Shlomo Reifman 05.17.07, 6:00 PM ETBusiness development companies (BDCs) are often confused with Special Purpose Acquisition Companies (SPACs), also known as "blank check" companies or "blind pools." These have a bad reputation because "the lifespan of a typical SPAC is usually not long or successful," says BB&T Capital Markets' Vernon Plack.
Unlike BDCs, which already have an investment portfolio at least partly in place before they have a public offering, SPACs typically come to market as empty shells, but with plans to buy and operate one or more companies in a particular sector. Plack prefers to see a prior history so that "you're not just handing $100 million to someone with no track record."
SPACs also tend to use leverage in their acquisitions. A recent example is Ad.Venture Partners, run by former Net2Phone Chief Executive Howard "Howie" Balter. Last August it raised $54 million, and in March it acquired 180 Connect, a company that installs and integrates home entertainment and communications devices.
According to Dealogic, since the start of 2004, underwriters brought 106 SPACs to market, in offerings worth $8.5 billion. These stocks have a relative-to-market performance of 105 (where 100 means matching the S&P) from their offering value until the end of April this year.
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