The IPO Buzz: Hidden Treasure

Trading above or below their offering prices is not a major concern in the SPAC market. What is important for investors to know is where the SPAC trades in relation to its estimated liquidation value -– or ELV.
And many are trading below their ELV.
The liquidation value is similar to a closed-end fund where the latter’s shares trade at a discount from its net asset values. Where the SPACs and closed-end fund differ is that SPACs have a shelf life of about 18 to 24 months. Closed-end funds don’t.
A Better Money-Back Guarantee
When the current incarnation of SPACs came to Wall Street in 2003, about 85 percent of the proceeds raised from the underwritings were placed in trust, according to U.S. Securities and Exchange Commission filings. That money was invested in U.S. Treasuries pending the ability of the SPAC’s management to make an acquisition. If it didn’t happen, the SPAC would be liquidated and the funds held in trust plus accrued interest would be returned to the shareholders. That has happened to 10 SPACs, according to available records.
But things started changing by the end of 2005. It became common practice to place 95 percent and in some cases, even 100 percent or the IPO proceeds in trust. The money was still invested in U.S. Treasury debt, pending an acquisition.
This latest scenario is even more attractive to investors because up to 100 percent of the IPO proceeds could be held in trust. And if the SPAC management fails to make an acquisition, then the SPAC would be liquidated and all funds –- PLUS accrued interest –- would be returned to shareholders.
Marquee Names in Management
The meltdown of today’s stock market has bitten into the SPACs as well. Below are a few examples with high-profile management teams that are selling below ELV:
  • BPW Acquisition (AMEX: BPW-U) – The management team includes Michael E. Martin, who has been president of BNYH; Joseph R. Perella, who co-founded Wasserstein Perella in 1988, and others. BPW offered 35 million units at $10 each on Feb. 26, 2008. Its ELV, according to available reports, was $10.24. The units closed at $9.71 on Friday, March 7.
  • Hicks Acquisition Company I (AMEX: TON-U) – The management team includes Thomas O. Hicks, chairman of Hicks Holdings LLC. Hicks Acquisition offered 55.2 million units at $10 each on Sept. 28, 2007. Its ELV was $9.97. The units closed at $9.06 on Friday, March 7.
  • Sports Properties Acquisition (AMEX: MHR-U) – The management team includes Jack Kemp, Hank Aaron and Gov. Mario M. Cuomo. Sports Properties offered 20 million units at $10 each on Jan. 18, 2008. Its ELV was $10.28. The units closed at $9.70 on Friday, March 7.
These are only a few of the 98 SPACs that are trading in today’s market, waiting for acquisition opportunities to arise.
The backlog is almost as large. There are 70 SPACs in the IPO pipeline, according to SEC filings. They expect to raise $12 billion.
And 47 SPACs have completed acquisitions since 2003. The first one was Millstream, which offered 4 million units at $6 each on Aug. 25, 2003. Millstream acquired NationsHealth (Nasdaq: NHRX) on Aug. 31, 2004. NationsHealth stock closed at 31 cents per share on Friday, March 7 — DOWN 94.5 percent from Millstream’s offering price. But don’t cry for Millstream’s original investors. The value of their common stock and warrants totaled $11.90 at the time of the acquisition.
At press time, there were no SPACs on the IPO calendar. But that is always subject to change, dependent upon market conditions. That said, here’s a point worth pondering: There could be some interesting investments among the actively traded SPACs.