Facts on SPACs: A focus on warrants, earnouts, and EPS

Special-purpose acquisition companies (SPACs) have been around for some time, but in the last 24 months there have been an unprecedented number of companies going public via a SPAC transaction. In our Facts on SPACs mini-series, we cut through the noise to help you focus on some of the key issues relating to these transactions.  In episode three of our six-part series on SPACs, Chip Currie, PwC National Office partner, discusses common financial instruments associated with SPAC transactions and their treatments. Topics include:0:44 - Background. Chip introduces two common arrangements associated with SPAC transactions and explains how equity-linked financial instruments issued prior to a merger with an operating company often survive the acquisition. 12:52 - Accounting treatment. Chip dives into the accounting model for certain warrant and earn-out arrangements and a recent opinion on this topic from the SEC.23:02 - Earnings per share. Once the instruments have been issued and the accounting treatment determined, the focus shifts to calculating earnings per share. Chip highlights the basics you need to know. 32:22 - Key takeaways. Chip closes with some advice to consider before diving into a complicated accounting assessment. Little differences can have a big impact, so make sure to understand the facts and terms of your specific agreements. Want to learn more? Read our In depth, Domestic SPAC mergers - financial reporting and accounting considerations and our Financing and Financial statement presentation guides. Also see the SEC staff statement on Accounting and Reporting Considerations for Warrants Issued by SPACs. Chip Currie is a Partner in PwC’s National Office with over 25 years of experience assisting companies in resolving complex business and accounting issues. He concentrates on the accounting for financial instruments under both current and emerging standards and works with many of the firm's largest financial services clients and a number of non-financial service clients on treasury-related matters. Heather Horn is PwC’s National Office thought leader, responsible for developing our communications strategy and conveying firm positions on accounting and financial reporting matters. She is the engaging host of PwC’s accounting and reporting weekly podcast and quarterly webcast series, as well as periodic webcasts for the power and utilities industry. With nearly 30 years of experience, Heather’s accounting and auditing expertise includes financial instruments and rate-regulated accounting.

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