Mikaila Adams
Editor, The Financial Update
At a recent informal sit down in New York, AMEX Head of Equities Rob Wotczak spoke about the resurgence of the Special Purpose Acquisition Corp. (SPAC). While popular in the '90s, the investment vehicle fell out of vogue quickly due to some unscrupulous issuers. Wotczak suggested the corporations weren't appropriately regulated because they weren't listed on a national exchange.
Since that time, SPACs have made a comeback. A few years back, a series of potential issuers and investment bankers brought back the idea, but with a caveat of conditions designed to safeguard the investor. AMEX worked with state attorney generals and the SEC to become the first national exchange to go through the due diligence process to put checks and balances in place.
To protect investors, 80% of shareholders have to vote to approve a deal or transaction. If the founds deal isn't appropriate to shareholders they have right to vote it down and get their money back. Additionally, the money held must be rolled into an escrow account holding interest while the acquisition target is sought. Most SPACs issued today require 90% - 100% to be held in escrow.
In light of the new guidelines, SPACs have matured tremendously. Whereas early SPACs raised roughly $50 million to $100 million, capital raised today can reach anywhere from $300 million up to $1 billion. "There is a tremendous amount of capital being raised," reiterated Wotczak.
The sole purpose of the SPAC is to locate an acquisition target. A SPAC will start with a sophisticated management team, perhaps a retired Fortune 500 executive. Sole purpose is to go out and find an acquisition target. Wotczak believes the process is 'more efficient and much cleaner' than buying a public company and merging it because the management is focused on finding the appropriate target and not simultaneously running a business.
Last year AMEX raised over $10 billion from 50 SPAC transactions. "Fifty is a very big number," said Wotczak. These 50 transactions represented 25% of the overall US IPO market. "It's become a very significant part of capital raising and conversation of banks," he continued. To his knowledge, there isn't a large bracket investment bank that has not become involved in SPAC process. Bank of America, Deutsche Bank, CitiGroup, and Goldman Sachs have all filed applications. To Wotczak this "ratifies the overall process and program of SPAC market."
This seeming reemergence is also reported in an analysis performed by PriceWaterhouseCoopers. The company's 2007 US IPO watch reports that "SPAC activity represented more than 50% and 35.1% of the financial services IPO deal volume and value in 2007, respectively."
Of the 50 AMEX SPAC transactions there are about six involved in oil and gas and one involved in infrastructure. "A lot of the bankers, practitioners, and influencers in oil and gas space have become very interested in SPACs," he said. He expects to see the number of oil and gas related ventures rise in the next six to 12 months.
Raising money through a SPAC has much the same feel as a traditional IPO. Sarbanes Oxley and SEC regulations must be met, and the exchange listing process is the same. One difference is the access to subset investors that issuers don't necessarily have otherwise.
The most compelling, however, is its touted near guarantee to the investor. "They have a prescribed period of time (typically 18 - 24 months) to find a deal. If they don't, they will get money back plus interest. If they don't like the transaction found, the same applies; it is voted down and the SPAC dissolves. The money gets returned plus interest," he explained.
While the AMEX remains the only major stock exchange with SPAC listed in US, competitors are now coming through with filings. Wotczak believes the progress made by AMEX and its 'traction in marketplace' gives it a very strong head start.
A future source of strength for AMEX may just be its pending merger with the New York Stock Exchange (NYSE). New standards have yet to be determined (AMEX lists $50M and above, while NYSE currently only lists $200M and above), but Wotczak believes in the niche AMEX has carved out in the SPAC marketplace and believes NYSE is looking at AMEX's forefather reputation to carry over into whatever changes take place following the merger.
