Canada Welcomes SPACs

As blank check companies increasingly submit filings to have their IPOs withdrawn, a door remains open for SPACs in Canada.

Backlogged Special Purpose Acquisition Companies (SPAC) have been submitting filings to the Securities and Exchange Commission increasingly requesting to have their IPOs withdrawn, but those blank check companies might take solace in knowing a new frontier is poised to become more accessible for the first time ever to the investment vehicles.

"I don't think its good news," said a managing director at an investment bank which regularly underwrites and advises SPACs. "It means that they don't expect there to be a public market for SPACs in the near future."

From mid-November until mid-December, five SPACs that have spent months shelved awaiting capital infusions-Kanders Acquisition, Builder Acquisition, Capstar Acquisition, MAFS Acquisition and Grail Investment-each submitted paperwork to the SEC stating their intent to no longer seek public listing. Before that, the most recent backlogged SPAC to pack it in came almost two months prior.

"The problem is the stocks trading below their asset value," said David Feldman, a founder of law firm Feldman Weinstein & Smith. "[W]ith investors coming in now that are only looking to monetize the spread between their investment and the cash value, [they] plan to vote against any deal that is presented so as to preserve their 10-15% return."

Strategic buyers have, as of late, been more active, Feldman said, and sellers are backing away from financial buyers until values begin to creep north. Any company begging shareholders an extension of time to find a target should be prepared for a resounding 'no,' he added.

One asset class expert, who has worked for years in the space, agreed with Feldman and said sellers who might not see any better valuations in two years are clinging tightly to properties hoping for a rebound. However, other owners could have itchy trigger fingers if they are strapped for cash and still seeing a slow rebound well into 2009.

"In 12 months, there may be some seller capitulation," the asset class expert said, adding that it remains possible that a wider swath of SPACs will show themselves the exit from a backlog. Some industry specific SPACs-those involved in homeland security, defense and healthcare-are likely to survive, while others-for example, luxury items-should not hold a collective breath.

This is not to say dealmaking remains impossible; last week, Columbus Acquisition Corp. entered into an agreement-pending shareholder approval-to buy Integrated Drilling Equipment, an energy infrastructure support firm.

"Most of the SPACs that have raised the money and still have time are still looking for [or] doing deals," said the managing director working for the investment bank often involved with SPACs, adding, "although a few might end up throwing in the towel and returning the funds early."

The elimination of five SPACs from the SEC's backlog does not even eliminate 10% of those there; plenty of SPACs remain listed and actively seeking targets. But if investors are looking for a new space to pursue the asset class, the Toronto Stock Exchange is a the next frontier.

In Canada, minimum listing requirements as determined by their placement in one of three pre-determined industries will be expected of SPACs in: industrial, mining and oil & gas. Other SPACs will be welcome; one expert familiar with the asset class said he anticipates mining will be considered an attractive alternative to other markets.

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