In another sign that the mergers market may be recovering, Beverly Hills real estate company Kennedy Wilson Inc. has made a deal with an investment partner loaded with cash.
Prospect Acquisition Corp. of Naples, Fla., is a so-called special purpose acquisition company, or SPAC, a type of publicly traded corporation that exists for the sole purpose of buying another company. Prospect will bring $248 million in cash to the marriage. That money, combined with $83 million that Kennedy Wilson raised last year from institutional investors, will be used to purchase distressed properties.
The deal, announced Sept. 9, is a good omen for SPAC mergers, which contracted dramatically during the national credit crisis. An earlier sign came in July, when Great American Group LLC, an appraisal and liquidation firm in Woodland Hills, merged with New York SPAC Alternative Asset Management Acquisition Corp.
Things are still shaky: In August, Santa Monica Media Corp., a West L.A.-based SPAC, liquidated and gave investors’ money back when it couldn’t seal a deal on the purchase of a catalog publisher.
David Ficksman, partner at the Century City law firm TroyGould PC who specializes in mergers, said other SPACs will have to liquidate as investors remain impatient.
“It’s extremely difficult to get deals done right now,” Ficksman said. “The reason is that traditional SPAC investors were funds. A lot of those funds have received requests from their investors to redeem the securities. So the funds are under pressure to get cash, and the easiest way is to liquidate the SPAC.”
Kennedy Wilson shareholders will own 58 percent of the new company, which will be called Kennedy Wilson Holdings Inc., and Prospect shareholders will be minority investors.
Donald Herrema, Kennedy Wilson’s executive vice chairman, confirmed that the headquarters will remain in Beverly Hills. The company will first focus on condo projects but may branch out.
“Our expectation is there will be good opportunities in commercial real estate further down the road,” he said.
Bill Boyd, senior managing director at commercial brokerage Charles Dunn & Co. in Glendale, said that from a market perspective, the Kennedy Wilson deal has great timing.
“There is an avalanche of opportunities about to occur because commercial properties are leveraged beyond their market value,” Boyd said.
Both Prospect and Kennedy Wilson are publicly traded, Prospect on the New York Stock Exchange Amex electronic market, and Kennedy Wilson over the counter. Because the companies are closely held by insiders and institutions, their stock price barely fluctuated after announcement of the merger.
At Kennedy Wilson, Chairman William McMorrow owns 44.8 percent of the stock and five other officers collectively own 5.3 percent, giving management control of the company.
