SPAC IPOs return

July 24, 2009

The team behind cash shell company Germany1 is preparing to list its next special purpose acquisition company (SPAC) in October after Thursday’s 532 million euros deal with AEG Power.

A SPAC is a shell company set up by people with a proven track record in making acquisitions. They offer takeover targets a way to become public companies without having to undertake an initial public offering.

In this case, Germany1′s acquisition makes power system firm AEG a public company through a so-called ”back door” listing. 

The shell will change its name to AEG Power after the deal completes in mid-August.

Mission achieved, the Germany1 team is now working on its next IPO – another SPAC that is looking to raise about 300 million euros ($426.7 million) in October.

SPACs are most relevent in challenging market conditions —  the IPO proceeds they raise are placed into an interest-bearing trust and they don’t borrow money. If they cannot find any acquisition targets that meet the approval of the majority of their shareholders, usually within two years, they will return the IPO money.

Companies seeking listings also prefer going pubic through a SPAC deal in a difficult market as the channel is faster and less vulnerable to market volatility.

SPACs are still more common in the US than in Europe. With Germany2 on the way, perhaps we will see more of these vehicles coming to market after the summer break.

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