Ackman Launches New ‘Blank-Check’ Firm As IPO Alternative For A ‘Mature Unicorn’

Hedge fund billionaire Bill Ackman launched his “special purchase acquisition company” (or SPAC) on the New York Stock Exchange (NYSE) Wednesday (July 22), positioning the vehicle as a better alternative for taking a promising private company public.

Ackman raised $4 billion in an initial public offering (IPO) for the new Pershing Square Tontine Holdings (PSTH), even though the business has no actual assets yet. Instead, the firm is what’s called a SPAC or a “blank check company” — an entity that raises cash first and then goes out and buys a business or businesses with the money.

In PSTH’s case, the SPAC intends to buy just one promising private company and take it public. Ackman said whatever business PSTH purchases will find selling itself to the SPAC preferable to doing its own IPOs because it’ll know ahead of time how much money it’s getting.

With an IPO, the amount raised depends on what price investors will pay for a new stock. But Ackman told CNBC that if a company sells itself to PSTH, “we come to an agreement on the value of the company [and] we buy only a minority interest in the business, so they’re not afraid to leave a little money on the table.”

Even though Ackman has yet to say what the SPAC might buy, IPO investors shelled out $20 per share (or units) for stakes in the company, which trades under the ticker PSTH. The units rose 6.5 percent in their first day of NYSE trading on Wednesday to close at $21.30.

Ackman had offered the public 200 million units through the IPO, raising $4 billion in total. His own hedge fund is buying another $1 billion of units and reserves the right to buy as much as $2 billion more. That will give the SPAC as much as $7 billion for an acquisition.

“PSTH will be one of the largest sources of cash equity capital for a private, single-company, minority investment in the world,” the SPAC said in a statement. “When PSTH’s IPO proceeds are combined with the Pershing Square Funds’ forward purchase agreement, PSTH will have a minimum of $5 billion of cash equity capital. While comparably-sized or larger investment funds generally seek to acquire controlling or 100 percent interests in diversified portfolios of companies, PSTH intends to merge with one private company and take it public through a transaction in which our stockholders will own a minority interest in the newly public company.”

While Ackman has yet to say exactly what company the SPAC might buy, he’s indicated that he’s seeking a “mature unicorn” that has opted to stay private because its investors had not yet been looking to sell their shares.

In the meantime, all money that Ackman raised will go into an interesting-bearing trust until the SPAC makes an acquisition.

“If you don’t like the deal, you get your money back with interest,” Ackman told CNBC.

An ‘Instantaneous IPO’

Private companies that take the traditional IPO route often face an arduous and uncertain process.

When a “hot” company files an IPO prospectus, employees who stand to make money on their pre-IPO stock options often get inundated with calls from financial advisers offering advice or real estate brokers peddling homes. The press also starts reaching out to current and former staffers in search of news.

“Everyone starts focusing on things that have nothing to do with running the core business,” Ackman told CNBC.

Companies then file a revised prospectus with additional details and start a “road show,” where they meet with potential investors. But management doesn’t know how much capital the company will actually raise until the IPO’s last day, when the underwriters handling the transaction set a price for the shares based on investor interest.

By contrast, Ackman said that any private company that teams up with his SPAC will in essence enjoy an “instantaneous IPO” — without the traditional hassles or uncertainties.