Audit Market Following SPAC Mergers

In November, we published a blog looking at the changing auditor environment for initial public offerings (IPOs) of special purpose acquisition companies (SPACs). In this post, we look at how the audit market changes following the completion of a SPAC merger. This analysis encompasses SPACs that IPOed between January 1, 2017, and December 31, 2021, and mergers and acquisitions that were completed between the same dates.

SPAC Auditor Changes

SPACs are relatively unlikely to change their audit firm before the completion of a merger. As a reminder, SPACs are vehicles, without operations, that complete business combinations with private entities in order to take them public. Of the 695 SPACs that had not completed a merger as of December 31, 2021, just 2% changed their auditor.

However, after a merger, SPACs are very likely to change their audit firm. Of the 300 SPACs that completed a merger, 88% engaged a new audit firm.

Additionally, we have SPAC Auditor changes prior to a merger.
Firstly, Marcum had 330 clients keep them and 9 clients change prior to a merger
Secondly, Withum had 246 clients keep them, and 1 client change.
Thirdly, BDO had 20 clients keep them, and zero clients change.
Fourthly, Grant Thornton had 17 clients keep them and zero clients change.
Fifthly, UHY had 11 clients keep them and 1 client change.
Sixthly, Friedman had 12 clients keep them and zero client change.
Seventhly, KPMG had 10 clients keep them and 1 client change.
Eighthly, MaloneBailey had 10 clients keep them and zero clients change.
Finally, others had 26 clients keep them and 1 client change. 

Additionally, we have SPAC auditor changes after the merger.
Firstly, Withum had 14 keep them after the merger and 119 change. 
Secondly, Marcum had 15 keep them and 114 change.
Thirdly, KPMG had 2 keep them and 8 change
Fourthly, Grant Thornton had 0 keep them and 5 change.
And, finally, others had 5 keep them and 18 change.

Many SPACs that changed their audit firm prior to a merger were Marcum clients. This isn’t surprising, as Marcum is the largest auditor of SPACs.

The majority of Marcum’s clients that changed their auditor did so during August 2021, just prior to issuing restated financial statements to address the accounting of certain shares as derivative liabilities. This was an issue that impacted most SPACs in 2021. The timing of these auditor changes suggests they may have been related to time constraints due to Marcum’s large SPAC workload.

Just 12% of Marcum clients and 11% of Withum clients retained the firms after a merger concluded. Following the completion of a merger, the new public company usually engages the audit firm of the operating company rather than the auditor of the SPAC, regardless of the SPAC’s audit firm.

Additionally, we have the auditor market share after a merger.
Ey had 2 continuing clients, 62 new clients, and 64 Total clients.
Deloitte had 50 new clients and 50 total clients.
KPMG had 2 continuing clients, 38 new clients, and 41 total clients.
PwC had 39 new clients and 39 total clients.
Grant Thornton had 22 new clients and 22 total clients.
Marcum had 15 continuing clients, 3 new clients, and 18 total clients.
BDO had 17 new clients and 17 Total clients.
Withum had 14 continuing clients, 1 new client, and 15 total clients. 
RSN had 6 new clients and 6 total clients.
Others had 3 continuing clients,25 new clients, and 28 total clients.

The audit market for companies that are taken public via SPAC is similar to the broader public company audit market. The Big Four firms are atop the market, trailed by Grant Thornton and BDO at fifth and seventh, respectively. But the concentration of Marcum and Withum on these specialty audits has enabled the firms to retain a bigger piece of the market once their SPAC clients acquire operating companies.

Auditing SPACs creates volatility among an audit firm’s client base. With the rise in SPAC IPOs, there is a rise in business. And with the completion of SPAC mergers, there is also a decline in business. But, as seen through this analysis, it can also help firms to establish a client base of operating companies.

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