The IPO Buzz: Blank Check, Please

This week’s spotlight has swung to a lesser god of the IPO market. On tap is a special purpose acquisition company (SPAC) or what is also known as a blank-check company.

Here is the story on the blank-check offerings.

Decades ago, it was not unusual for an IPO blank-check company to disappear, and maybe at a later date, its promoters would resurface in some sunny paradise with no extradition agreements with the U.S. But that’s no longer the case.

Today’s SPAC is a shell or a blank-check company with no operations. It goes public to raise money for mergers or acquisitions. The interest in the IPO is in the professional expertise of its directors and their ability to make magic happen with the offering’s proceeds.

A Win-Win Situation

Now here’s the kicker for today’s SPACs or blank-check deals.

The IPO’s proceeds are placed in escrow to earn interest. The SPAC usually has about 18 months to come up with a merger and/or acquisition target. When this happens, its investors are given a choice to accept or reject the proposal. If the investors accept the proposed transaction, it’s on to the future. But if the investors reject what’s on the table, they get their money back plus the accrued interest. That’s right. After 18 months, if nothing happens, investors get their money back plus the accrued interest.

In short, it is much like buying a call and getting your money back – plus interest – if things don’t work out the way YOU want.

This week’s calendar has two offerings. One is a transplant from the Tel Aviv Stock Exchange (a public offering) and the other is, yes, a blank-check IPO.

Drilling for Deals

KLR Energy Acquisition (KLREU – proposed) plans to offer 10 million units at $10 each during the week of March 7. Each unit will consist of one share of Class A common stock and one warrant.

KLR Energy is a Houston-based “blank-check” company formed recently for the purpose of acquiring and operating a business in the energy industry. The company has assembled a group of independent directors with industry knowledge as well as extensive experience in public company governance, executive leadership, operations oversight, private equity investment management and the capital markets. Its board members have served as CEOs, CFOs and directors, as well as in other executive and advisory capacities with numerous publicly traded and privately owned companies, according to its prospectus.

At press time, next week’s calendar had a single offering transplanted from the London AIM, but more on that later.

Stay tuned.

Disclosure: Neither the author nor anyone else on the staff has a position in any stocks mentioned, nor do we trade or invest in IPOs. The author and staff do not issue advice, recommendations or opinions.