First New SPAC of 2010: Changes Good?
By David Feldman at 11 June, 2010, 12:36 pm
DealFlow Media’s The SPAC Report reported the completion of the first and only SPAC that made it all the way to pricing during 2010. 57th Street General Acquisition Corp.’s filing took six months to make its way through the SEC, no doubt in small part because the sponsors have changed some of the customary SPAC terms. Morgan Joseph and Ladenburg Thalmann led the underwriting team of the $50 million offering. The securities are now trading on the OTC Bulletin Board.
Just a few of the changes: the SPAC has no particular industry or geographic focus (though a few at the end of the last batch of SPACs were starting to do that). Most of the management team has prior SPAC experience, including Mark Klein, the Chairman, who is actually an affiliate of Ladenburg. There’s also a shorter time period to get a deal actually closed: 15 months.
Most importantly (finally), the requirement to obtain shareholder approval of the proposed merger transaction has been eliminated. It has been replaced by a tender offer, which will include full disclosure of the proposed target, allowing every investor in the SPAC IPO to get their money back if they don’t wish to participate in the transaction. Thus there will be the same delay in completing a deal as was experienced in the past, because obtaining SEC approval of the tender offer documents likely will be as difficult as obtaining approval of the proxy they used to do to obtain shareholder approval.
However, the enormous difficulties SPAC sponsors faced with obtaining shareholder approval when arbitrageurs were benefiting from “no” votes are now avoided. Under the new structure, the merger can be closed unless more than 88% of the shares are redeemed in the tender offer. I guess this means they need to find a company willing to take as little as 12% of the funds in escrow, or presumably the company merging can insist that no closing take place unless X% of the money is still there, regardless of the 88% provision.
These are all smart improvments. Investors are still protected with an “opt-out” but target companies needn’t worry any more about whether or not shareholders will approve (though they have the small worry that more than 88% redeem, which seems unlikely). The shorter time frame is good for underwriters (part of whose compensation comes upon that closing) and for investors, but makes it tougher on the sponsors for sure. Personally I’m more in favor of lengthening the life of the blank checks, but I understand why they did it. And there should be no industry focus. The fact that the same investors pretty much invested in every SPAC regardless of industry shows that the investors didn’t really care about that. This will avoid the challenge of the past where sponsors had to guess what industry would be hot a year or more from the IPO when they find a deal. Overall, good set of improvements guys.
Mr. Feldman,
Good afternoon.
I was hoping you might enlighten me as to whether there is a material difference between an SPAC and a shell? i.e., would a person who invested in SPACs likely be able to seemlessly invest in shells? Or would the cross-discipline require an entirely new skill-set?
Also, do you know of a location of a list of SPACs? Given that this very article notes the existence of but one SPAC this whole year, I understand that a list might just be unnecessary. But, if there is one, Id like a chance to review it.
Thank you in advance for any help.
-Dave Gibbs
David – a SPAC really is just a shell company that takes advantage of certain SEC rules that allow it to do a full IPO, raise money and hope to use that money to combine with a private company that goes public and gets to use the money. But most people do talk about “reverse mergers and SPACs” as if they are two different things, and the players are somewhat different, although a number play in both.
DealFlow Media (www.dealflowmedia.com) publishes the SPAC Report monthly if you want to be more involved in this market. If you subscribe I believe you’re able to access information about all remaining public SPACs. Good luck!
David
Interesting, thanks. I’ll definitely check those out.