We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Technology Stocks
Blank Check IPOs (SPACS)
An SI Board Since January 2005
Posts SubjectMarks Bans Symbol
3807 140 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)

Previous 25 | Next 25 | View Recent | Post Message
Go to reply# or date (mm/dd/yy):
ReplyMessage PreviewFromRecsPosted
3807Dewac … The latest Federal investigators examined Trump Media for possible monekidl1March 16
3806LUNR closed at $24.00 on Friday, up $3.70. Intuitive Machines completes SPAC meGlenn Petersen1February 27
3805Another SPAC deal gone sour. Rigetti Computing , a quantum computing startup, haGlenn Petersen2February 13
3804OTMO/ULY .. Thankfully, I never took a position in this one .. Looks like a recTriffin-February 12
3803Once valued at $1.4 billion, Otonomo now valued at $70 million. Connected car cGlenn Petersen1February 12
3802On January 31, 2023, L. Catterton Asia Acquisition (stock symbol: LCAA), a SPAC Glenn Petersen2February 12
3801Rumble (stock symbol: RUM), a video platform that markets itself as a conservatiGlenn Petersen1February 12
3800Delaware ruling may create SPAC havoc [graphic][graphic] Kia Kokalitcheva [graroto1February 4
3799I could not find any news that would account for the move or the volume. No SEC Glenn Petersen1January 30
3798Today was the most volume since the merger was announced. Even made the % gainerichardred-January 30
3797RE: DELTA Glen I’ve not seen any information on Delta yet, have you?richardred-January 30
3796Shell is acquiring Volta, a former SPAC (Tortoise Acquisition II), for $.86 per Glenn Petersen1January 18
3795DWAC ... Trump-backed SPAC Digital World's CFO resigns (
3794The ‘SPAC King’ Is Over It New York Times December 7, 2022 [graphic] Not longGlenn Petersen212/9/2022
3793Northern Genisis Acquisition II / Embark down 98%. Autonomous Trucking SoftwareGlenn Petersen112/4/2022
3792It certainly came back to Earth fast. There may have been a bit of a short squeeGlenn Petersen-11/22/2022
3791Fallen Billionaire Down 98% Boosts Stock Sales at Risky Moment Story by BenjamiGlenn Petersen111/22/2022
3790They did buy themselves more time: Trump Media partner DWAC delays Truth Socialkidl-11/22/2022
3789GRND pretty well back to where it came from. Fast finger traders / algos made a kidl-11/22/2022
3788I am actually surprised it's still this high given tomorrow's vote.kidl-11/21/2022
3787DWAC is trading at $20.72 in very early trading, down $.66 from Friday's cloGlenn Petersen-11/21/2022
3786On Friday, the shares of Grindr (stock symbol: GRND), a social media platform seGlenn Petersen111/21/2022
3785CEO behind Trump’s Truth Social IPO begs small investors for support: source ByGlenn Petersen-11/20/2022
3784It will be interesting to see what happens with DWAC tomorrow morning. Musk may Glenn Petersen411/20/2022
3783SPAC liquidations top $12 billion this year as sponsors grapple with tough markeGlenn Petersen110/19/2022
Previous 25 | Next 25 | View Recent | Post Message
Go to reply# or date (mm/dd/yy):