The coronavirus pandemic has fueled investor interest in an investment vehicle that is not without controversy. The so-called “blank check companies” are entities that do not have a specific business plan or purpose and whose business model is usually focused on participating in a merger or acquisition with other companies.
These companies have traditionally involved speculative investments and have often been categorized into what the Securities and Exchange Commission (SEC) defines as penny stocks, that is, risk securities that trade below the dollar. and usually have a micro-cap.
A fame cultivated during the 80s and associated with multiple frauds. That said, the laws and regulations implemented subsequently have helped clean up its reputation and popularized its affinity with investors. Goldman Sachs signed the first IPO of this type of entity in 2016 and the following year, the New York Stock Exchange hosted the debut of its first blank check company in almost a decade.
These types of entities can be listed on the market even if they have not completed the purchase of a company or intend to do so. Basically, they are released on the market as a company with a special purpose of purchase (SPAC, for its acronym in English), that is, with the intention of raising capital for the potential merger or acquisition of a future company or start-up.
“There is a lot of appetite for mergers and acquisitions, but for this you have to find the right company,” Jay Heller, head of NASDAQ Capital Markets, explains to elEconomista. “Now you can be more creative with SPACs, which allow you to raise capital and sponsors today to pursue potential buying opportunities in the future,” he adds.
In general, these vehicles do not usually have an operating history when they go public, but they usually outline a specific time, typically two years, in which they must use the proceeds from their IPO to acquire or merge with a company. . For a company that is in the crosshairs of a SPAC, this is a way of going public, since once the operation is completed, it replaces the SPAC in the stock market.
So far this year, new listings for these vehicles have raised $12.1 billion, according to Dealogic data published by the Wall Street Journal. This amount will be even higher with the launch this week of Pershing Square Tontine Holdings, a blank check entity formed by billionaire investor Bill Ackman, whose objective is to buy “mature unicorns”, that is, veteran start-ups with a valuation of more than 1,000 million dollars in the private market and a projection of substantial growth.
This mechanism has also been used by the electric truck manufacturer Nikola and the sports betting platform DraftKings to go public. Both were purchased by a SPAC. Richard Branson’s space tourism company, Virgin Galactic Holdings Inc, also went public on the NYSE last year through a SPAC.
On Sunday, the insurer MultiPlan announced its merger with a blank check company, in an agreement valued at 11,000 million dollars, which is postulated as one of the transactions of this type ever recorded. According to the WSJ, so far this year, twenty companies have used operations with different SPACs to go public. Nikola and DraftKings have been the largest companies to date to choose this route to market debut rather than launch a conventional IPO.
However, there are also growing critics who fear that companies listed through SPACs do not receive the same scrutiny as traditional IPOs, creating risks for investors.
Facebook Comments
Disqus