The IPO Buzz: SPACs Go Splat

Issuers raised $343.3 million.
Bankers collected about $18.5 million in underwriting fees, but that’s not all, folks! In small-cap and unit offerings, there’s usually a clause found on the front page of the prospectus. It is in reference to the proceeds raised from the sales of the securities. It reads something like this: “(The net proceeds) does not include a non-accountable expense allowance payable to the representative of the underwriters.” The representatives of the two SPACs collected another $2.87 million in “non-accountable expenses.”
And the investors? Two of last week’s three deals (the SPACs) closed on Friday BELOW their initial offering prices. The other was unchanged. (See IPO Traffic for Week Ending July 21.)
Investors saw the market value of their newly acquired IPOs shrink to $335.67 million, down from $343.3 million from when they purchased the IPOs. It amounted to a $7.63 million loss.
However, last week was not a story of Wall Street sticking it to its customers. No. The story was hat the Nasdaq Composite Index continued to sink into a new low for 2006.
On Friday, July 21, the Nasdaq closed at 2,020.39, its lowest close since May 17, 2005, when it finished at 2,004.15.
But there was a message from the Land of IPOs: SPAC offerings might be in trouble.
There’s an old Wall Street saying: All you need to know about an IPO’s aftermarket performance can be found on the cover of its prospectus.
Pops and Flops
If a deal is priced above its filing range, then look for a pop when it starts trading.
If a deal is priced below its filing range, look for a flop when it starts trading.
Both SPACs were priced below their respective filing ranges, and neither saw daylight after trading.
Energy Infrastructure Acquisition (AMEX: EII-U) priced 20.25 million units at $10 each on Monday evening. That was below its filing range of 22.5 million units. It started trading on Tuesday at $10 per unit, closed its opening day at $9.80 and closed the week at $9.77, down 2.3 percent from its initial offering price.
Millennium India Acquisition (AMEX: MQC-U) priced 7.25 million units at $8 each on Wednesday evening. That was substantially less than the proposed filing range of 12.5 million units. It started trading on Thursday at $7.50 per unit, closed its opening day at $7.71 and closed the week at $7.59, down 5.13 percent from its initial offering price.
Let’s back up and take a quick look at the SPACs traffic.
  • In 2004: Three SPACs were priced that raised $216 million, according to available reports.
  • In 2005: 28 SPACs were priced that raised $1.98 billion.
  • In 2006 (through July 21): 23 SPACs were priced that raised $2.13 billion.
  • In the IPO pipeline: 47 SPACs looking to raise $3.5 billion.
The above figures show that the traffic for SPACs has been building over the past couple of years.
Worth noting: A train does not stop on a dime.
There is another factor working its way into the mix here.  When Wall Street’s big players start muscling in on anything, it’s a sign they are there for the longer run. The underwriting of SPACs had been the territory of the smaller investment bankers. Nowadays, you see the names of Citigroup, Deutsche Bank and Merrill Lynch on the cover of the prospectus of some of the SPACs.
Now, back to the present.
The real reason for last’s weeks rough sailing for the SPACs might be found looking at the ticker tape. As another old Wall Street saying goes: “The tape tells the story.”
The Nasdaq Composite Index, the barometer of the IPO market, closed on Friday at a 14-month low.
This week’s IPO calendar lists seven deals and no SPACs. (Please see IPO Calendar for the week of July 24, 2006.)
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