Blank check initial public offerings look poised to carry their momentum from recent months into 2008, based on a bumper crop of new regulatory filings, but some say uncertain market conditions could put an end to the boomlet.
In 2007, more than 60 blank check companies -- also referred to as special purpose acquisition companies, or SPACs -- raised a record $12 billion with U.S. initial public offerings, $6 billion of which came in the year's final quarter.
Blank check companies are formed to acquire other businesses and each remains little more than a shell until it buys a business. While blank check offerings have been around for a few years, they only really came into vogue in the last year.
At the pace set in 2007, blank check IPOs -- sponsored by such heavyweight investors as Texan buyout veteran Tom Hicks and financier Nicolas Berggruen -- raised about one-quarter of total U.S. IPO proceeds, and three times the amount raised by blank check offerings a year earlier, according to data tracker Dealogic.
Investors, who are returned their investments when blank check companies do not close on acquisitions within a contracted period of time, have been drawn to them as a more flexible alternative to private equity funds.
Aside from the returned funds feature, investors also have to give their approval once an acquisition target is identified.
More offerings are on tap for the months ahead, with 55 blank check companies having filed with the U.S. Securities and Exchange Commission to sell shares to the public, according to Ben Howe, chief executive of Boston-based investment bank America's Growth Capital, who has been involved in a number of blank check deals.
Although there is no guarantee that all the offerings in the pipeline will make it to market, investors have been eagerly piling in. Blank checks have absolutely been booming, said Howe. There has been a surge in high-profile sponsors, he added, which has boosted credibility for the once obscure sector.
One in the pipeline is Trian Acquisition I Corp, a new blank check being sponsored by billionaire activist investor Nelson Peltz.
Trian plans to raise up to $750 million with an IPO, and subject to shareholder approvals would have up to 2-1/2 years to close on an acquisition.
The company would pay $10,000 a month as an administrative fee to Peltz's Trian Fund Management to help it identify a takeover target, according to an amended filing with the U.S. Securities and Exchange Commission on Friday.
Peltz has made a name for himself by buying up large stakes in companies such as condiment maker H.J. Heinz Co and No. 3 hamburger chain Wendy's International Inc, and then agitating for management to drastically reduce costs.
This week Peltz was back in the headlines, getting regulatory clearance to buy a stake in Marsh & McLennan Cos Inc. Marsh, once the largest insurance broker, has been beaten down in recent years by a costly regulatory probe and weak results.
While Trian Acquisition has not said which sectors it will target, it has disclosed that it will stick close to Peltz's playbook, according to its regulatory filing.
Trian will search for a candidate where costs can be trimmed, it said in the filing, and it said it could seek to acquire a noncore business being spun off by a company in which Trian Fund Management already has a stake.
A spokesman for Peltz was not available for further comment on Trian Acquisition's plans.
The money players that are putting up SPACs can probably raise money under any circumstances, said Howe; and so far, they have not disappointed with performance data.
Currently there are 127 blank check companies with actively traded shares and warrants, and on average the units are trading 15 percent higher than their IPO prices, said Howe.
IS CLOUT ENOUGH?
Backing by the likes of Peltz and Hicks adds luster to blank check offerings, said Howe; but turbulent market conditions, and the surge in 2007 offerings could lead some investors to take a breather.
Because so much has been invested in the second half of 2007, and has not yet been used (for acquisitions), the small, close-knit group of hedge fund investors -- the SPAC Mafia -- may have a desire to watch the performance of their investments for a bit before putting more money in, he said.
Market turbulence could also be a damper. With indexes down, the IPO market having slowed at year-end, continued turmoil in the broader capital markets, debt markets limping along and (weak) economic indicators, these are all forces moving against (blank check offerings), he said.
In the worst case scenario, Howe sees the pace of blank check IPOs slowing in 2008, and at the very least predicts first-quarter activity could cool from the mad rush of recent months.