Blank Check Companies – The ‘In’ thing of the year 2020

The search for better returns in a low-rate world has resulted in quite a few innovations in the world of finance and ‘Blank Check Company’ is one such innovation.

Now let us try to make out as to what is a ‘Blank Check Company’. The formal name of these Blank Check Companies is ‘Special Purpose Acquisition Company, or SPAC.

SPAC is an investment vehicle that goes public despite having no real business. The plan is to raise money from investors and use it to buy into another company, typically a private one that is yet to be identified.

SPACs typically go public at $10 a share and have 24 months to find a target. If the company fails to identify one, it liquidates, and investors get their money back.  Investors also get to vote on a deal and have a chance to redeem their shares whatever the result.

Therefore, SPACs tend to trade around their $10 price until a deal is announced (or sometimes rumored). In addition, the initial investors in a SPAC get warrants, which entitle them to buy more shares at a set price after the company makes an acquisition.

The SPACs boom stems from the convergence of two big trends and an old constant. The first is historically low interest rates. With safe bonds paying less than 1% and stocks trading at high valuations, more investors are willing to park their money with a SPAC in hopes of getting lucky with an acquisition that pays off big. Second is the long-running boom in private equity and venture capital. Investors who poured money into buying companies over the past decade want to cash in by selling them. So there are plenty of companies for SPACs to buy. Add to these an old constant: financiers looking for new ways to earn a fee from a transaction.

The current pandemic-induced market environment is tailor made for SPACs. The current volatility is making it difficult for conventional companies to go public. Therefore, purchase by a SPAC can be an easier way for a private company to go public: It can skip the usual roadshow for pitching investors and avoid some of the scrutiny that goes with an IPO.

The investors in SPACs are typically institutions such as hedge funds, and these SPACs offer them the combination of a relatively small downside with a chance to make a tidy profit down the road.

As per Bloomberg, More than 40% of 2020’s IPOs by volume have been SPACs, raising $31.6 billion, more than double all of last year’s volume of $12.4 billion. Currently there are 120 SPACs with $40 billion to spend, according to data from SPAC Research.

(Compiled from various sources)

The COVID – 19 Language

Just have a good look at the news we hear, people we speak to and messages we read….we come across some very interesting words and phrases:

Co-vivid Phrases: Use of hitherto lesser known words and phrases, that too quite frequently, such as ‘Lockdown’, ‘Social Distancing’, ‘Flattening the curve’, ‘Quarantine’, ‘Hydroxychloroquine’, ‘Distance Learning / Online Classes’, ‘Pandemic’ and WFH (Work from Home)!

The Spell Bee: We are now so familiar with some of them that we can spell ‘Quarantine’ in a jiffy! We can even spell ‘Hydroxychloroquine’ without any difficulty!

Same Words but ‘New’ Meaning: Some words have assumed new meaning (and opposite of its original meaning!): ‘He is now positive and keep away from him!’ Earlier, we were advised to surround ourselves with positive people!

Unprecedented: Some other words which we often come across are “Unprecedented’ and ‘Crisis’. Many a times these two words are used together!

Risky Words: Guys and gals in Finance and Risk management are frequently churning out words and phrases such as ‘Fiscal Measures’, ‘Monetary Measures’ (Often without realizing the difference between them), BCP (Business Continuity Plan), ‘Deferment’, ‘Zero Cost Repos’ etc.

Beyond Zero: And the world now has moved beyond ‘Zero’ – it is now negative! Negative Interest Rates and Negative prices of Oil Futures!

A brand new Phrase: It was interesting to come across one more phrase ‘ Pandemic Paralysis’ which is the shortcomings of regulators and administration in providing quick responses to emerging challenges!

A matter of envy: These days I am envious of people who have shining baldpates! Earlier I was proud of all the hairs on my crown! With all the Barber Shops shuttered, I wonder whether guys prefer having a ‘hair cut’ at home administered by wife as ‘Wife-cut’ or rather do hara-kiri with ‘Self-cut’! The ‘Kesh’ Management is proving to be a challenge, just like cash Management!

Hot Spots: ‘Self-cooking’ is; perhaps, more inconvenient than ‘Self-cut’ and many of my friends in Doha, Qatar have no option but to enter their kitchen / pantry (which were avoided like ‘Hot Spots’ until now) and try to conjure up something edible! They have found out that sometimes ‘things fail to fail’ and they have something tasty to eat!

Quotes, now back in circulation: Then, there are some forgotten quotes which came back into circulation like “There are decades where nothing happens; and there are weeks where decades happen.”‬ ‪- by Vladimir Lenin‬!‬‬‬