Blank Check IPOs: What you Need to Know

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We’ve seen a fair amount of activity over the last few years with respect to new IPOs. Recently a new form of offering has emerged. Blank-Check IPOs such as the Eagle Acquisition and Nikola deal or the recently active KCAC IPO has peaked investors’ interest.

Bill Ackman’s Pershing Square Tontine Holdings Ltd. has also garnered a huge amount of attention given it’s $4 billion SPAC IPO. What Ackman plans on buying within the company is still not yet known, but the street is certainly waiting with bated breath on his next big move.

What is a Blank Check IPO?

Also known as a Special Purpose Acquisition Company or SPAC, blank-check companies are corporations that are structured to eventually buy private companies in an effort to bring these private companies to public markets. The new IPO incorporates, undergoes the IPO process, funds the company with capital and then seeks out opportunities for their investment within the SPAC.

How Can I Invests in a Blank Check IPO?

There are 2 ways to invest in in these new investment vehicles:

  • Be one of the original investors in the pre-IPO company or one of the lucky private investment banking clients that these opportunities are marketed to first.
  • Wait for the IPO and buy the stock once listed

For most of us, option #2 is the only way to invest in these blank-check IPOs. You’ll need to be very patient and disciplined however. Lots of these companies have yet to invest in any companies, hence the term “blank-check”. Some of these stocks made trade sideways for some time before any acquisition announcement are actually made.

If you’re still interested in investing in a specific SPAC make sure to do your homework and understand the vision and goals of the company to ensure their investment goals align with yours.

Where can I find Blank Check IPOs to invest in?

This year has been a big year for these new types of IPOs. Finding a list of SPAC IPOs won’t be terribly difficult, however weeding through the good ones will take much more effort.

We’ve compiled a list of upcoming IPOs on this page which also includes a column for blank-check issues. Feel free to check back often for updates to this list.

What is the advantage of investing in a blank-check IPO?

There isn’t a specific inherit advantage in investing in a blank-check company compared to a traditional IPO offering, however there are some differences that may be appealing.

SPACs can be less volatile than traditional IPOs given they often only hold cash initially and therefore are relatively easy to value. That being said, IPOs with famous backers such as Bill Ackman can lead to some interesting opportunities. Pershing Square Tontine Holdings Ltd. has been trading a month or so be between $20 and $22 per share and investors have an opportunity to ride some significant investment waves with one of the most exciting investors of all times.

Once the companies do acquire an investment target however, the volatility in these stocks can be significant.

What is the risk of investing in a blank-check IPO?

The risks of investing in these stocks in not unlike most other investments. The higher the perceived risk the higher the potential return. These companies invest their funds in private companies looking to access public markets.

Given the relative high valuations of private companies during the recent market cycle it’s possible these companies get valued at very high multiples. If these multiples compress or something happens to the initial valuations investors could get trapped for a long time at higher share prices.

Of course, with this higher risk come a potential for out-sized returns. If the founders of these funds can make the correct bets on the right companies, the returns can be significant.

A great example of this was the recent blank-check company Kensington Capital that rocketed over 100% last week on news of their investment in a Bill Gates backed battery company.

Conclusion

Investing in blank-check companies can be a great way to gain access to superior returns and investment ideas. For many years retail investor did not have access to private company returns. By the time these companies offered their shares to the public most of the value had already been created, leaving new IPO investors with expensive stocks and lots of downside risk.

Hopefully these new SPAC IPOs can allow retail investors the opportunity to get into some of these new companies a lot earlier than before. Given the level of interest from retail investors this trend seems to be a good step forward for most casual and experienced players.

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