Investor: What are the risks that private energy companies face when targeted by a special purpose acquisition company, or SPAC? What do they need to be prepared for once they are acquired and de-SPAC’ed as a new public company?
Heep: If the target company is not properly equipped to be a public company that could be a risk. For example, the company may not have the personnel to conduct the kinds of activities a private company could previously defer—e.g., segregating duties, tackling complex transactions and adopting new accounting standards. It is not uncommon for newly public companies to disclose material weaknesses in internal controls, which can be a big change for them.
Another risk is that the target company auditor is not independent under the more restrictive independence rules spelled out by the Securities and Exchange Commission (SEC) and the Public Company Accounting Oversight Board. This means that the target company might need to change its auditor and perform complete re-audits.