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Technology Stocks
Blank Check IPOs (SPACS)
An SI Board Since January 2005
Posts SubjectMarks Bans Symbol
2894 103 0 SPACS
Emcee:  Glenn Petersen Type:  Moderated
SUMMARY NOTES

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).

As of December 11, 2009, 162 SPACS have gone public since August of 2003, raising gross proceeds totaling $22,003,690,655 (give or take a buck or two). Another 67 companies currently have registration statements on file with the SEC and are looking to raise $10,787,120,608 (once again, give or take a buck or two). If you back out the companies that filed their initial registration statements on or before December 31, 2007, there are 27 companies currently in registration that are looking to raise $3,899,000,000. Another 33 companies have filed and withdrawn registration statements; two of these companies subsequently went public on London’s AIM stock exchange, where they raised gross proceeds totaling $381 million. The companies that withdrew their registration statements were looking to raise $6,401,000,000

87 companies have actually completed acquisitions, and another 11 have deals pending. Of the companies that have completed transactions, seven have either been acquired or are in the process of being acquired. There are 59 companies that have failed to close on their proposed acquisitions and have either liquidated or are currently in the process of liquidating. These companies raised a total of $7,050,111,754 in their offerings. The shareholders of ten of these liquidated companies have extended the corporate charters for nine of companies so that they could operate as a shell. One of these companies has actually closed on a transaction.

There are 5 SPACS still looking for deals.

There have been several high profile transactions. The first was the acquisition of Jamba Juice Company by Services Acquisition Corporation International. Freedom Acquisition Holdings subsequently acquired GLG Partners and Endeavor Acquisition acquired American Apparel.

The first of the new crop of blank check companies went public on August 23, 2003.

PERFORMANCE

Of the 80 companies that have completed transactions and have not yet been acquired, the securities of only 24 of these companies are trading above their original offering price and 56 are trading below. The average company is down 15.53% versus an average decline of 5.15% for the NASDAQ Composite. The 7 companies that have either been acquired or are in the process of being acquired are down on average 75.31% versus an average increase of 17.81% for the NASDAQ Composite.

Of the 11 companies that have open deals, the securities of 10 of these companies are trading at or above their original offering price and 1 is trading below. The average company with an open transaction is up 4.72% versus an average decrease of 5.97% for the NASDAQ Composite. The securities of the six companies still looking for a transaction are up 2.20% since their original offerings versus an average decrease of 7.01% for the NASDAQ Composite.

A note on methodology: When calculating the return percentages for each of the companies, I have added the current market value of the applicable common shares and warrants, subtracted the unit cost, and divided the resulting sum by the original unit cost. In those instances where companies have redeemed their warrants, for the warrant value I have used the value that was created through the exercise of the warrant. For example, in December 2007, HLS Systems International (originally Chardan China North Acquisition) redeemed its warrants. The common stock of HLS last traded at $11.97. If you assume that $6.97 of value has been created from each of the two warrants (which had a strike price of $5.00 per share), the original units, which were priced at $6.00 and are no longer trading, now have a value of $25.91 ($11.97 + $6.97 + $6.97). The computation for calculating the return on HLS: $11.97 + $6.97M+ $6.97 - $6.00 = ($19.91) divided by $6.00 yields a return of 331.83%.

I realize that the second calculation does not include the cost of exercising the warrants. If we add the exercise cost of the two warrants ($10.00) to the original cost of the unit ($6.00), our basis is $16.00. We now own three shares with a total value of $15.60. As an alternative, we could compute the return as follows: $35.91 - $16.00 = $19.91. $19.91 divided by $16.00 yields a negative return of 122.44%.

I am open to suggestions.

When calculating the returns on the NASDAQ Composite, I used the closing index price on the date prior to each of the individual offerings.
__________

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.

