Dan Primack has done some notable reporting on a new type of investment company, called a SPAC, and Silicon Valley is seeing its fair share of the action. We’ll let you make your own conclusions, but we get the impression from his reporting that many SPACs are a desperation play by venture/buyout firms that need to do financial engineering to stay in business.
A SPAC is a “specified purpose acquisition company,” which, as Primack explains, is basically blank-check acquisition company. It has no assets, but is formed to acquire an unidentified company somewhere. They typically trade on lower profile exchanges than NASDAQ or NYSE, for example the OTC Bulletin Board.
True, some respected heavyweight buyout firms seem to be involved, but Primack casts suspicion on others:
To put it in layman’s metaphor, imagine coming home from Best Buy and telling your spouse that you spent $1,000 on a ï¿½new electronics product.ï¿½ You canï¿½t explain what it is or what it does, but were assured by Jimmy at Best Buy (who you believe to be a high-tech god) that it will revolutionize your life, once itï¿½s shipped to you within the next year. How long until youï¿½re sleeping on the couch?
Primack looks at McCown De Leeuw & Co., a Menlo Park, Calif.-based buyout shop that…
…would have a tough time raising its fifth fund via “traditional” methods. Apparently, LPs say its fourth fund is underwater and not doing that well. So its leader Bob Hellman has set about raising capital from the public markets via a SPAC: He enlisted Wedbush Morgan Securities to lead manage the offering, which is designed to raise $80 million within the next few weeks.
Primack is balanced, noting that there are legitimate reasons for this sort of vehicle, and points to other articles covering the trend, but adds: Of course, if it fails, expect McCown to go the way of the dodo. Hellman didn’t comment, and we haven’t talked with him either.
Another thing worth noting is that there’s a lot of money out there, and seems like hundreds of new investors are rushing to the buyout space. Isn’t this another sign there is too much supply, for too few ideas?
Update: Primack has the latest action (scroll down), which this time includes Apple co-founder, Steve Wozniac:
Acquicor Technology Inc., a Newport Beach, Calif.-based blank check acquisition company, has filed to raise $150 million via an IPO. It would trade on the OTC Bulletin Board, with Wedbush Morgan Securities and ThinkEquity Partners serving as lead underwriters.
Management includes Ellen Hancock, former CEO of Exodus, and Woz.