IPOs of blank check companies are growing despite the closure of the US government

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By Joshua Franklin and Trevor Hunnicutt

(Reuters) – One of the points in the IPO market is the freeze on stock market floats imposed by the closure of the US government and highlights quotations that generally remain under the radar of most investors.

The "blank check" companies, which launch IPOs to raise funds for acquisitions, take advantage of their unique structure to proceed without the approval of the Securities and Exchange Commission, which has been paralyzed by the longest government closure of US history.

With other outstanding stock market starts while the SEC remains largely closed, these companies, also known as Special Purpose Acquisition Vehicles (PSPCs), have the spotlight in the spotlight. projectors.

"At the moment, SPACs are a way for investors to participate in the IPO market when there is no other market," said Gregg Noel, head of West Coast Financial Markets Practice of Skadden, Arps, Slate, Meagher & Flom LLP. .

In a confrontation with the Democrats, US President Donald Trump asked for funding for the construction of a physical wall on the Mexican border in order to end the closure of the market, which entered its 33rd day on Wednesday and left 800,000 federal employees without pay. While both parties have offered small concessions, an agreement that resolves the stalemate remains elusive.

Most companies rely on the SEC to sign their IPOs after reviewing their prospectus for investors.

However, under SEC rules, companies can make their IPO registration "efficient" if they agree to block their IPO price 20 days before they are launched on the market.

SPACs are essentially "shell" vehicles without pre-existing assets and their initial valuation is based solely on the amount of cash raised, which allows the price of their initial public offering to be determined without alienating investors.

What's more, a SPAC's flyer can often follow a standard pattern, thus minimizing the risk of hindering the SEC without its return.

"If SPACs make up the majority of IPOs and it's up to date, it could give them greater visibility – SPACs could become a niche investment," said Eric Pestrue, Senior Investment Analyst at the Canadian Investment Partnership. Investment RiverNorth Capital Management LLC.

At least half a dozen SPACs have changed their statements to make them public without SEC participation, regulatory filings said. According to research firm Renaissance Capital, nine SAVS are publicly ranked for an IPO.

Excluding SAVS, some 80 companies have publicly filed with the SEC an initial public offering, according to Renaissance Capital.

Companies such as start-ups Uber Technologies Inc. and Lyft Inc have failed to move forward in anticipation of the resumption of SEC activities.

New Fortress Energy, an owner of liquefaction and LNG regasification facilities ahead of its IPO this week, will not carry out its plans if closure continues, according to one familiar with the matter.

No company has made an initial public offering on the US stock market since the market closed on December 22.

OLD RISKS REMAIN

SPAC IPOs have never had much success with long-term investors because of the risks involved: investors do not know in advance which company will buy a SPAC, although some specify in which sectors they want to be active. hedge funds speculating on the ability of SPACs to finalize their targeted acquisition.

<p class = "canvas-atom-canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "" The primary reservation investors are about SPACs is that it said, "said Chinh Chu, a Blackstone Group trainer The main reserve that investors have about SPACs is that it is about a new product and that it is a product. they do not really understand it, "said Chinh Chu, a former Blackstone group. negotiator who did two SPACs.

"It is important for the SPACs to have high quality management teams and to clearly explain their strategy in order to attract large mutual funds," added Mr. Chu.

Most SPACs also did not offer much reward. According to data provider Dealogic, SPACs averaged 8% between 2014 and 2018, compared with 28% for the entire IPO market.

The focus on SPACs during the shutdown could strengthen this asset class, which accounts for about 20% of the IPO market in the United States.

"The SPACs have their day now, it is certain.Is the closure could increase it? I think the government should remain closed and that interesting agreements will be concluded," said Howard Fischer, general manager and founding managing partner of Basso Capital, a dedicated hedge fund SAVP.

(Report by Joshua Franklin and Trevor Hunnicutt in New York, edited by Greg Roumeliotis and Sonya Hepinstall)