Summary statistics – December 11, 2009

Message 26188546

Profiles of closed deals – December 11, 2009

Message 26188571

Summary information for companies with closed deals – December 11, 2009

Message 26188578

Profiles: Companies or assets of acquired – December 11, 2009

Message 26188581

Summary information for companies acquired – December 11, 2009

Message 26188585

Profiles of open deals – December 11, 2009

Message 26188589

Summary information for companies with open deals – December 11, 2009

Message 26188591

Summary information for companies without deals – December 11, 2009

Message 26188595

Summary information for companies still in registration – December 11, 2009

Message 26188600

Profiles of liquidated companies (terminated registrations) – December 11, 2009

Message 26188605

Summary information for liquidated companies (terminated registrations) – December 11, 2009

Message 26188606

Profiles of liquidated companies that will continue their existence as shells – December 11, 2009

Message 26188610

Summary information for liquidated companies that will continue their existence as shells – December 11, 2009

Message 26188616

Summary information for companies that have withdrawn their U.S. registration statements – December 11, 2009

Message 26188621

Additional resources

SPAC Insider

spacinsider.com

SPAC Track
spactrack.net

SPAC Analytics
spacanalytics.com

Twitter Accounts
SPAC Insider: @spac_insider
SPACtrack: @SPACtrack
SpacGuru: @SpacGuru

Wikipedia (Special Purpose Acquisition Company)
en.wikipedia.org

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ReplyMessage PreviewFromRecsPosted
2894The shareholders of DiamondPeak Holdings Corp. (stock symbol: DPHC) have approveGlenn Petersen-Thursday
2893Reinvet (RPT.UT) almost back to initial offering prices. Reid Hoffman's SPFollowing-Mr.Pink-Wednesday
2892I thought it odd afterhours that the stock was not being bought. Now I know therogermci®-Wednesday
2891[tweet]Glenn Petersen-Wednesday
2890That would be the mother of all SPAC deals. PSTH is trading at $24.64 (up $.78)Glenn Petersen-Tuesday
2889nypost.com Here we go with PSTHrogermci®1Tuesday
2888The fees for these are quite large, and my friends on the ECM side say that maybFollowing-Mr.Pink-Monday
2887South Mountain Merger Corp. (stock symbol: SMMC), a SPAC that raised $250 millioGlenn Petersen-Monday
2886Will VCs go 'full stack' with a SPAC? Biz Carson Protocol October 17, 2Glenn Petersen-Sunday
2885Churchill Capital Corp. II (stock symbol: CCX), a SPAC that raised $690 million Glenn Petersen-Sunday
2884The Natural Order Acquisition Corp. S-1: sec.gov Management Paresh Patel. ParGlenn Petersen-October 16
2883Hungry to top Beyond Meat’s smash IPO, new plant-based food SPAC forms in Mass. Glenn Petersen-October 16
2882The shareholders of Opes Acquisition (stock symbol: OPES), which is going to merGlenn Petersen-October 16
2881The Tattooed Chef / Forum Merger deal was approved yesterday. FMCI was down $2,1Glenn Petersen-October 16
2880CC Neuberger Principal Holdings I (stock symbol: PCPL), a SPAC that raised $414 Glenn Petersen1October 14
2879seekingalpha.com Blank-check company Seaport Global Acquisition readies IPO Octsixty2nds-October 13
2878Caveat emptor... AMCIW .84 after hours. Todays range .77 to 1.12 Transaction OvSteve Felix-October 13
2877seekingalpha.com +2% after Axioma Ventures discloses 11% stake Oct. 13, 2020 4:4sixty2nds-October 13
2876SoftBank prepares to launch a SPAC Dan Primack, author of Pro Rata Axios OctobGlenn Petersen-October 12
2875Another rumored SPAC deal (the SPACs is not named): Exclusive: TikTok rival TriGlenn Petersen-October 11
2874DiamondPeak Holdings Corp. (stock symbol: DPHC), which has agreed to merge with Glenn Petersen1October 11
2873Tech/media start-ups: Get ready for the Shaq SPAC Oct. 11, 2020 11:02 AM ET|By: Julius Wong-October 11
2872Red Sox owner reported in talks to go public via RedBall SPAC; RBAC +27.5% Oct. Julius Wong1October 9
2871Three Palihapitiya SPACs went public this morning: [tweet]Glenn Petersen-October 9
2870"Blank Check" Bonanza: SPACs Hit Media and Entertainment Market by AlGlenn Petersen-October 7
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