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 With M&A activity way down and financing still tough to get, the spate of special purpose acquisition companies, or SPACs, that went public in 2007 saying that they'd be able to acquire something within 24 months are facing a "do or die" situation. Back in 2007, SPACs were all the rage, as investors rushed to get into the IPOs of the shell companies, which then went on to acquire an operating business and hopefully cash out the investors at a big profit. SPACs have a limited shelf-life though: If an operating business isn't acquired within a certain time frame, the investment vehicle has to liquidate and give investors back their money. The strategy paid off well until the credit crunch hit in July 2007, sending M&A deal volume plummeting as banks declined to provide the leveraged lending needed to make the SPAC model work. A total of 30 SPACs holding $6.2 billion in cash need to make an acquisition or liquidate by the close of 2009, SPAC Research Partners, which provides research and advisory services to the segment, told The Wall Street Journal. And roughly twice as many SPACs have already liquidated than have completed acquisitions in the first half of 2009, the newspaper said. Even those SPACs that have found deals to make this year have faced a rough going, with terms having to be adjusted in order to get the merger done. According to The Deal Pipeline, Greenhill & Co.'s (NYSE:GHL) SPAC, GHL Acquisition Corp., is on track to acquire Bethesda, Md., satellite communication company Iridium Holdings LLC, after the SPAC tweaked merger terms April 29. And buyout veteran Tom Hicks' SPAC, Hicks Acquisition Co. I Inc., and Blackstone Group LP (NYSE:BX) have amended terms on their $3.2 billion reverse merger of Graham Packaging Holdings Co., essentially making it easier for either party to back out of the deal. (The Deal Pipeline subscribers can read the full story here.) Others have not been so lucky. Jonathan Ledecky's Victory Acquisition Corp. liquidated in April when its $310 million reverse merger with VC-backed jukebox company ToughTunes Music Corp. failed to get shareholder approval, despite last-minute efforts to sweeten the offer. And Enterprise Acquisition Corp. withdrew its plan to buy private equity-backed Workflow Management Inc. for about $670 million in March. (The Deal Pipeline subscribers can read the full story here.) Still in this environment liquidation isn't such a bad thing for investors, who get their money back without taking a loss, but for the management of the SPAC it's more than two years of time and money wasted. - George White See WSJ story (subscription required) See The Deal Pipeline story on SPACs (subscription required) See The Deal Pipeline story on Workflow Managment (subscription required)
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The liquidity is just not out there. Many investors acknowledge that prices are attractive but they won’t bid on deals because they can’t get financing on reasonable terms.