Chris Murillo is a partner in the Securities and Capital Markets group. Part of Chris’s practice focuses on the formation and listing of special purpose acquisition companies (SPACs) and the execution of merger and acquisition transactions creating new, publicly listed operating companies (de-SPAC transactions). Maggie Rhoda sat down with Chris this summer to learn more about his practice.
Maggie Rhoda: What’s a common misconception about SPACs that you find yourself explaining to clients or those unfamiliar with your practice?
Chris Murillo: SPACs are set up with the proceeds of their IPO being placed in a trust account that is distributed at the time of the business combination. It is tempting to see that pile of cash as being available to the post-business combination company, but the reality is that the majority of that cash gets redeemed out by shareholders at the time of the business combination. If you don’t need that liquidity, great. However, if you will need liquidity in connection with the de-SPAC transaction you should be prepared to engage in a form of roadshow to raise money through a PIPE or similar transaction. That adds complexity and time to the de-SPAC process which prospective companies need to be aware of and plan for.
MR: Do you have any unsolicited advice for business owners considering going public through a de-SPAC?
CM: Prepare as if you were doing an IPO. While a de-SPAC transaction can get you listed in a relatively quick timeframe, that is no substitute for making sure you are “public company ready.” Indeed, if you are considering going public through a de-SPAC transaction it is incumbent on you to ensure you are ready to be public because these transactions can move quickly. There are many de-SPAC companies that have found themselves unprepared to operate under the regulations and scrutiny that public companies are subject to. Have a finance team in place in advance; assume the audit is going to take longer than you expect; make sure you have an internal team that has some familiarity with the strictures of public company compliance; and, of course, ensure that you have an external team of professionals who can help you navigate life as a public company.
MR: Where do you see the future of SPACs? How does that compare to the frothy days of 2021?
CM: While gratifying that the market became obsessed with a strategy I had been familiar with since early in my career, the explosion of SPAC offerings during the pandemic are likely a high water mark for the vehicle. In other words, the SPAC bubble has burst. Now we are seeing a steady state for SPACs similar to the pre-pandemic market. Because there are fewer SPACs chasing the same number of target companies, there are likely to be better deals for investors and less speculation.
I believe there is a place for SPACs as a useful product within the operations of healthy capital markets because having multiple paths to public company status is generally good, and because SPACs specifically can benefit target companies by allowing a company to “bolt on” an experienced sponsor team and an already build-out network of professionals and service providers. It also allows average investors to participate in a going public transaction directly, rather than having to wait for the key institutional accounts to which underwriters allocate IPO securities to sell out of their positions post-IPO.
MR: Rumor has it that you took a break from practicing law to open and operate your own distillery. How has that experience informed how you practice now?
CM: After law school I worked at major law firms in New York City for about 9 years; I worked long nights and weekends and frankly was burnt out. At the same time both my grandfathers were engineers and I’m a maker at heart, so I longed to work with my hands; to create something tangible beyond a prospectus. I was really into the New York cocktail scene so I got it into my head that it would be fun to start a distillery. So I did. I spent a little over 5 years working in the spirits industry, and had my own facility before taking over the production at the largest distillery in NYC at the time.
Owning my own business and running operations for a sizeable craft distillery was challenging, fun, and gave me a unique perspective on advising clients. During this time I hired lawyers, I signed the front of the checks, and I remember very well what it was like having a legal issue that I needed help with. I remember thinking about how many cases of gin I needed to sell in order to cover one hour of lawyer time, and to this day that informs my approach to helping our clients address legal issues in a value-added way. I often get asked if I miss being a distiller, and the answer is that I love my job and the HSE team, but yes, I miss it, especially driving the forklift.
MR: When you’re not in the office, how do you enjoy spending your time?
CM: Board games! If you think about it, it isn’t a surprise that a securities lawyer likes board games; there’s a set of rules and a set of objectives and you need to navigate the rules to get the best results in the face of chance and competitors. A good board game requires developing a strategy, executing that strategy and being nimble when you need to pivot because of an unforeseen challenge. I also like that you can always learn something new by either learning a new game, or by unlocking a deeper understanding of a game you’ve played a dozen times before. And, of course, I love the social aspect of board games. I’ve made great friends playing board games and I’ve been able to connect with my kids by playing the games they love together.
Thanks, Chris. Looking forward to celebrating your 5-year anniversary at HSE this winter!