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.
Other local SPACs to form this year are West Los Angeles-based Crescent Acquisition Corp., formed by alternative asset manager Crescent Capital Corp., which raised $250 million in March; and Gores Metropoulos Inc., a joint venture between Beverly Hills-based Gores Group and billionaire Dean Metropoulos, which raised $375 million in February. Gores Group, led by billionaire Alec Gores, has frequently used SPACs to create investment vehicles in recent years.
Boxwood Merger Corp., which raised roughly $200 million on its first day of trading on Nov. 16, was Another recent entrant.
Boxwood, which is looking for deals involving companies that provide technical and industrial services, is led by Chief Executive Stephen Kadenacy, Chief Investment Officer Duncan Murdoch and Chief Financial Officer Esters.
Kadenacy previously spent a decade with AECOM, which saw revenue grow to more than $18 billion when he left in 2017 as its president and chief operating officer, from $4 billion when he joined the company in 2008.
Other big players in the local SPAC market include veteran Hollywood executives Jeff Sagansky and Harry Sloan. They’ve taken four of these companies public since 2011: Platinum Eagle Acquisition Corp., which raised $325 million in 2017; Double Eagle Acquisition Corp., which raised $500 million in 2015; Silver Eagle Acquisition Corp., which raised $325 million in 2013; and Global Eagle Acquisition Corp., which raised $190 million in 2011.
Through a spokeswoman, Sagansky and Sloan declined to comment on their SPAC strategies.
Platinum Eagle, the pair’s most recent SPAC offering, announced plans to use the $325 million raised in its IPO plus an additional $80 million in add-on funding to facilitate a merger between The Woodlands, Texas-based Target Logistics Management and Austin, Texas-based RL Signor Holdings, two of the largest providers of specialty rental housing services in the U.S.
Platinum Eagle and the two housing firms completed the deal last month, giving the firm — now known as Target Hospitality Corp. — an enterprise value of $1.4 billion.
Rise and fall
The number of SPAC IPOs since 2000 have been on a roller-coaster ride.
In 2005, before the Great Recession, there were 28 SPACs formed that raised some $2.1 billion in proceeds, according to regulatory filings. The SPAC IPOs continued to rise through 2007 when there were 66 listed in regulatory filings that showed roughly $12.1 billion raised.
The recession knocked the steam out of the SPAC IPO market, taking the number down to one nationwide in 2009 when $36 million was raised. There were fewer than a dozen until 2014 when $1.7 billion was raised. The number of blank-check companies and the dollar amount raised has continued to grow since.
Not all SPAC IPOs end in success, however — and there have recently been some notable local flameouts.
Saban Capital Acquisition Corp. — a company formed by Beverly Hills billionaire Haim Saban — terminated on Feb. 28 its $622 million purchase of Woodland Hills-based Panavision Inc. and Toronto-based SIM Video International Inc.
The decision to end the deal was “due to market conditions, delays resulting from the partial U.S. government shutdown,” combined with the March 31 termination date by which the SPAC needed to consummate a deal, according to a filing with the Securities and Exchange Commission.
A Saban Acquisition spokeswoman declined to comment further.
Liquidations are rare for SPACs. Since 2010, only six out of 122 blank-check companies with cash in trust over $100 million have liquidated.
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