The rise of SPACs (Special Purpose Acquisition Companies), also known as the “blank check boom”, had a major impact on the IPO and M&A markets in the past year. Law firms have innovated and expanded their capabilities and offerings to target and advise these popular transactions. How have SPACs affected law firms, attorney recruitment, and the current legal job market?
What exactly are SPACs? Here’s a good breakdown from a McGuireWoods customer memo:
SPACs are publicly traded companies that were created as a vehicle for bringing promising private companies public. A SPAC offers securities for cash and places the proceeds of the offer in an escrow or escrow account in order to acquire one or more operating companies. After the IPO, the SPAC generally has a limited amount of time to identify acquisition targets. SPACs are sometimes referred to as “blank check companies” because their investors give management the ability to identify and acquire private companies after the IPO.
SPACs are attractive to investors and target companies because they allow companies to go public faster, more cheaply and with fewer regulatory hurdles than traditional IPOs. In 2020, SPACs grew exponentially and, according to SPACInsider, reached a record high of over $ 83 billion with 248 blank check IPOs – a 320 percent increase in the number of SPAC IPOs compared to 2019. In 2021 there were already more SPAC IPOs than throughout 2020, with 308 SPAC IPOs completed and over $ 99 billion in capital raised at the time of this writing.
Some of the most notable SPAC IPOs in recent times include fantasy sports and sports betting company DraftKings, electric car battery maker QuantumScape, and space company Virgin Galactic. Recently, global commercial office property company WeWork announced its proposed merger with SPAC BowX Acquisition Corp. known.
SPACs have been around since the mid-1990s, but back then they had more regulatory hurdles and higher investor risk. As TechCrunch explained, SPACs have historically been the last resort for companies that want to go public but can’t – either because underwriters don’t get them public or the public markets don’t accept them.
However, over the past 10 years, the number of SPAC IPOs has steadily increased due to structural improvements and less regulation. According to a Skadden Arps customer memo:
The popularity of SPACs can be attributed to various factors including highly respected sponsorship teams, their unique investment structure, a better understanding of the SPAC structure by the market, the established complementary private investment in the PIPE (public equity) financing market. and the potential attractiveness of the subsequent acquisition for target companies compared to a traditional IPO or M&A transaction.
The significant increase in transactions related to SPAC has fueled demand for services from large law firms in corporate, finance, tax and other practice groups. Numerous companies have formed multidisciplinary SPAC sub-specialty teams that bring together lawyers from different practice groups to advise sponsors, SPACs, underwriters and target companies across the entire lifecycle of SPAC transactions.
In particular, capital markets, M&A, finance, private funds and tax teams work together on transactional and regulatory issues related to SPAC’s IPOs and mergers, including SPAC formation and structuring, filing of SPAC securities in connection with mergers, agreements on financing of SPAC Mergers, IPO materials and pre-IPO diligence, SPAC merger redemptions and repurchases, and cross-border tax issues. Private equity oriented corporate practices also have a central presence in the SPAC IPO market, with SPACs often being backed by private equity sponsors and PIPE funding being used to raise additional capital for SPAC IPOs, as recently done by CNBC discussed.
Companies also predict and see an increase in SPAC-related trade and securities disputes. As noted by McGuireWoods:
There is currently a growing trend of SPAC shareholder lawsuits filed shortly after the announcement of mergers between SPACs and their target companies. These business combinations are often referred to as “SPAC transactions”. The lawsuits typically target both monetary damage and injunctive relief to prevent the transaction from peaking. In addition to individual shareholder lawsuits, class actions are also filed.
The lawsuits typically target both monetary damage and injunctive relief to prevent the transaction from completing. Class action lawsuits have also been filed for insufficient pre-merger disclosure or violations of the Securities and Exchange Act of 1934.
Looking at the Legal League tables from SPAC Research, Skadden and Kirkland had total deals of $ 20.6 billion and $ 20.5 billion in 2020, respectively. Ellenoff, Grossman & Schole’s New York boutique, a long-time specialist in SPAC IPOs and related transactions, led the total of deals with 69 SPAC IPOs in 2020, followed by Kirkland with 64th so far in the year 2021 With 308 SPAC IPOs, Kirkland leads the total business volume with USD 24 billion, followed by Skadden with USD 22.1 billion. In terms of total number of deals, Ellenoff leads SPAC IPOs with 78, followed by Kirkland, who advises 68 total. Other companies that are at the forefront of the market for the highest SPAC IPO 2020-2021 market share are Ropes & Gray, White & Case, Davis Polk, Weil Gotshal, Latham & Watkins, and Greenberg Traurig.
Since the end of the fourth quarter of 2020, there has been an unprecedented demand for capital markets and M&A partners and partners of companies. The SPAC activities, along with the increased business activity and lending activity, have contributed to increased growth in these areas of activity. While SPACs have created demand in other areas of activity, M&A and capital markets are most directly linked to SPACs. Despite this increased demand, there were a limited number of appropriate SPAC-focused corporate partners or group employees. This is likely due to the limited number of practitioners who specialize in SPAC-related transactions, with SPACs being a relatively young industry for most law firms.
The side activity of corporate and finance workers couldn’t be busier. In the first quarter of 2021, 480 lateral corporate and finance employees were hired in Am Law 200 law firms nationally, according to Leopard Solutions. That’s a 27 percent increase from Q1 2020, which hit a five-year high of 379 lateral corporate and finance employees hired at Am Law 200 law firms. (Most of the COVID-related economic impacts from law firms began in the second quarter of 2020.) This year’s first quarter results also represent a 37 percent increase over the 2016-2020 first quarter average of 350 employees employed by Am Law 200 law firms were discontinued. It is therefore safe to say that we are well above pre-pandemic attitudes.
While there is debate among economists and finance leaders about how long the boom in SPACs will last, or whether we are looking at a SPAC bubble that may eventually burst, there is consensus that the robust level of SPAC activity will continue for the foreseeable future. SPAC transactions will therefore continue to fuel demand for law firms along with the larger economic recovery.
If you are an employee, attorney, or partner considering a side move, or a firm or firm looking to hire attorneys, please contact me at [email protected] or find me on LinkedIn. My Lateral Link colleagues and I will be happy to help.
Ed. Note: This is the latest in a series of contributions from the Lateral Link team of experts. Jesse Hyde is a director in the Chicago office overseeing lawyer placement and customer service in Chicago and throughout the Midwest. He specializes in recruiting employees, partners and internal consultants for leading Am Law 100 and 200 law firms and leading companies. With a proven track record, Jesse advises lawyers, law firms and corporations through all stages of the recruiting and hiring process to effectively achieve their goals. Jesse received his JD from Loyola University Chicago School of Law, where he was on the Dean’s List and was a member of the Loyola University Chicago Law Journal. Jesse received his BA from the University of Michigan and majored in history. Prior to joining, he spent four years as a commercial dispute attorney with a Chicago-based law firm.
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