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Article | Executive Pay Memo North America

Trends on equity provisions in biopharma de-SPAC transactions

Executive Compensation|Mergers and Acquisitions

By Matthew Mullery , Ruby Tewani , Robert Hermenze and Shannon Williams | August 9, 2021

A comparison of prevalent practices on equity plan reserve and evergreen provisions between biopharmas and general industry companies

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.

  • The equity plan reserve is the number of shares set aside for public company equity awards. This reserve is then drawn upon when the company grants equity awards to employees, directors and other eligible participants.
  • An evergreen provision allows for additional shares to be automatically added to the total share pool on an annual basis, without additional shareholder approval for a defined period (typically up to 10 years).

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%
Figure 1. New equity plan reserve at IPO/de-SPAC transaction**


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%
Figure 2. Prevalence of evergreen provisions**


Bottom line

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)


Director, Executive Compensation & Rewards  (New York)

Associate Director, Executive Compensation (New York)

Associate, Executive Compensation and Board Advisory (New York)

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