challenges is more easily overcome with help from the right partner. For more on this topic, view this DHG webinar: Special Purpose Acquisition Companies: What You Need to Know.