SPAC IPOs – Trends in Auditor Market Share

The past year has seen historic growth in the SPAC market. As of September 30th, there were 447 special purpose acquisition company (SPAC) IPOs during 2021. This number is approximately 285% higher than the same period in 2020. With this historic growth, the SEC and others have increased scrutiny of SPACs. They have issued several pieces of accounting guidance surrounding warrants and equity classification. These new guides have significantly affected SPAC entities and their auditors, and have resulted in hundreds of restatements.

As the SPAC market has grown, audit firms Marcum and Withum have served as the main auditors in these engagements. However, due to the influx of SPAC entities in 2021 and the extra scrutiny, many new audit firms have entered the market.

Auditor Market Share of SPAC IPOs

As shown in the graph above, a greater number of SPAC IPO audits have gone to firms other than Marcum or Withum since the SEC’s warrant guidance. Withum has cut back their SPAC IPO engagements, and Marcum has taken over as the main auditor of SPAC IPOs.

Select Auditors of SPAC IPOs

The increased diversity of SPAC auditors has come from audit firms of all sizes, including Big Four firms. Most notably, BDO has begun to step into the market more. Despite their prior lack of presence, BDO has gained more SPAC clients each quarter since the SEC SPAC warrant guidance in April 2021. So far in Q4, BDO has 6 SPAC IPO clients.

The Big Four also observed a notable increase in the SPAC market in 2020 and Q1 2021. However, the entities audited by Big Four firms largely appear to be sponsored by existing financial services audit clients. For example, 17 of the 24 total SPAC IPO audits by Big Four firms between 2019 and Q3 2021 were sponsored by just three financial services institutions. These intuitions were The Gores Group (10), TPG (4), and ION (3). Also, banks such as Goldman Sachs and Boston Omaha sponsored SPACs that engaged the same audit firms PwC and KPMG, respectively, as their sponsors.

SPACs have fundamentally changed the IPO landscape. And despite extra scrutiny, SPACs have persisted. Based on recent trends, we can expect more diversity among audit firms of SPAC IPOs. Though, it’s unlikely Marcum will cede control of the market in the near future.

In our next SPAC blog, we will look at how audit firms change following the acquisition of an operating company.

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