The IPO Buzz: The Polaris Adventure

Joint-lead managers Lazard Capital Markets and Ladenburg Thalmann plan to offer 18 million units of Polaris Acquisition at $10 each. The managers expect to price the deal mid-week, depending upon U.S. Securities and Exchange Commission clearance.
Investor interest in “blank check” IPOs has been growing since 2004. Last year, bankers priced a record number -– 63 “blank check” offerings that raised over $10.3 billion, according to SEC filings. In 2006, 43 “blank check” companies went public. They raised $3.1 billion. In 2003, there were none.
As of Friday, Jan. 4, 2008, the IPO pipeline had no less than 53 “blank check” companies waiting to go public. They hope to raise $9.5 billion.
Their popularity is easily explained.
Call Me
In buying a “blank check” IPO, the investor basically buys a “call” on the company’s ability to acquire an existing business.
Like in all “calls,” there is a time limit. In the case of “blank check” companies, it is a period of 18 to 24 months, as outlined in the prospectus. But there’s more. Over 95 percent, and in some cases up to 100 percent, of the IPO’s proceeds are placed in escrow and invested in U.S. Treasuries. That generates income. (It is not distributed to shareholders.)
But unlike “calls,” the “blank check” investor get the option of going along with a proposed acquisition or cashing out -– getting back his or her money -– plus the accrued interest. And if nothing happens, investors get their money back upon the expiration of the 18- to 24-month period -– plus the accrued interest.
That’s better than buying a “call.” You don’t get your money back if a “call” expires on you.
In the 1980s, the “blank check” IPO traffic was the domain of small-cap underwriters, many operating out of Boca Raton, Florida; most are no longer in business. Today’s roster of “blank check” underwriters includes powerhouse investment bankers such as Banc of America Securities, Citi, Deutsche Bank and Merrill Lynch.
Sex and the Citi
And speaking of the bankers, let’s take a closer look.
Recently we have seen published figures as to whom 2007’s IPO bragging rights belong. That’s the past. What we haven’t seen is this: Who has what in 2008’s IPO pipeline? That’s the future.
A deal can have many joint-lead managers. But there’s a message here from “Animal Farm,” with a nod to George Orwell: All investment bankers are equal, but some are more equal than others. The first name appearing on the list of joint-lead managers is the alpha banker. That’s the guideline we’ll use in looking into 2008’s IPO pipeline.
On Friday, Jan. 4, a total of 42 different syndicates had 177 deals in the IPO pipeline. They were looking to raise $46.3 billion. Interestingly, one bulge-bracket firm’s name stood out from the rest. It was Citi.
Here’s the unofficial rundown:
  • Citi: 27 IPOs looking to raise $8.7 billion
  • Credit Suisse: 12 IPOs looking to raise $1.9 billion
  • Goldman Sachs: 12 IPOs looking to raise $5.7 billion
  • Lehman Brothers: 12 IPOs looking to raise $2.3 billion
  • JPMorgan: 11 IPOs looking to raise $11.8 billion
Beyond the fine print, Citi had 17 “blank check” IPOs aiming to raise $6.3 billion, while JPMorgan’s name appears first on the $10 billion Visa prospectus.
(Please check the home page: “Archives – IPO Pipeline” for details.)
The top five bankers accounted for 74 of the 177 proposed deals — or 41.8 percent of what’s in the IPO pipeline.
Of course, all this does is to confirm something you already know. Wall Street lives by its own Golden Rule: “Those who have the gold make the rules.”