Blank Check Companies Set Sights On Unicorns

Amid Wall Street’s gyrations and the search for the next great tech unicorn:

Blank checks for blank check companies?

On Monday (June 22), CNBC reported that famed investor Bill Ackman is seeking to raise $3 billion for an initial public offering (IPO) of his blank check company.  It would be the largest IPO of this type of firm to date, and shows the appeal of going fishing for acquisitions of some of Wall Street’s biggest names.

Blank check firms go to market, raise money through IPOs and then use the funds for acquisitions or mergers over a timeframe that lasts a few years. They are also known as special purpose companies (or SPACs).

In terms of mechanics, the new company would be named Pershing Square Tontine Holdings. According to an SEC filing, the plan is to offer 150 million shares at $20 per share. The focal point will be “mature” tech unicorns, which are firms valued at more than $1 billion.

“The recent dislocations in both the stock market and private growth equity markets, combined with a number of high-profile private investment failures and disappointing IPO outcomes, have substantially reduced the amount of private funding available for these companies, while demands for liquidity from their investors have increased,” Ackman said in the filing.

In other words: Innovation needs money, and the money may be best sourced through Wall Street, at least according to this blank check bet.

The Ackman news follows a string of blank check firm launches. In another example, at the beginning of the month, blank check company Trebia Acquisitions Corp. filed for an IPO for $414 million, with 41.4 million shares on offer at $10 per share. The company applied to list on the New York Stock Exchange (NYSE), and said in its own filing that “we have not identified any potential business combination target and we have not, nor has anyone on our behalf, initiated any substantive discussions, directly or indirectly, with any potential business combination target.”

In other words: Build up the cash reserves now, identify the targets later.

Also this month, a Goldman Sachs Group-affiliated blank check company filed for a $700 million initial public offering. That firm, GS Acquisition Holdings Corp. II, has said it will also apply for listing on the NYSE, and noted in a statement that “we believe particularly attractive opportunities exist in the diversified industrial, healthcare, technology, media and telecom, and alternative asset management sectors.”

And in yet another June bid, Hudson Executive Investment Corp., focusing on FinTech and healthcare, priced a $360 million IPO, listing on the tech-heavy NASDAQ exchange.

We note that blank check companies are a different breed on Wall Street, as they don’t really have operations themselves. But by letting investors (that would be the retail type) throw in their money to fund larger, better-known (and ostensibly savvier) operators like Ackman and others, the idea is that mergers and acquisitions will generate returns.

And generating returns, of course, is top of mind. By taking the funds from investors – hundreds of millions, or sometimes billions, of dollars – and essentially parking those funds in accounts means that a “wait and see” attitude is critical. Money in the proverbial bank is earning next to nothing, and blank check investors, Forbes has noted, do not have to approve deals – and if they don’t do deals, blank check companies can dissolve and return money to shareholders.

Then there’s the fact that, once a deal is done, the blank check companies convert into the companies they’ve bought, which means the holdings become, well, concentrated – for better or worse.

As they say in all wagers: You pays your money, you takes your chances.