SPAC IPO Competition To Heat Up: AMEX vs. NASDAQ (NDAQ, NYX)

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It looks like the American Stock Exchange, and ultimately the New York Stock Exchange (NYSE: NYX) after the two merge, is going to get some competition for all of the IPO’s in Special Purpose Acquisition Companies (SPAC’s) and Blank Check companies. 

Recently, The Nasdaq Stock Market (NASDAQ: NDAQ) submitted a proposal to the SEC to get in on the SPAC IPO market.  Right now, the American Stock Exchange has been the go-to vehicle for SPAC’s that has allowed these blank check acquisition vehicles to list in the United States. It’s hard to conceive any reasons that the SEC or any other regulatory body would block this move.

In 2007, 66 SPACs grossed over $12 billion in offerings, according to SpacAnalytics.com. And SPACS are showing no signs of stopping with almost $3 billion raised so far in 2008, comprising 53% of IPO filings this year.  This cottage sector is almost like trading much smaller versions of private equity, without as much focus and diversity.

According to their release last week, Nasdaq Senior Vice President Bob McCooey recognizes the potential in the recent IPO trend, stating, "Acquisition vehicles are an increasingly common capital-raising device. We believe that listing them on NASDAQ, subject to these important investor protections, will benefit investors and issuers alike."

In its proposal, Nasdaq will require the acquisition vehicles to meet all of Nasdaq’s minimum listing requirements, as well as “stringent” SPAC specific criteria, as follows:

  • Requiring placement of the proceeds in a trust
  • Requiring the completion of a business combination within 36 months
  • Requiring shareholder approval for each business combination

Currently, most SPACs usually tend to face an 18 month deadline (or 24 months) to complete a deal to become an operational company. The extension could prevent SPACs from rushing to close a not-so-hot business combination.  There are some downsides as well because this could lead to many companies sitting on companies, and you could imagine that ultimately you could seem some very wide spreads to an IPO SPAC price and the market price.

Nasdaq did not specify a time frame.  We would presume that the only serious issues in determining an effective date would be an SEC review of any key differences in their listing requirements and the differences in terms for such a listing. SPAC’s and Blank Check companies used to be thought of poorly, but the image is being cleaned up now that many SPAC’s have effected mergers and become successful post-merger operations.  The share price track record for SPACs is still at least somewhat questionable and we have yet to see if this is a trend or permanent public component. Goldman Sachs avoids them, and few doubt their track record.

Jon C. Ogg
February 29, 2008

As you will see in our IPO INDEX, the amount of SPAC IPO’s is going through the roof: