SPACs Pick up Slack in Shaky Credit Market

SPACs seen by some as less risky than blind pools

by Julia Neyman

Imagine the following investment scenario: You give a large sum of money to a seasoned principal, who uses it to take a promising company public. The principal, who has spent the last 30 years building his Rolodex on Wall Street, has two years to seal the deal.

If the deal happens, you could get a solid return when the company goes public. If two years pass and a deal hasn't materialized, you get your money back.

It's called a special purpose acquisition company (SPAC), and finance insiders say it's as close to a win-win as they've seen in awhile. They explain a SPAC as a cousin of the traditional blind pool offering, but not as susceptible to fraud.

Investors are safer because 99 percent of their investment is held in a trust until the deal goes. Principals take on more risk, but if they have solid Wall Street contacts, making a SPAC work is just a matter of finding a promising private company and filing all the paperwork to take it public.

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Sporty SPAC Scores on IPO Completion

Sports Properties Acquisition Corp. Announces Completion of Its Initial Public Offering

Thursday, January 24, 2008; Posted: 12:36 PM

NEW YORK, Jan 24, 2008 (BUSINESS WIRE) -- HMR/U | news | PowerRating | PR Charts -- Sports Properties Acquisition Corp. (AMEX: HMR.U), announced today that it had completed its initial public offering. Sports Properties is a special purpose acquisition company, also known as a SPAC. The initial public offering of units was sold at an offering price of $10 per unit resulting in gross proceeds of $200,000,000. Each unit issued in the initial public offering consists of one share of Sports Properties's common stock, and one warrant to purchase one share of common stock, at an exercise price of $7 per share. Initially, the units will be the only security trading.

Andrew Murstein, Vice-Chairman of Sports Properties stated, "The entire team is very excited to start looking at investment opportunities. We believe there are many exciting opportunities for us to look at in the sports, leisure and entertainment industries, and we very much look forward to starting the process."

The President and CEO of Sports Properties is Tony Tavares. Mr. Tavares is the former CEO and President of SMG, a premier management company engaged in the private management of stadiums, arenas, theaters and convention facilities in the U.S., Europe and Pacific Rim. He has served as president of several Major League Baseball franchises, most recently the Montreal Expos and Washington Nationals.

Mr. Tavares previously served as the President and CEO of Disney Sports Enterprises, successfully launching and operating the Mighty Ducks of Anaheim, an NHL expansion franchise, and leading negotiations for the acquisition of the California Angels.

The board of Sports Properties consists of:

Jack Kemp, Chairman, was the Republican Vice-Presidential candidate in 1996. He played 13 years as a quarterback in the American Football League and National Football League, followed by election to the United States House of Representatives for 18 years before serving as Secretary of Housing and Urban Development ("HUD") from 1989 to 1993. Mr. Kemp currently serves on the boards of several companies including Six Flags, Inc. and Oracle Corp.

Andrew Murstein, Vice Chairman, has served as the President and a director of Medallion Financial Corp., a publicly traded investment company, since its founding and IPO in 1996. He is also one of its largest stockholders. Under Mr. Murstein's guidance, Medallion has acquired several companies and invested over $3 billion in various companies and industries.

Henry Aaron, Director, has an unmatched reputation as one of the world's most respected sports ambassadors. A member of Major League Baseball's Hall of Fame, he held the title of Major League Baseball's all-time leader in home runs for 33 years and currently is the all-time leader in total bases and RBIs. He is currently an executive with the Atlanta Braves and a recipient of the Presidential Medal of Honor, which was bestowed on him by President George W. Bush.

Mario Cuomo, Director, is a former three-term Governor of the State of New York. He has extensive relationships within and working knowledge of government and public / private partnerships, and as Governor oversaw annual state budgets in excess of $10 billion.

Read more >>> Press Release

Related >>> Grand Slam Acquisition

Related >>> No bonds for Hammerin' Hank

Blank Checks Cashing in During Decline

January 23rd, 2008 by Lilla Zuill

While traditional initial public offerings on U.S. stock exchanges have floundered, the once-obscure “blank check” arena has only gained traction so far this year, becoming a kind of safe playground for investors, and a retreat for some private equity players finding it tougher to raise debt now that credit terms have tightened.

Four weeks into 2008, 5 IPOs by so-called blank check companies– also called special purpose acquisition companies, or SPACs – have tapped investors for about $4 billion. The latest, activist Nelson Peltz’s Trian Acquisition I Corp, was expected to raise $750 million on Wednesday.

In stark comparison, only one mainstream IPO has managed to stir up enough interest — Williams Pipeline Partners which raised $325 million last week – to actually make it to market, and has disappointed since its debut.

Blank check companies, which are formed to acquire other businesses and are little more than a shell until an acquisition is made, took off in 2007, accounting for roughly every fourth new U.S. listing, raising nearly $12 billion.

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'Blank Check' Companies Having Day In The Sun

The first five IPOs of 2008 have priced, and four of them have some curious things in common: no revenue, no history and no operations.

That's because they're special purpose acquisition companies, or SPACs. Sometimes called "blank-check" companies, SPACs are corporate shells formed in order to make buyouts. Although they don't reveal their buyout targets at the time of the offering, they do have to put the candidates up for the approval of at least 70% of shareholders. If the buyout doesn't go through, shareholders get a refund.

