Agreement flow – Conflict of interest – SPAC Challenge

Agreements should be made in silence, as secret as possible and avoid, especially with a SPAC transaction, any questions that generate conflicts of interest.

According to the June 3, 2008 issue of CFO Magazine in an article titled Loose Lips Sink Deals, also, if deals are not made quietly and secretly, they are less likely to happen. Not only are fewer deals reaching closed transaction status when information leaks to market prematurely (49% compared to 72%), but the average time to close increases by 70 percent from 62 days to 105. These numbers They are the product of research conducted by Cass Business School.

Professor Scott Moeller of Cass Business School in London and a former managing director and senior investment banker at Deutsche Bank and Morgan Stanley led the research.

The results of this study can assist SPAC managers in their quest to find suitable acquisitions. While SPACs and PEGs use an older model of slightly proactive and mostly reactive deal flow generation, the process, which relies on relationships and word-of-mouth advertising, creates a counterproductive process for reaching deals. Cass’s research supports the argument that new models must be created for creating transaction flows.

In the case of a SPAC, where the majority of associates and partners come from the world of PEG, two issues stand as obstacles to success and compliance.

In the first place, SPAC partners are prohibited by regulation from having a prior relationship with the companies they decide to acquire. However, they use the aforementioned relationship-based communication system to encourage the flow of agreements. This is a dangerous practice and raises the issue of conflict of interest.

Second, SPACs have a short time window to find and close a suitable acquisition. The old model, riddled with potential conflicts of interest, is based on an outdated system for generating transaction flow. In the process of spreading the word about a deal with established relationships, the necessary secrecy is dissolved. The same model used by SPAC and PEG to generate a flow of transactions that will lead to a proper acquisition is counterproductive. The old model creates a conundrum that kills deals and those that move forward take 70% longer to close.

To maintain secrecy and eliminate the issue of conflict of interest, the solution is to outsource the process of creating the deal flow. The old model does not serve either the SPACs or the PEGs.

The means by which to move quickly and in compliance is to hire intermediaries to find the right acquisition targets. While SPACs and PEGs are always open to (reactive) field agreements, a smart broker, who is also motivated by profit, will not deliver choice targets. Good companies, once in the trusted embrace of a M&A broker, will lock them into a sales-side representation contract. Therefore, the auction block is the only place where a buyer of SPAC or PEG will see these companies.

An intermediary contracted on the purchase side of the transaction is the perfect means to satisfy SPAC and PEG’s need for: privacy, secrecy, absence of conflict of interest and a fast and efficient closing.

Competition for the acquisition of profitable companies, thanks to globalization, is at a fever pitch. Blank check companies and PEGs need to change their transaction flow creation model and the sooner the better. The lost opportunity costs are quantifiable.

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