Tip of the Week: What of the Remaining SPACs?
By David Feldman at 27 August, 2009, 5:59 am
Unfortunately, it is difficult to complete a reverse merger transaction with those SPACs (special purpose acquisition companies) that have gone public, have money and are running out of time to complete a transaction under their rules. Why? Well I got the answer recently from a contact who owns several SPACs. I had a client determined to merge with a SPAC even though I suggested it might be problematic. He had me call my contact, which I did.
The company would have been a great candidate for a SPAC merger during the heyday a few years ago (and hopefully in the years to come with new SPACs yet to be formed). My contact agreed that this would have been of great interest to his SPACs. But here’s the problem: the merger has to be approved by 80% of the investors. If it is not the deal does not go forward. But SPACs currently face a challenge from investors who would rather get their money back from a deal voted down than bet on the success of a future deal.
In part it is because funds simply want liquidity and to get out of their positions. But there was a time last year and early this year when SPAC stocks were trading below their asset values. In other words their value was less than the actual cash in the bank. Some arbitrageurs got into the game when stocks were 10-15% below cash. All they want to do is earn that spread. So they intend to vote down any deal to get the money back.
So my contact, who has a financial interest in several SPACs and money to lose if they vote down deals, advised me of this challenge. The key to those trying to complete reverse mergers with SPACs appears to be either to have such an amazing deal that no one can turn it down, or bring in new money that takes out the old money. This may help the sponsors of the SPAC but one wonders frankly whether there is a real benefit when all new money is coming in vs. just completing an IPO with the new money.
Almost no new SPACs went public after the first quarter of 2008. Most have to sign at least a letter of intent within 18 months of going public, so the next 6 months or so should be telling as time begins to run out. I have heard rumblings that new SPACs are coming. Ideally with evolved structures. In the new edition of my book, coming out in December, I lay out my thoughts about ways to do smaller-sized SPACs without some of the problems that the last generation of SPACs faced. With the market doing well, SPAC-meisters, let’s get going!
No comments yet.