At the Dealflow Media SPAC Conference 2008, Joel Rubenstein, a lawyer with McDermott Will & Emory, walked the audience through the perilous "conflict of interest" waters that dealmakers managing a SPAC typically must navigate.
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"The most important skill required of SPAC management teams is its ability to be able to quickly locate a good business target for the SPAC," said Rubenstein. However since a SPAC's management team isn't compensated until there's a business combination, "management usually keeps their day jobs." And since these are typically positions as dealmakers at private equity firms, banks and the like, decisions about who gets a deal -- the SPAC or their employer -- can be a tricky proposition.
"This issue comes up all the time in private equity, as well as SPACs, often because private equity partners are also board members of a company."
Rubenstein said that being forthright is often the most important factor in avoiding problems. "Disclosure is really your friend here," Rubenstein said. "There's a tendancy not to want to overdisclose, but there are many more cases where people regretted not disclosing enough, rather than overdisclosing."
- George White See more Dealscape posts on SPACs
Comments
The answer to preventing any question of conflict of interest is for the SPAC to out source the DEAL FLOW activity.
There are SPACs that recently stopped their process citing market conditions as the reason they could not find an acquisition.
While the term market conditions embraces myriad possibilities, the deal flow generation process that is currently employed by both private equity groups and SPACs is grossley inefficient.
The "Eight Pillar" business model used by private equity firms utilizes a reactive as opposed to a proactive deal flow process. Considering the SPAC short time window allowed for finding and getting an acquisition under agreement and the competition from the private equity domain and abroad, out sourcing the deal flow generation process will create qualified and quantified results in a timely fashion.
Refer to the article published on this topic on the BLOG that can be accessed at www.hamiltonwright.com