The hardworking human beings at Audit Analytics have released their analysis of initial public offering trends and IPO auditor market share for the first quarter of this year, a period in which the number of companies going public was minuscule compared to Q1 of 2021.
All told there were 84 IPOs on the New York Stock Exchange and Nasdaq between Jan. 1 and March 31, raising a total of $11.3 billion, compared to the 407 IPOs in the first quarter of 2021, which raised nearly $134.7 billion. Of those 84 IPOs in Q2, 54 went public via a special-purpose acquisition company (SPAC). In Q1 of 2021, there were 298 SPACs, so are the SEC’s threats of tighter regulation starting to scare SPAC wannabes? Yes! That and inflation soaring, which has prompted the Federal Reserve to raise interest rates and investors to yank their money out of SPAC deals to put elsewhere.
Two public accounting firms that have benefited from the crazy wave of SPACs over the past two to three years are Marcum and Withum. For example, 1,046 companies went public last year—612 via SPAC, 427 via traditional IPO, and seven via direct listing. Marcum and Withum combined audited 49.3% of all IPOs in 2021 and nearly 83% of SPACs. And since 2019, the two firms combined have audited more than 80% of all SPAC IPOs. The thing is, Marcum and Withum lose a majority of these clients once a SPAC IPO is completed. In a January 2022 analysis of the audit market following SPAC mergers, Audit Analytics wrote:
SPACs are relatively unlikely to change their audit firm before the completion of a merger. As a reminder, SPACs are vehicles, without operations, that complete business combinations with private entities in order to take them public. Of the 695 SPACs that had not completed a merger as of December 31, 2021, just 2% changed their auditor.
However, after a merger, SPACs are very likely to change their audit firm. Of the 300 SPACs that completed a merger, 88% engaged a new audit firm.
Many SPACs that changed their audit firm prior to a merger were Marcum clients. This isn’t surprising, as Marcum is the largest auditor of SPACs.
The majority of Marcum’s clients that changed their auditor did so during August 2021, just prior to issuing restated financial statements to address the accounting of certain shares as derivative liabilities. This was an issue that impacted most SPACs in 2021. The timing of these auditor changes suggests they may have been related to time constraints due to Marcum’s large SPAC workload.
Just 12% of Marcum clients and 11% of Withum clients retained the firms after a merger concluded. Following the completion of a merger, the new public company usually engages the audit firm of the operating company rather than the auditor of the SPAC, regardless of the SPAC’s audit firm.
Even though Marcum and Withum have dominated in recent years, the two firms audited just 51% of SPACs in the first quarter of 2022. In total, Marcum led the way with 24 IPO audit clients in Q1, followed by Withum and MaloneBailey, both with seven.
Here’s where your favorite audit firm finished in the IPO auditor standings for Q1, courtesy of this graphic from Audit Analytics:
PwC and EY led non-SPAC IPOs with four clients each, followed by Deloitte and Marcum with three clients each.
IPOs Cool Off: Q1 2022 IPO Trends [Audit Analytics]