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
3484 145 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
3484A bit of SPAC magic. The dMY Technology Group (DMYD)/Genius Sports Group (GENI)Glenn Petersen-46 minutes ago
3483The approximate price per share redeeming holders will receive for their common Thehammer-54 minutes ago
3482Star Peak Energy CUSIP: 855185104 Cutoff Date: 04/21/21 If you wish to participCusterInvestor-8 hours ago
3481SPAC transactions come to a halt amid SEC crackdown, cooling retail investor intGlenn Petersen18 AM
3480SPAC Wipeout Is Punishing Followers of Chamath Palihapitiya Brandon Kochkodin BGlenn Petersen-Sunday
3479<b>SPACs that Closed Below Trust NAV</b> [graphic][graphic] [graphiTriffin1last Friday
3478<b>Deals of the Day</b> [graphic] Triff .. Triffin-last Friday
3477SPAC Hot Streak Put on Ice by Regulatory Warnings SEC steps up scrutiny of accoGlenn Petersen1last Friday
3476<b>SPACs .. The ETF Angle</b> Nice run down of the ( currently ) thTriffin4last Wednesday
3475Companies Merging With SPACs Face Challenges Around Valuations, Controls CFOs hGlenn Petersen1last Wednesday
3474ThenGrab/Altimeter transaction has been confirmed. Altimeter Growth I (stock syGlenn Petersen1April 13
3473SEC to Wall Street: SPACs Aren’t a Way Around Securities Laws Ben Bain BloomberGlenn Petersen4April 9
3472<b>Deals of the Day</b> [graphic] businesswire.cTriffin-April 7
3471Still unconfirmed the potential Grab/Altimeter transaction was first rumored on Glenn Petersen-April 7
3470A new SI board devoted to Topps/MUDS: Topps | Stock Discussion Forums (siliconiGlenn Petersen-April 7
3469Mudrick Capital Acquisition Corp. (stock symbol: MUDS), a SPAC that raised approGlenn Petersen-April 6
3468I think oversupply (and not wanting to wait upwards to 2 years to get your moneyArea512April 6
3467At the risk of asking a stupid question ... What would cause a SPAC to tradkidl-April 6
3466<b>SPAC's with announced DAs that closed below Trust NAV</b> MiTriffin2April 5
3465Bloomberg is reporting that Marquee Raine Acquisition Corp. (stock symbol: MRAC)Glenn Petersen-April 5
3464Another potential autonomous vehicle/SPAC deal: Argo AI Mulling SPAC Or IPO DeaGlenn Petersen-April 5
3463The DMYD/Genius Sports transaction has no yet closed. The DMYD shareholders are Glenn Petersen-April 1
3462A potential SPAC deal with an autonomous truck company: Self-driving truck starGlenn Petersen1April 1
3461How to Fix SPACs: Keep Their Backers Locked In Longer Dealbook New York Times MGlenn Petersen3March 31
3460AJAX I (stock symbol: AJAX). a SPAC that raised $805 million when it went publicGlenn Petersen1March 29
Previous 25 | Next 25 | View Recent | Post Message
Go to reply# or date (mm/dd/yy):