Maximizing Human Capital in SPACs & IPOs 

The process of taking a company public is complicated, whether you’re announcing an initial public offering (IPO) or merging with a special purpose acquisition company (SPAC). For many organizations, going public is just the first of many steps in executing a business expansion strategy. Often, one of these additional steps involves a merger or acquisition.

In Mercer’s recently released Delivering the Deal: The Unrealized Potential of People in Deal Value Creation, 750+ business leaders and deal professionals emphasized the importance of getting the people elements right. In going public, equity plans are traditionally the sole people-related focus. While an essential component, equity plans aren’t the only workforce issues to consider. The key to creating the desired long-term value lies in addressing a set of broader people considerations.

How ready is your organization to go public?

It’s a fundamental question but one that many business leaders fail to fully consider. Once an organization commits to going public, there is tremendous time pressure to complete the IPO or SPAC merger. As a result, the critical people-related areas are often overlooked. The failure to identify and address workforce issues not only impacts the initial private to public outcome, but also jeopardizes future, transaction-related value capture. Our experience underscores the importance of proactively considering these areas:

1. Equity plan optimization

Let’s start with the obvious. Publicly traded companies need efficient equity plans and long-term incentives to motivate and retain critical talent. Optimizing these programs starts with understanding how  the move from private to public will impact total compensation. Thoughtfully considering and creating an equity and incentive package designed to reward and retain these individuals sets the foundation for creating value.

2. Human capital due diligence

Business leaders often wonder why it’s necessary to perform due diligence when going public. In the case of an IPO, it’s critical to have confidence in two factors. The first is whether your human capital platform (programs and delivery) is competitive in a public company forum. The second relates to the potential for “fast follow-on” mergers and acquisitions post-IPO. These deals will struggle to create value if the platform is flawed.

In a SPAC merger, it is important to analyze all human capital programs from a finance perspective — for example, developing cost estimates to validate or identify differences in calculations provided by the target. In addition, the SPAC founders need to uncover and understand any potential incremental cash or P&L charges. And when the goal of the initial SPAC merger is to create a platform for additional bolt-on acquisitions, undertaking broader human capital due diligence is also a best practice.  

3. Organization design

A successful public company also needs the right people in the right roles at the right cost. The structure also needs to align with multiple external stakeholder expectations. The right organizational design ensures your workforce will maintain focus on those actions that most directly drive short- and long-term growth. The secret lies in identifying those key actions and quickly getting from organizational chart “lines and boxes” to actual selection, development and reward alignment.

4. Leadership assessment

The ability to Identify and then align the right leaders is perhaps the biggest success impactor when going public. While that seems like common sense, too often a lack of assessment and planning means it is not common practice. The leadership traits that create success at a private company don’t always translate to a public company. What a leader says externally, for example, can have a meaningful — and potentially unintended — impact on a public company’s value. Leadership alignment at a public company is tricky since the team needs to balance two competing strategies: planting the seeds for long-term growth and managing short-term profitability. Employing a proven process to assess potential leaders — both individually and as a team — will help set a strong foundation as the organization moves forward.

5. Cultural alignment

The final but by no means least important area to address when going public is culture. Many business leaders dismiss culture as soft and conceptual. At Mercer, we view culture in concrete terms: the collection of actions, programs and rewards that set the norms for how business is done. If those norms misalign with overall business objectives, the venture will struggle. When going public, it may be necessary to realign the culture with certain requirements and expectations of how a public company operates. For example, public companies require reporting and disclosure that private companies don’t. Failing to align cultural behaviors will inevitably lead to problems. Using a data-driven approach to identify the critical few culture components that need to change can inspire the behavior necessary for future success.
About the author(s)
Jeff Black

Global, US and Canada M&A Advisory Services Leader

Jennifer Jakubowski
Eric Warren
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