In 2007, just before the credit crisis broke, 66 blank check companies (special purpose acquisition companies, or SPACs) raised a total of $12.1 billion on the US capital market. In 2009, when the markets crashed, blank check offerings al but disappeared: one solitary company raised $36 million.
This year, things turned around again, and blank check companies are again in fashion. This year, 16 companies have raised a total of $1.1 billion.
Blank check companies are companies with no activity founded with one aim: to merge into themselves the activity of one or more privately held companies, giving them a back door entry into the capital market. SPAC founders generally invest a few tens of thousands of dollars in setting up the company, so that the risk involved is close to zero.
A company like this has eighteen months from the date of its IPO to merge into it the activity of a private company, or 24 months, if within the first eighteen months it signs a memorandum of understanding or a final agreement on a merger. If the company does not meet this timetable, it is liquidated, returns the money it raised to the investors (with interest), and the units it issued (each comprising a share and a warrant) are delisted from the OTC market.
Many SPAC companies are wound up because they fail to find a bride, but others fail in the process of obtaining approval from the US antitrust regulator for a merger. This procedure has become long and cumbersome, requiring a great deal of patience on the part of investors in SPACs, but a US law firm, Loeb & Loeb, has found a way of making it faster and less trying.
According to its website, Loeb & Loeb worked together with the US Securities Exchange Commission to develop its SPAC 2012 model, which it calls Innovated Public Acquisition Company (IPAC).
An IPAC is similar to a SPAC, but with one important difference: the merger of a private company into the IPAC can be carried out without the SEC's prior approval, and so a deal can be closed within weeks instead of months.
Moreover, only after the merger takes place can IPAC shareholders who object to it (sometimes there are objectors) demand their investment back. In a normal SPAC, a general shareholders meeting is held at which the merger must be approved by a 60-80% majority, depending on the SPAC.
The first company to adopt the IPAC model was in fact an Israeli company called Selway Capital Acquisition. It raised $20 million through an issue of 2 million units at $10 per unit. Loeb & Loeb was legal counsel to Selway, and it already has five more IPAC offerings in the works.
Behind Selway Capital Acquisition is Yaron Eitan, who founded Reshef Technologies and Geotek Communications, who already has experience in the SPAC industry. Four and a half years ago, he floated Israeli SPAC Vector Intersect Security Acquisition (of which Minister of Defense Ehud Barak was a director for a short time), which raised $59 million, and later acquired Cyalume Technologies Holdings, Inc., which is still traded on the OTC market at a market cap similar to the capital raised by Vector.
Eitan is president CEO of Selway Capital Acquisition. Also invested in the company is Yair Shamir, son of former prime minister Yitzhak Shamir, and formerly chairman of Shamir Optical Industry Ltd., El Al, and Israel Aerospace Industries. He serves as chairman of Selway Capital Acquisition.
Published by Globes [online], Israel business news - www.globes-online.com - on December 25, 2011
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