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Technology Stocks
Blank Check IPOs (SPACS)
An SI Board Since January 2005
Posts SubjectMarks Bans Symbol
3164 136 0 SPACS
Emcee:  Glenn Petersen Type:  Moderated

Wall Street has never been bashful about recycling old products and concepts. One of the recent concepts to be recycled is the blank check IPO. Blank check companies are also known as Special Purpose Acquisition Companies (SPACS).

A blank check company is a development stage company that has been formed for no specific purpose other than to complete a merger or acquisition with an operating entity, the identity of which is unknown when the company is formed. Because such transactions generally, but not always, trigger a change of control, with the shareholders of the acquired company now owning more than 50% of the combined entities, the majority of these transactions are accounted for as reverse mergers.

Blank check IPOs had a run of popularity during the 1980s. However, the abuses of that period, particularly the promotional activities of insiders looking to make a fast buck through the promotion of their stock rather than the acquisition of a viable business, led the SEC to place some significant restrictions on the practice.

The SEC has discouraged blank check IPOs with Rule 419, which regulates the issuance of “penny stock”, defined as shares priced below $5, by companies that are in the development stage. Rule 419 pertains to all companies with assets of less than $5 million. Because all of the recent offerings have been priced over $5 per unit and have each raised a minimum of $9 million in gross proceeds; the offerings have been exempt from the provisions of Rule 419.

The newly public blank check companies have been sensitive to the failures of their predecessors. To alleviate the concerns of potential investors, all of the recent offerings have voluntarily complied with most of the provisions of Rule 419 and the companies have been careful to structure the transactions so that the founders will not be in a position to enrich themselves at the expense of their new public shareholders.

Most of the funds raised in a blank check IPO are placed in a trust account and can only be released in the event that the company completes a business combination that wins approval from a majority of the company’s public shareholders. Depending on the individual company, a proposed transaction can be blocked if 20% to 40% of the non-insider shares are voted against the transaction. Regardless of the outcome of the vote on the proposed acquisition, dissenting shareholders have the option of having their shares redeemed in an amount that is equal to their pro rata share of the funds held in the trust account. If a transaction is not completed within a specified period that can range from eighteen to thirty months, the company will be liquidated with the proceeds distributed to the public shareholders. The insiders will not receive any of the proceeds.

All of these offerings have been artfully priced. Many of the early deals have been priced at $6 per unit, with each unit consisting of one share of common stock and warrants to purchase two additional shares of common stock at $5 per share.

Subsequent to the IPOs, the common shares have generally traded at a slight discount to their liquidation value. When investing in these securities, the conservative play is to invest in the common shares, which are generally trading at or near their liquidation value. The worst-case scenario: You get your money back. The more speculative route would be to buy the warrants.

I would encourage everyone to do some due diligence before purchasing any of these securities. They are speculative. Deals do crater before they are approved and there have been a lot of bad acquisitions. If you do purchase any of these securities, please do not allocate a significant portion of your investment portfolio. It might also be advisable to buy a basket of securities, rather than focusing on one company.

At the very least, the following risk factors should be taken into consideration:

-- Many reverse mergers fail. Companies that go public via this route generally do so because they would be unable to complete a traditional IPO. However, the magnitude of the dollars currently being raised in these offerings should mean that the newly public companies might be in a position to attract some decent acquisition candidates.

-- An investment in a blank check company is ultimately a bet that the management of the company will have the expertise to identify and close on the acquisition of a quality private entity. The last year has seen a significant upgrading in the management groups taking these companies public.

-- These securities are often very thinly traded. You are at the mercy of the market makers. Be very careful if you place an order.

Additional external resources

DealFlow's SPAC Newsletter

SPAC Insider (partial pay wall)

SPAC Track

SPAC Analytics

Wikipedia (Special Purpose Acquisition Company)

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3164<b>IACA .. TBLA</b> DA announced this am IACA @ $15.65 +++++ TotTriffin-3 hours ago
3163<b>WPF .. ALIT</b> DA announced this am .. WPF Triffin-4 hours ago
3162TS Innovation Acquisitions Corp. (stock symbol: TSIA), a SPAC that raised $300 mGlenn Petersen-5 hours ago
3161Spartan Acquisition Corp. (stock symbol: SPRQ), a SPAC that raised $345 million Glenn Petersen16 hours ago
3160Bloomberg is reporting that Landcadia Holdings III (stock symbol: LCY), a SPAC tGlenn Petersen-6 hours ago
3159SPCX .. spcxetf.comTriffin-yesterday
3158Is there an ETF spac? Seems like way too many stocks to speculate onCcube-yesterday
3157Reuters is reporting that Foley Trasimene Acquisition Corp/ (stock symbol: WPF),Glenn Petersen-yesterday
3156<b>but that's just me</b> I'm not an Ackman fan either .. Triffin-yesterday
3155A one sentence rumor from Axios: Axios also has learned that German electric aiGlenn Petersen2yesterday
3154I wouldn't touch anything this douchebag has his hands on......but that'Lou Weed-yesterday
3153<b>How to buy PSTH at a discount</b> Speaking of Ackman .. PSTH @ Triffin1yesterday
3152Giant SPAC deals are not new. Burger King went public in 2012 via an Ackman SPACGlenn Petersen2yesterday
3151<b>Lucid motors</b> A cautionary tale .. Too many SPACs running up Triffin5yesterday
3150The Lucid/CIV story is two weeks old and still no deal. CCIV is already up to $Glenn Petersen2last Friday
3149<b>SPACs with announced DAs</b> 52 Agreed Deals waiting for final sTriffin4last Friday
3148They should have said that they install an EV charger on each property they closLou Weed2last Friday
3147<b>GHIV .. UWMC</b> Deal closed last night and getting no love todaTriffin-last Friday
3146<b>Some background on the Lucid players </b> [graphic] Triffin1last Friday
3145<b>SPAC Merger Vote Calendar</b> [graphic] Triff ..Triffin-last Friday
3144Another rumored SPAC deal: Exclusive: Air taxi start-up Joby explores deal to gGlenn Petersen-last Friday
3143Climate Change Crisis Real Impact I Acquisition Corp. (stock symbol: CLII), a SPGlenn Petersen1last Friday
3142Telehealth startup Hims fell in its public trading debut — and that’s fine with Glenn Petersen-last Thursday
3141<b>Two more SPAC mergers approved today</b> GHIV .. UWM(C) ACAM ..Triffin1last Thursday
3140<b>OAC .. HIMS</b> Share holders approved the merger .. OAC to tradTriffin1last Wednesday
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