A number of recent transactions suggest that special-purpose acquisition companies (so-called SPACs) have returned to favor with investors and dealmakers. SPACs are “blank check” companies without current operations that raise capital through initial public offerings. The offering proceeds are held to use in connection with a future acquisition and, if the company does not complete an acquisition within a specified period of time, most of the offering proceeds are returned to investors.
Unlike illiquid interests in private equity funds, SPAC shares are publicly traded. However, in order to complete an acquisition, a SPAC must obtain approval from its shareholders, which creates deal risk not present in most private equity acquisitions. In some cases, investors have accumulated large stakes in SPACs at discounts to their cash liquidation value either to wait out the end of the investment period or to vote against a proposed deal in order to receive a distribution of cash proceeds. For example, according to Investment Dealers’ Digest, approximately half of the 40 SPAC acquisitions announced in 2008 failed to obtain shareholder approval. Further, as Universal Business Payment Solutions Acquisition Corporation announced on September 11, 2012, SPACs run the risk of delisting for failure to have at least 300 public stockholders.
Nonetheless, the popularity of SPACs generally rises and falls with M&A activity more generally. Recent SPAC IPOs include offerings by BGS Acquisition Corp. and Andina Acquisition Corp. in March 2012. BGS stated in its prospectus that it intended to focus on operating businesses that have their primary operations located in any of: (a) the Mercosur countries (Argentina, Brazil, Paraguay and Uruguay), (b) associate member countries of Mercosur (Bolivia, Chile, Colombia, Ecuador and Peru), (c) Latin America generally, or (d) the United States in areas principally serving the Hispanic market. Andina disclosed that it would focus on transactions involving the Andean region, particularly Colombia.
Recently announced SPAC acquisitions include:
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