Back to the Future

The N.Y. Times today has an article on SPACs -- the acronym stands for special purpose acquisition companies.  These are blank check companies making initial public offerings specifically for the purpose of a to-be-determined and unknown acquisition  There are all sorts of special SEC regulations which apply to them, mainly because the SEC has never favored the vehicle. 

With good reason.  The rise of SPACs has been a discussion point and concern among M&A practitioners for almost three years now and many white shoe firms still refuse to be involved with them, so it is surprising that the N.Y. Times is only now picking up on it.  SPACs were big in the 1970s but fell into disfavor due to a number of high-profile implosions and complaints over the quality of their acquisitions.  But like Frankenstein arisen from the dead, the Times reports that SPACs represented 26 percent of the 73 initial public offerings this year, and 15 percent of the money raised.

The rise of SPACs is a derivative effect of the private equity bubble.  The Investment Company Act of 1940 effectively makes impossible the public listing of a private equity fund.  And Investors shut off from private equity are turning to SPACs as a substitute.  Given the past troubles with SPACs this is a dubious effect at best.  There is also no real reason to permit SPACs yet shut-off private equity funds from the public markets.  It is yet another reason why the SEC should take steps to fully revise the Investment Company Act to bring it into the modern era.