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Technology Stocks
Blank Check IPOs (SPACS)
An SI Board Since January 2005
Posts SubjectMarks Bans Symbol
3862 138 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).

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)
en.wikipedia.org

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3861[X] Hahahahahahahahahahahahaha! https://t.co/rIBqz4xVC3— Dinesh D'Souza (@DinesSelectric II-February 17
3860Securities and Exchange Commission allowed Donald Trump's media and technoloRon-February 15
3859Message 34565746 Seems like this thread has the perfect title...The Ox-February 9
3858Russian investor made millions off insider trading tied to Trump Media, court doGlenn Petersen2January 24
3857SEC to vote today on tough new rules for blank-check ‘SPAC’ companies PUBLISHEDGlenn Petersen3January 24
3856Good observation. DeSantis drops out and the stock is up another 8% in early traGlenn Petersen1January 22
3855DWAC going crazy. Iowa effect?kidl-January 17
3854SPAC companies accounted for at least 21 bankruptcies this year and a staggeringkidl312/28/2023
3853Screaming Eagle Acquisition Corp. (stock symbol: SCRM), a SPAC that raised $750 Glenn Petersen212/22/2023
3852Trump Sues MSNBC, Reuters and 18 Other News Orgs, Claims They ‘Coordinated’ in MSaulamanca-11/21/2023
3851Trump’s Truth Social Has Lost $73M Since Launch, New Filing Shows The company tGlenn Petersen-11/13/2023
3850A SPAC deal that was doomed at birth: Faze Clan acquired for $17 million, one yGlenn Petersen110/22/2023
3849With honors.Glenn Petersen-10/13/2023
3848TMTG CEO Devin Nunes said in a press release that terminating the PIPE was "kidl-10/13/2023
3847UPDATE 1-SPAC to return remaining $533 million raise for Trump social media dealGlenn Petersen110/13/2023
3846Trump’s SPAC Loses Nearly $200 Million In Stock Purchase Deals Topline The embakidl110/12/2023
3845Bill Ackman reportedly said he would ‘absolutely’ do a deal with X with his new Glenn Petersen110/1/2023
3844Bill Ackman’s ‘SPARC’ gets OK from the SEC and he’s ready for a deal: ‘please caGlenn Petersen19/29/2023
3843Truth Social investment partner DWAC win extension for merger - The Washington Pkidl-9/5/2023
3842Trump Media’s proposed merger partner Digital World faces crucial vote - The Waskidl19/2/2023
3841"NIO, XPEV, LI, BYD.. China's Quads Message Board - Msg: 34401032 (silikidl-8/31/2023
3840Aurora Acquisition peaked at $58.24; Better.com tanked to $1.15. Two articles. Glenn Petersen18/25/2023
3839A small float. There may have been a short squeeze. When Back Spade went public,Glenn Petersen-8/14/2023
3838BSAQ ... Right back the where it came from in just 3 trading days. The usual SPAkidl-8/14/2023
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