A special purpose acquisition company (SPAC) is a “blank-check” public company that is formed for the sole purpose of taking other companies public. A company that is looking to go public via SPAC, also known as a target company, will go public by combining with a SPAC rather than by launching a traditional initial public offering (IPO).
In this article, we will examine how practices in the biopharma industry vary from the broader market (general industry*) with respect to total equity plan reserves and evergreen provisions, looking at both biopharmas that have gone public via merger with a SPAC (a de-SPAC transaction) and those that have done so in traditional IPO settings.
Willis Towers Watson’s Life Sciences Industry Team reviewed recent de-SPAC transactions and traditional IPOs among biopharmas and general industry companies between 2019 and the second quarter of 2021, with the objective of understanding the differences in equity plan reserve and evergreen provision practices between the two groups. Our analysis indicates that biopharma de-SPAC transactions generally had larger equity plan reserves than both general industry de-SPACs (16.2% versus 10.2% at median) and traditional IPOs (whether in biopharma or general industry).
| Percentiles | Biopharma IPOs (n = 37) |
Biopharma
de-SPACs (n = 10) |
General industry IPOs (n = 72) |
General industry
de-SPACs (n = 37) |
|---|---|---|---|---|
| 75th percentile | 13.0% | 19.7% | 12.6% | 11.8% |
| 50th percentile | 10.3% | 16.2% | 10.0% | 10.2% |
| 25th percentile | 8.0% | 9.5% | 5.8% | 8.4% |
Our study also found that biopharma IPOs and de-SPAC transactions are materially more likely to feature an evergreen provision than their general industry equivalents. Within both biopharma and general industry, de-SPAC transactions are less likely to have an evergreen provision than their traditional IPO counterparts. Although less prevalent in general industry than among biopharmas, use of an evergreen provision is the majority practice among all groups reviewed.
| Evergreen provision | Biopharma IPOs (n = 37) |
Biopharma
de-SPACs (n = 10) |
General industry IPOs (n = 72) |
General industry
de-SPACs (n = 37) |
|---|---|---|---|---|
| Yes | 95% | 70% | 78% | 59% |
| No | 5% | 30% | 22% | 41% |
Our analysis shows that biopharma de-SPAC transactions and IPOs tend to have higher equity pool reserves and a higher prevalence of the use of evergreen provisions compared with general industry — consistent with our experience of biopharma as a more intensive user of equity compensation than general industry. Trends for biopharma de-SPAC transactions and IPOs on these features are also consistent with market practice among publicly listed biopharma companies in the U.S.
In other recent articles, Willis Towers Watson’s SPAC and Transaction teams have also reviewed SPACs, different considerations for SPACs versus IPOs, the value of directors’ and officers’ insurance (D&O), and IPO trends.
*General industry companies studied reflect the following sectors: communication services, consumer staples, financials, health care, industrials, information technology, materials and real estate.
**Data provided by Willis Towers Watson’s Global Executive Compensation Analysis Team (GECAT)
