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Embracing the SPAC-tacular: Accounting and valuation considerations for SPAC


The financial reporting requirements for Special Purpose Acquisition Companies (SPACs) are based on the recognition and measurement of SPAC related investments, such as the holding of SPAC traded unit, any attached warrants or convertible securities, private investments in public equity and business combination targets.

SPAC related investments

The fair value of any publicly traded share in an active market is the exchange price. In the case of SPAC, the fair value of founder shares may be benchmarked to publicly traded shares with adjustment made for the success probability of the business combination and the moratorium period, that prohibits the sale of the shares as the SPAC for a period after the business combination is completed.

Founders also do not enjoy the Redemption Right granted to holders of public shares who can vote against a potential acquisition and redeem their shares in exchange for an amount of cash roughly equal to the price they paid at the IPO. Founder shares in most cases actually expire worthless if an acquisition is not completed.

In summary, any SPAC-related investments such as earn-out arrangements and private investments in public equity are valued based on the terms of agreements, probability of a successful business combination and applicable market participant assumptions.

Warrants attached to the SPAC issued unit

Under current financial reporting standards, warrants or any other financial instruments may be classified as equity if they are settled by the issuer, exchanging a fixed amount of cash or another financial asset, which is denominated in the issuer’s functional currency for a fixed number of its own equity instruments. Where this “fixed-for-fixed” criteria for equity classification fails, the warrants or financial instruments shall be classified as a financial liability.

Likewise, in accordance with the “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies” document,published by the US Securities Exchange and Commission, depending on the specific terms and circumstances of the contract, warrants attached to a SPAC unit may be required to be classified as liability measured at fair value, with changes in fair value reported each period in earnings.

Fair value of private warrants is typically estimated using option pricing models such as Black Scholes or Binomial, with appropriate inputs. The valuation approach of the warrants may also vary with the stages within the SPAC life cycle and whether they are subsequently detached from the SPAC share to trade separately.

Fair value of the underlying target business for SPAC

The valuation of a SPAC target is no different from any other Merger & Acquisition valuation, where market value is defined as the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion under the International Valuation Standards. In the absence of active/principal market for trading, such privately held company shares are valued using various valuation techniques and market participant assumptions.

Under financial reporting requirements for business combination, a SPAC merger may require substantial analysis, depending on whether the SPAC or the target company is determined to be the accounting acquirer in the transaction.

Specifically, the accounting acquirer is the entity that has obtained control of the other entity, which might be different from the legal acquirer (generally the SPAC).  If the SPAC is determined to be the accounting acquirer, the target company’s assets and liabilities, including intangible assets, will have to be fair valued and deducted against the purchase consideration, to recognise any resultant goodwill. At consolidated level, any intangible asset value recognised would have to be amortised over its remaining useful life.


In the current market place, where supply of SPACs exceed target companies, proper due diligence must be undertaken to ensure that sponsors and investors do not rush the consummation of a SPAC merger, as they risk compromising on the quality of the post-combined entity. Investors should also be mindful of the various listing and financial reporting obligations arising from holding SPAC equities and complex financial instruments.

If you’re interested to find out about the SPAC listing requirements on the Singapore Exchange Mainboard, visit: https://www.sgx.com/media-centre/20210902-sgx-introduces-spac-listing-framework.  

For more information please contact:

Grace Lui, Director, Valuation & Transaction Services
Nexia TS, Singapore
T: (65) 6597 7297
W: www.nexiats.com.sg

Date: September 2021