December 2, 2021

Forward Purchase Agreements: What They Are and What SPACs Should Do to Assess Them From An Accounting Standpoint

By Salvador Hernandez Marin, Director, Assurance Services

Forward Purchase Agreements: What They Are and What SPACs Should Do to Assess Them From An Accounting Standpoint Special Purpose Acquisition Companies (SPAC)

The number of exchange listings by Special Purpose Acquisition Companies (“SPACs”) continues to climb. To date in 2021, nearly $140 billion in SPAC proceeds1 has been recorded by companies interested in utilizing this method to go public, creating a more competitive market for SPAC mergers and, thus, for target acquisitions. This has prompted some SPACs to commit additional capital to the target company combined entity through forward purchase agreements.

What is a Forward Purchase Agreement?

In a forward purchase agreement, the parties enter into a contract to buy or sell an asset at an agreed upon price at a future date or upon the occurrence of a specified future event. These agreements have become a popular strategy as SPACs search for new options and deal terms to attract potential targets.

Forward Purchase Agreements in SPACs

Forward purchase agreements grant the option for a financing counterparty, commonly the sponsor, to purchase a specified number of units (each consisting of one Class A common share and a portion of a warrant) in exchange for cash, upon the closing of a merger transaction.

The warrants sold in conjunction with these units are the same as those issued to public investors during the initial public offering (“IPO”).

The primary purpose of the forward purchase agreements is to assure that the SPAC will have the minimum level of capital required to complete a business combination.

Accounting Implications

As with other equity contracts, there are complexities surrounding forward purchase agreements, including their accounting implications. Inherently, forward purchase agreements require a high level of understanding of GAAP standards and need to be analyzed for compliance with ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815, “Derivatives and Hedging.”

Typically, SPACs enter into forward purchase agreements that are written as free-standing financial instruments in accordance with ASC 815 and are contingently exercisable upon a merger transaction.


Some of the common challenges associated with these agreements include determining the unit of account, and the classification and valuation of liability-classified instruments.

Unit of account

In accordance with the authoritative guidance in ASC 480 and ASC 815-40, the units and warrants underlying the forward purchase agreements issued by SPACs should be analyzed to determine if either or both instruments should be treated as separate legal instruments or as a single instrument.

Classification and valuation

SPACs need to pay special attention to the classification of the units and warrants, as each agreement entails different levels of complexity. In accordance with ASC 815-40, the terms of the agreements must be analyzed to determine the proper classification of the instruments sold, as equity or liability. For instruments classified as liability, SPACs will encounter an additional layer of complexity, as these instruments must be recorded at fair value at each reporting date, using complex fair value methods.

Accounting specialists experienced in SPAC reporting can assist in determining the proper classification and fair value of liability-classified instruments.


While SPACs continue to proliferate, it is important to take the proper steps in evaluating their equity agreements and determining whether their financial statements reflect accurate balances, classifications and related disclosures. Although each agreement poses a unique level of complexity, accounting treatment and risks, SPACs need to assure potential investors that the company’s financial information is accurate and consistent with their business goals.

If you have questions or concerns, please consult your Marcum assurance professional for further guidance.