Since the first of the year, 16 IPOs were cancelled, according to U.S. Securities and Exchange Commission filings. That was up from 11 IPOs cancelled during the first six weeks of 2007 and up from seven IPOs cancelled during the same period in 2006.
Since the first of the year, 31 new IPOs have been filed. That was up from 23 IPOs that were filed during the same period a year ago and up from 26 IPOs that were filed in 2006.
So if you’re reading just the financial news headlines, the IPO market’s story seems like a case of the glass being half empty.
But if you’re watching the SEC records of IPO filings, it’s apparent that the glass is half full.
Good Morning, Vietnam
And now for the story behind the news. The first six weeks of 2008 have been all about the special purpose acquisition companies or SPACs, also known as “blank check” companies.
Seventeen “blank check” companies have filed to go public since January 1 and two were cancelled. What’s more: Eight of this year’s 13 IPOs that have been priced were blank checks.
And here’s what many missed from last week’s traffic. The only deal to get out the door was a blank check. It was:
BBV Vietnam S.E.A Acquisition (OTCBB: BBVUF) priced 4.5 million units at $8 each on Thursday evening. The deal closed Friday at $8.25, UP 3.13 percent from its initial offering price and that came in a market where all the popular stock market indexes lost about 4.5 percent each for the week.
You read that right -– Vietnam. BBV was formed to invest in business opportunities primarily in the Socialist Republic of Vietnam.
If you think that is speculative, you might read the cover of its prospectus. It states that about 100 percent of the proceeds from the offering will be placed “into a trust account at JPMorgan Chase Bank, maintained by Continental Stock Transfer & Trust Company, acting as trustee.” The proceeds raised from “blank check” offerings are normally invested in U.S. Treasuries, earning income.
BBV Vietnam has up to 36 months to find an investment vehicle and, failing that, it will be liquidated.
For the investor, it is much like buying a 36-month call, but only better. If the company comes up with a merger or acquisition, you can accept it or cash out and get your investment back plus accrued interest income from the trust. If nothing comes to pass by the end of the 36 months, you get your investment back plus the accrued interest. Naturally, you can sell the common stock warrants at any time.
In comparison, if you own a 36-month call on a stock and it runs the course and you haven’t sold it or exercised it, you don’t get your money back. So you have a loss and a tax write-off.
Now what’s better in a “nothing doing” scenario? Your money back plus interest? (What you get with a “blank check” IPO.) Or a loss to write off to Uncle Sam? (What you get with a call on a stock that expires before it’s sold or exercised.) Guess it all depends on your investment goals and your portfolio.
This brings us to this week’s IPO calendar. There are two SPACS, a carryover and several new faces at the IPO window. There isn’t much interest in this week’s offerings, according to the consensus of IPO professionals. But anything can happen and paid subscribers will be notified.