The Wall Street Journal-20080125-Blank-Check IPOs Swim Against Tide
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Blank-Check IPOs Swim Against Tide
There have been more initial public offerings withdrawn from the U.S. market this year than have priced, but there is one subsegment that continues to sell despite rough market conditions: blank-check companies.
In the first few weeks of 2008, there have been five completed blank-check IPOs, or those of companies structured as empty shells that aim to acquire operating businesses generally within a two-year window. Two of them in the past two weeks -- Trian Acquisition I Corp. and Sapphire Industrials Corp. -- raised $800 million each, tying for the second-largest blank-check deal ever. (The largest was Liberty Acquisition Holdings Co., which raised $1.04 billion in December.)
As of yesterday, only one "regular" IPO -- a $325 million offering by Williams Pipeline Partners LP -- had managed to debut, although there are three deals expected to begin trading today. They are: risk- management specialist RiskMetrics Group Inc., international water- services company Cascal BV and hospital-staffing specialist IPC The Hospitalist Co.
Meanwhile, 13 IPOs have been withdrawn or postponed this year, with only one dumped deal coming from the blank-check side of the market, according to data from Dealogic.
If the pace continues, the number of IPOs unplugged in January could top the 15 that were pulled in November; investors would have to go back to March 2001 -- when 33 IPOs were pulled -- to find a higher level, by Dealogic's count.
Why investors would be willing to buy into companies with no operating businesses yet spurn those that are actually up and running could be a function of the protective structures built into blank- check IPOs over the past two years, according to market observers. Most blank-check companies put close to 100% of the money raised from investors into escrow until they hold a vote on a potential acquisition target. If the planned deal gets voted down, or if a minority of investors decides to walk away from an approved deal, they still receive almost all of their investment back from escrow.
Of the 148 blank-check companies that have come public since mid- 2003, only seven have been liquidated or are in the process of shutting down after failing to find an acceptable acquisition, while 69 have announced or completed acquisitions, according to William Fertig, chief investment officer of Context Capital Management LLC, a hedge fund that invests in blank-check offerings. The remainder still have time to find acquisitions before their deadlines are up.
