For the first time ever, the words "former VP Dan Quayle and former Notre Dame football coach Lou Holtz," are not the setup to a joke (punchline - because I just gave the lineman a potatoe). Instead Dan & Lou, and CEO of K2 Richard Heckmann, are planning to raise up to $500mm for a SPAC (Special Purpose Acquisition Company). Heckmann is planning on leaving K2 by August 1.
SPACs are publicly raised entities that provide a virtual blank check for a management company to make an acquisition. The acquisition doesn't have to specified beforehand, although there are strict limits on when a target must be designated, and when a SPAC needs to spring into action (or else it would be the greatest scam ever). Why investors would want to give Quayle and Holtz a blank check is anyone's guess. I guess a few companies could use more heart and less brains (Quayle plans to make "Rudy" a managing director).
The largest SPAC is Freedom Acquisition Holdings, which raised $528mm last Decemember. SPACs have raised $4.1bn in 33 IPOs this year, taking advantage of the blank check fervor created by the planned and executed IPOs of hedge and PE funds.
Quayle has been busy as chairman of the global investment unit at Cerberus since 1999 and Holtz has been saying nonsensical things on ESPN since retirement.
Quayle joins 'blank check' firm's IPO [Los Angeles Times]
Posted by , Jun 27, 2007 2:34PM
"The largest SPAC is Freedom Acquisition Holdings.." ... which just agreed to acquire GLG Partners LP, one of Europe's largest hedge funds.... (had to help bolster your argument)
Also, SPACs are sketchy as hell which is why they're all on the Amex or AIM. The NYSE and NASDAQ won't list them. Hedgies tend to like them though... until they actually spend the cash and buy a company...
Posted by anon , Jun 27, 2007 3:20PM
You forgot the obligatory reference to Extraordinary Popular Delusions: "... A company for carrying on an undertaking of great advantage, but nobody to know what it is ..."
Posted by meh , Jun 27, 2007 3:43PM
That's because the hedgies are doing SPAC arb and don't care what they spend the money on.
Posted by Anonymous , Jun 27, 2007 3:52PM
SPAC arb? How does that work? It's just a shell company with a pile of cash on its balance sheet.
Posted by AJ , Jun 27, 2007 4:03PM
Yeah, hedgies loooove arbitraging the spacs... they usually sell units so you can split the shares and warrants... and its all backed by a pile of cash...
Posted by Man , Jun 27, 2007 5:28PM
What the media tends not to point out (maybe they are too stupid to read the fine print) is that after a deal is completed, management takes 15-20% of the company for absolutely nothing All they have to do is close an acquisition with in 12-18 months. These things are absolute bullshit as there are no real incentives for management to find a truly unique acquisition. At least in pe and hf's, the fee structure is incentive based. However, in a few select examples, management teams have acquired strong private operating companies and have stayed on to run them. Though in the case with Lou Holtz and Dan Quayle, not sure what they can manage. I've heard Lou Holtz speak and he's practically autistic.
Posted by Bulging Bracket , Jun 27, 2007 10:40PM
Man: don't diss the autistic! If they gave autism spectrum invetories to Wall Street, you'd see 1 to 2 orders of magnitude greater prevalence, especially on the quant and trading desks (i.e 1 out of 30 to 1 out of 3).
Posted by The Media , Jun 28, 2007 9:46AM
@Man: And why diss the media?
You said: "There are no real incentives for management to find a truly unique acquisition."
The fact is in most of these spacs management is putting up its own money (usually around 2% to 3% of total capitalization) in the form of warrants, which go to zero if they can't complete a deal.
And the investors that back the spac can block a proposed deal with with as little as 20% of the shareholders voicing dissent.
At least four have already been blocked in the past year or so.
Not sure that information was in the "fine print," but a little research on your part might have saved you from sounding like a dolt.
And congratulations on hearing Holtz speak. You're one of 5 million people that watch College Gameday on ESPN.
Posted by Man , Jun 28, 2007 1:52PM
Don't usually get petty about responding, but in this case...
Management might put up several million dollars in warrants, but those warrants are valuable even if management does a bad acquisition.
The warrants, in most SPACs, have a $5 exercise price on a $6/unit IPO, so those warrants are usually in the money as cash in trust runs around $5.90.
So, there is no incentive for management to make a great acquisition, just an acquisition, which is a big difference.
You could have done a better job in refuting my point by mentioning that management has a 3yr lock up on their 20%.
My argument there would be that while we have not seen a SPAC 3 yrs out under the current structure, so maybe the bad ones will fail and management's 20% will go to 0, nevertheless, it's not hard to overpay for a company that's operating moderately well with very little probability of going bankrupt in three years, then cashing out in a deal in which you put virtually nothing in.
In terms of the 20% to block a deal, that makes sense if you look at SPAC investors as sophisticated fundamental investors, which I would argue they are not. SPAC investors are enticed by the 'instant arbitrage' of the units after they split into warrants and common stock. While the shitty little investment banks that are putting these things together might argue that the arbitrage is a selling point for institutional buyers, nevertheless I would argue that they are selling them at a discount to an unsophisticated investor who's looking solely for a 'deal announcement pop' to get out.
My prediction, is that as SPACs get more and more institutionalized, you're going to have a major shareholder shift from the original unsophisticated arbitrage enticed investors to the actual guys looking at holding the companies in the long run. Since these management teams are putting no real research into the acquisitions, there will soon be a SPAC in which the arbitrage investors try to get out once a deal is announced, but no one else wants to get in and they will be left holding a shitty target company being run by a halfwit former football coach.
I rambled a little, but my theory is solid, you have a bad investment bank (though i rarely invest in any IPOs, because i think all investment banks are shady, but that's klarman, not my original thinking), you have a celebrity management team with no experience to sell the deal and you have the investor that thinks they can get a 'magical pop' from this thing. It's completely wrong and it's not how the capital markets work fundamentally. Research the milken junk era and you'll know what I'm talking about. Ok-too lazy to proof read this!