This unique investment model has grown explosively in the past few years. According to Renaissance Capital, in 2003 just one SPAC came public. But last year 65 of them hit the boards, raising $11.7 billion. The 2008 pipeline already is looking to beat that.

One important SPAC player is Mark Klein, former chief of Ladenburg Thalmann LTS and current CEO of Alternative Asset Management Acquisition (AMEX:AMV) AMV, which came public on Aug. 1. In an interview with IBD, he explained the SPAC concept and why it has become so popular.

IBD: SPACs are often called "blank-check" companies, but apparently they're a little different from traditional blank-check companies. Can you explain that?

Klein: There's obviously been an evolution of the product.

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HAC SPAC Meeting Setback

Boston-based Harbor Acquisition Corporation (Amex: HAC; HAC.U; HAC.WS; "Harbor") announced today that it intends to further adjourn the special meeting of its stockholders now scheduled for 10:00 a.m. (EST) on Friday, December 21, 2007, without conducting any business, and reconvene the special meeting at 10 a.m. (EST) on Monday, December 31, 2007, in order to give it more time to solicit proxies and its stockholders additional time to consider and vote on the proposed acquisition of Elmet Technologies, Inc., and the related proposals at the special meeting.

The reconvened special meeting on December 31, 2007 will be held at the offices of Davis, Malm & D'Agostine, P.C., One Boston place, 37^th Floor, Boston, Massachusetts, the same location as described in the original notice for the special meeting.

Harbor encourages all its stockholders to vote at the reconvened [a/k/a New Year's Eve] special meeting.

About Elmet Technologies, Inc.

Originally founded in 1929, Elmet became an independent company in early 2004 when its current CEO Jack Jensen led the management buyout of Elmet from its former parent, Philips Electronics North America Corporation.

Read more >>> press release

UPDATE: Harbor Acquisition Corporation Announces Further Adjournment of Its Special Meeting of Stockholders to February 8, 2008

Grand Slam Acquisition Corp. (APP, VRY, TCW) - SPAC IPO

Grand Slam Acquisition Corp. is a SPAC (special purpose acquisition company) that has filed to come public via an IPO. But this is larger than most SPAC IPO's with a $750 million proceeds target. Each unit will consist of a share of stock at the $10 set SPAC price and will consist of a warrant. Citigroup is listed as the lead underwriter.

As you can see by its filing, it is not honing in on a set business for the time being: "Our efforts in identifying a prospective target business will not be limited to a particular industry although we will not search for target businesses in the financial services industry or the entertainment, media and/or publishing industry.... We do not have any specific initial business combination under consideration. We have not, nor has anyone on our behalf, contacted or been contacted by any prospective target business or had any substantive discussions, formal or otherwise, with respect to such a transaction."

While the target sector may not be disclosed, the SPAC says it wants to pursue stable leadership companies. Here are the notes:

• Established Companies with Proven Track Records;
• Companies with Strong Free Cash Flow Characteristics;
• Strong Competitive Industry Position;
• Experienced Management Team.

The company is led by the old Endeavor Acquisition Corp. chairman Eric Watson, which just recently became American Apparel (AMEX:APP). He's been around this game before as he has been behind other SPAC's such as Victory Acquisition Corp. (AMEX: VRY) with a $390 million market cap today, Triplecrown Acquisition Corp. (AMEX: TCW), and Performance Acquisition Corp.

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Blank check IPOs soared in popularity

In 2007, special purpose acquisition companies, or blank-checks, made up 23% of the total number of IPOs. In other words, nearly a quarter of IPOs this year have been for businesses with no business. A blank check IPO exists to raise money, and then seeks to use that money to acquire another company.

For instance, Endeavor Acquisition went public as a blank-check IPO and then acquired American Apparel. Now the company trades as American Apparel (AMEX: APP), and Kevin Kelly wrote about why he thinks that company is a buy here.

Sometimes companies that go public through this process can be good investments, but there’s something investors need to keep in mind: A company that has been acquired by a SPAC has just been put up for sale and is therefore unlikely to be undervalued. If the sellers could have gotten more for it, they would have sold it to someone else.

A piece in the Wall Street Journal discusses (subscription req'd) blank checks and some of their pitfalls. American Apparel is definitely one of the better/most interesting companies to go public this way (the CEO’s alleged perversions aside) in recent years but, in general, I think blank checks are something for investors to avoid.

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Be afraid. Be very afraid.

According to Fortune, blank check IPOs are popular again. Also known as special purpose acquisition companies (SPACs), these are IPOs that are done to raise money to possibly buy another company. That is, you are investing in a company with no business model, no sales… nothing. You’re just hoping that the management can find some brilliant acquisition that will create value.

Given the tendency of acquisitions to do anything but create value, you have to wonder why anyone would invest in a SPAC. But that doesn’t mean people won’t do it anyway. From Fortune: “SPACs have soared in popularity in recent years. So far this year, some 40 blank check companies have raised $5.3 billion through public offerings, compared to 13 companies that raised $484 million in all of 2004, according to Dealogic.”

The idea of investing in a company where you have no idea what the business will be is hardly new. During England’s 18th Century South Sea Bubble, a promoter raised money through a stock offering for “a company for carrying on an undertaking of great advantage, but nobody is to know what it is.”

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