sometimes the assignment cannot be done. We have walked away from some fairness opinion work for this reason as we need sufficient information to complete our task. If no projections are available, we typically find that the SPAC and the target’s management are willing to assist us; in these cases with limited forward information, we increase our due-diligence efforts to fully understand their view of the target’s value proposition, including such items as the target’s competitive moat, their growth drivers, total addressable market, market share potential, and risks and challenges. We can often develop a supportable set of projections that we will also benchmark with industry and competitor data for reasonableness. If we still feel that there are gaps in the information received, we will supplement this with our own research. For example, we may research the target company’s competitors and their product price points to understand the competitiveness of the potential pricing pressures they may face in the future. Another example is that we may research growth and investment plans of the target company’s top customers’ to better understand if these customers’ intentions are consistent with the target company’s sales expectations. If there are potential inconsistencies, we present these points to the target company and give them an opportunity to explain. Our research may also translate into the development of sensitivity analyses. If, for example, we are concerned with the target’s future product pricing plan, we may reflect this in our analysis by reducing profit margins in our discounted cash flow analysis. This helps us understand the impact on value if the company were to face pricing pressure. These analyses are then considered, along with other datapoints, when we assess the overall fairness of the deal. What are the key factors driving the changes in fairness opinions for SPACs? The two biggest factors are the proposed rules by the Securities and Exchange Commission (SEC) and public opinion. The SEC disclosed proposed rule changes on March 30, 2022 (Release Nos. 3311048; 34-94546). These proposed rule changes – which have yet to be adopted – affected several areas, including the projections issue discussed above. SPACs have also seen a lot of negative coverage in the media over the past two years – much of it misplaced. This has called for added scrutiny and disclosure requirements by the SEC on registration statements. Have any notable shifts in the methodologies or approaches been used in the past two years relating to Fairness Opinions and SPAC transactions? In general, and as stated above, our overall approach has remained consistent, which is based on commonly accepted valuation methods combined with robust financial analysis and research. One shift we have observed is a significant increase in deals that are structured with earnout or SPACs have also seen a lot of negative coverage in the media over the past two years – much of it misplaced. This has called for added scrutiny and disclosure requirements by the SEC on registration statements. Banking & Financial Services 40 Finance Monthly.
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