6 Questions To Ask Before Joining A SPAC Board

Special purpose acquisition companies () are all the rage right now (even the Oakland A's Billy Bean launched one). SPACs need board members, and a lot of CFOs are being asked to join SPAC boards. Should you, an experienced CFO with great business insights and public company experience, join the board of a SPAC? 

While SPACs are growing in popularity, the actual scope of personal risk for directors and officers of SPACs is still emerging. People who join SPAC boards are often sponsors who put working capital into the SPAC with an understanding that it may be lost if the transaction does not go as planned (or get a big return if it is successful). 

But the bigger risk to SPAC directors is the potential of being sued by unhappy shareholders, or being investigated by the Securities and Exchange Commission, which is sharpening its focus on SPACs.

Serving as a board member of the right SPAC can be both interesting and rewarding. However, it is important to ask good questions to avoid the personal liability that could follow if you were to join the wrong SPAC. Here are six questions to explore. 

1. Who Are Your Fellow Colleagues?

With so many SPACs being formed, it is inevitable that not all of them will be of equally high quality. It is important to vet the quality of the , officers, and your fellow board members. A SPAC organized by a reputable player in the field or well-known private equity firm will likely be a less risky SPAC. It is important to at least be familiar with the reputation of your potential fellow board members. These people should be the kind of professionals you would want to do business with.

2. Do You Have Experience in The Industry?

Some industries are trickier than others (I am looking at you, cannabis). In general, it is a good idea to join a SPAC board that is targeting an industry with which you are familiar. As a board member, one of your primary responsibilities will be to ensure that proper due diligence is being conducted on any potential target the SPAC may be acquiring. The more familiar you and your fellow board members are with an industry, the harder it will be for unscrupulous parties to fool you. 

3. Who Are The Lawyers?

4. What Is The SPAC's Timeline? 

When a SPAC is coming to the end of its timeline, it is common for sponsors to become anxious about acquiring a target. After all, if there is no deal, the money raised in the SPAC IPO will have to be returned to shareholders, and the upside that the sponsors hoped to achieve will not take place. Litigation around SPACs almost always involves a target being acquired towards the end of a SPAC's life cycle. Longer is better when it comes to a SPAC's timeline. Eighteen months is rather short; two years gives the sponsors some breathing room. From a SPAC director's perspective, it is ideal if the SPAC has some automatic extensions it can trigger just in case they are needed.

5. How Easy Is It For SPAC Sponsors To Get Additional Capital?

Many SPAC transactions involve raising critical, additional capital in connection with the de-SPAC transaction. You will want to join the board of a SPAC whose participants have a broad network when it comes to private investments into public entities. You do not want a situation where a good deal would have closed if only a SPAC sponsor had the right connections. This is, of course, one of the reasons why savvy potential board members prefer to join the boards of SPACs organized by private equity firms and other capital-connected players.

In addition, find out the qualifications of the individual brokers who are placing the insurance. 

Chair Jay Clayton himself has noted that SPACs create “competition around the way we distribute shares to the public market,” and that “competition to the IPO process is probably a good thing.”

The right SPAC can be a wonderful board opportunity. The six questions listed above can help avoid the financial headache of joining the wrong SPAC.

Source: Forbes – 6 Questions To Ask Before Joining A SPAC Board