New York – In the Deal Journal this morning is an interesting article on SPACs or Empty Shell Companies. NASDAQ is hoping to start listing SPACs. A SPAC is a vehicle that is a publicly-traded shell companies looking for a company to take public. The mechanism can short circuit the IPO process for a small company, since the shell company is already public. It is important to note that once the SPAC finds a company, it still needs to fill out form S-4 to register with the SEC under the Securities Act of 1934.
The striking aspect of the SPAC market is that the shell companies constituted the 25% of the total number of IPOs done in 2007. As well, there are 143 SPACs on the shelf looking to launch.
There is one alternative research provider that covers SPACs specifically – SPAC Analytics. Neil Danics, President and chief researcher. Mr. Danics reminds us that the SPAC is only a cash transaction where investors allocate funds to an investment account that is geared towards finding an appropriate firm to take public. If the SPAC cannot identify an appropriate company within two years, the money is returned to the investors and the SPAC is dissolved.
While the SPAC market has grown substantially in recent months, their performance has been less than stellar in the current market environment. Of the 66 SPACs that were launched last year, only 11 are trading at more than 3% above their offering price. This is a reflection of the need for unbiased SPAC analysis, of the type provided by SPAC Analytics.
We include the link to the blog below:
http://blogs.wsj.com/deals/2008/02/26/nasdaq-wants-spacs-should-investors/