Los Angeles has seen a flurry of so-called blank-check offerings in recent years by private equity shops, alternative asset managers and other investment firms looking to purchase companies and take them public.
The trend has continued in 2019 with three blank-check outfits — also known as special-purpose acquisition companies, or SPACs — raising funds through initial public offerings. That trio of offerings has raised some $750 million for deals, and it accounts for about one-fifth of all money raised by U.S.-based SPACs in IPOs this year, according to regulatory filings.
The activity in Los Angeles underscores the region’s position as a growing deal market.
“There is a more vibrant deal-making community in L.A.,” said Daniel Esters, chief financial officer of Santa Monica-based Boxwood Merger Corp., a SPAC formed late last year that is looking to purchase engineering services businesses. “There is a sizeable investor community here, and industry operating executives who live here.”
SPACs are a corporate shell through which investor money is raised via a public offering. Shares in the companies tend to trade around their IPO prices, at least until there’s some movement to purchase a company and take it public. SPACs generally have anywhere from 18 months to two years to make an acquisition, according to John Fitzgibbon Jr., founder and editor of IPOScoop.com, a New Jersey-based independent research firm.
If they don’t meet the deadline or fail to gain shareholder support on a purchase, the SPAC must return to investors the money raised, Fitzgibbon said. While SPACs are publicly traded, their shares are often held closely by the entity or entities behind them until an acquisition is made.
The use of SPACs in the United States has ticked up in recent years. There were 46 blank-check companies formed in 2018 that raised $10.8 billion, up from 34 SPAC IPOs in 2017 that raised about $10 billion. From Jan. 1 to April 10, there have been 17 SPAC IPOs that have raised $3.55 billion in proceeds, including the three in Los Angeles County.
The $3.55 billion raised this year is 41% higher than the $2.6 billion raised from 12 SPAC IPOs in the same four-month period in 2018.
“They come and go in waves,” Fitzgibbon said. “Right now, there’s another wave. A baited fish hook catches more fish. This is a cycle. Wall Street is a cycle.”
Santa Monica-based investment firm B. Riley FBR Inc., an arm of Woodland Hills-based B. Riley Financial Inc., is the most recent Los Angeles-based entrant to the SPAC economy. The company’s B. Riley Principal Merger Corp. began trading April 9 and raised $125 million.
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