SUMMARY NOTES
Wall Street has never been bashful about recycling old products and concepts. One of the latest concepts to be recycled is the blank check IPO. Blank check companies are also known as Special Purpose Acquisition Companies (SPACS).
As of March 28, 2008, 156 blank check companies have gone public, raising gross proceeds totaling $21,480,365,433 (give or take a buck or two). Another 85 companies currently have registration statements on file with the SEC and are looking to raise $15,655,120,608 (once again, give or take a buck or two). If you back out the companies that filed their initial registration statements before July 3, 2007, there are 69 companies currently in registration that are looking to raise $14,481,999,998. 11 other companies have withdrawn their registration statements, two of which subsequently went public on London’s AIM stock exchange where they raised gross proceeds totaling $381 million.
48 blank check companies have actually completed acquisitions, and another 23 companies have deals pending. 14 companies have failed to close on their proposed acquisitions and have either liquidated or are currently in the process of liquidating.
71 companies that have gone public are still looking for deals.
There have been several high profile transactions. The first was the acquisition of Jamba Juice Company by Services Acquisition Corporation International. Freedom Acquisition Holdings subsequently acquired GLG Partners and Endeavor Acquisition acquired American Apparel.
The first of the new crop of blank check companies went public on August 23, 2003.
PERFORMANCE
Of the 48 companies that have completed transactions, the securities of 15 of these companies are trading above their original offering price and 33 are trading below. The average company with a completed transaction is up 11.04% versus an average increase of 6.27% for the Nasdaq Composite. (It should be noted that the results are skewed by the fact that several SPACs have generated huge returns.) Of the 23 companies that have open deals, the securities of 14 of these companies are trading at or above their original offering price and 9 are trading below. The average company with an open transaction is up 6.44% versus an average decrease of 3.73% for the Nasdaq Composite. The securities of the average company still looking for a transaction has declined 1.33% since its original offering versus an average decrease of 10.71% for the Nasdaq Composite.
A note on methodology: When calculating the return percentages for each of the companies, I have added the current market value of the applicable common shares and warrants, subtracted the unit cost, and divided the resulting sum by the original unit cost. In those instances where companies have redeemed their warrants, for the warrant value I have used the value that was created through the exercise of the warrant. For example, in December 2007, HLS Systems International (originally Chardan China North Acquisition) redeemed its warrants. The common stock of HLS last traded at $7.80. If you assume that $2.80 of value has been created from each of the two warrants (which had a strike price of $5.00 per share), the original units, which were priced at $6.00 and are no longer trading, now have a value of $13.40 ($7.80 + $2.80 + $2.80). The computation for calculating the return on HLS: $7.80 + $5.60 - $6.00 = $7.40. $7.40 divided by $6.00 yields a return of 123.33%.
I realize that the second calculation does not include the cost of exercising the warrants. If we had the exercise cost of the two warrants ($10.00) to the original cost of the unit ($6.00), our basis is $16.00. We now own three shares with a total value of $23.40. As an alternative, we could compute the return as follows: $23.40 -$16.00 = $7.40. $7.40 divided by $16.00 yields a return of 46.25%.
I am open to suggestions.
When calculating the returns on the Nasdaq Composite, I used the closing index price on the date prior to each of the individual offerings. |
