Transactions should be conducted in silence, with the greatest possible secrecy and avoid, particularly with a SPAC transaction, any questions that raise conflict of interest issues.

According to the June 3, 2008 issue of CFO Magazine in an article titled Loose Lips Sink Deals Too, if deals aren’t made quietly and secretly, they’re less likely to happen. Not only are fewer deals closed when information is leaked to the market prematurely (49% compared to 72%), but the average time to close also increases by 70%, from 62 days to 105. These numbers are the product of research by Cass Business School.

Professor Scott Moeller of London’s Cass Business School and a former managing director and senior investment banker at Deutsche Bank and Morgan Stanley led the investigation.

The results of this study may help SPAC managers in their quest to find appropriate acquisitions. While SPACs and PEGs use an old model of slightly proactive and mostly reactive lead generation, the process, connecting relationships and word-of-mouth advertising, creates a self-defeating process for closing deals. Cass’s research supports the argument that new models for creating business flows must be created.

In the case of a SPAC, where most of the associates and partners come from the PEG world, there are two issues that stand in the way of success and compliance.

In the first place, the regulations prohibit SPAC members from having any prior relationship with the companies they decide to acquire. However, they use the aforementioned relationship-based communication system to encourage the flow of business. This is a dangerous practice and raises the issue of conflict of interest.

Second, SPACs have a short window of time to find and close a suitable acquisition. The old model, fraught with the potential for conflict of interest, is based on an outdated system for generating transaction flow. In the process of spreading the word about a deal with established relationships, the necessary secrecy dissolves. The very model used by SPACs and PEGs to get a flow of business that will lead to a proper acquisition is counterproductive. The old model creates a conundrum that kills deals and those that advance take 70% longer to close.

To maintain secrecy and eliminate the issue of conflict of interest, the solution is to outsource the business flow creation process. The old model does not work for SPACs or PEGs.

The means by which to move expeditiously and compliantly is to engage intermediaries to find appropriate acquisition targets. While SPACs and PEGs are always open to making (reactive) deals, a smart broker, who is also profit motivated, will not deliver choice targets. Good companies, once in the trusted embrace of an M&A broker, will lock them into a sell-side representation contract. Therefore, the auction block is the only place a SPAC or PEG buyer will see these companies.

A retained intermediary on the buying side of the transaction is the perfect vehicle to satisfy both the SPAC’s and PEG’s need for: privacy, secrecy, no conflict of interest, and a fast and efficient closing.

Competition for the acquisition of profitable companies, thanks to globalization, is at a fever pitch. Blank check companies and PEGs need to change their business flow creation model and the sooner the better. Lost opportunity costs are quantifiable.