'Blank Checks' Generate New Interest

--The black sheep of the IPO world quietly took over a large part of the market in 2007, with so-called blank-check debuts generating nearly a quarter of all new stocks that listed in the U.S --There were 66 initial public offerings of blank checks -- also known as special-purpose acquisition companies, or SPACs -- priced this year in deals that raised a total of $12 billion. That is 23% of the total number of U.S. IPOs and 18% of the money raised, according to data from Dealogic. In 2006, blank-check IPOs raised $3.4 billion, accounting for 7% of the total money raised in IPOs and 16% of the number of new issues, a percentage-point increase equaled only by the growth in technology IPOs. --Once seen as deals of questionable quality, blank checks are essentially empty shells that generally give themselves 18 months to two years to acquire an operating company with the proceeds from an IPO. --The performance of these stocks is attention-worthy. The Morgan Joseph Acquisition Company Index, launched in 2006 to measure the performance of all blank-check companies that went public since 2003 up to the point that they complete an acquisition, was up 28.25% for the year as of Friday. --The increasing popularity of the structure marks a stark change in the deal-making environment. Blank-check companies are like private-equity firms in their mission to acquire operating companies. But private equity, a rival for acquisitions, has been stung in the past few months by strains in the corporate debt market, which they rely on heavily for financing. Blank checks, by contrast, turn to public stock markets for cash and issuance has kept going strong. Some investors like them because the structure offers a quicker route to cashing out of their investments than does private equity. --Wall Street has noticed. SPACs used to be underwritten primarily by smaller investment banks like Morgan Joseph & Co. and Ladenburg Thalmann, but big Wall Street firms and some big names in the world of deal making are joining in. Names such as Citigroup Inc., UBS AG, Deutsche Bank AG, Credit Suisse Group, Lehman Brothers Holdings Inc. and Merrill Lynch & Co. increasingly are showing up on prospectuses alongside the typical blank-check underwriters. Players such as Nelson Peltz and Ronald Perelman also are involved. --Citigroup bankers say one reason they began to underwrite such deals was investor demand for private-equity type investments with shorter timelines than actual private-equity funds. The investment bank became more involved after underwriting Boulder Specialty Brands Inc., which went public in 2005 and this May acquired Smart Balance Inc., a food marketer best known for its trans-fat-free margarine. --"The main advantages are liquidity and transparency," says William D. Fertig, chief investment officer of Context Capital. "If investors put money in a private-equity fund, they might get it back in four to five years. They have no say over what the fund buys. In a [blank-check company], investors get to call the shots." If shareholders don't like the proposed acquisition, they can get their money back, less fees, and walk away, even if the majority votes for a deal, he adds.