The blank check companies have taken the investment world by storm. If you have been following the recent IPOs, you would realize that most are blank check companies.
We do not blame you if you don’t know what a blank check company is. It is a pretty decent concept. Nevertheless, it is gaining a lot of traction.
Today, we will shed some light on a blank check company and whether it is worth investing in or not.
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What is a Blank Check Company?
A blank check company does not have an existing business model. The aim of a Blank check company is to launch an IPO, gather funds, and acquire a company in the future.
Later on, the acquired company was merged with the Blank check company. The merged company might trade under the same ticker name or a new one.
The point being, Blank check company, is created to raise funds to acquire a company in the future.
Now that you are aware of the basics of such a company, it is time to look at these companies in greater detail.
A blank check company is also known by the name of SPAC which stands for Special Purpose Acquisition Company . The reason for the same is because it is specifically incorporated to acquire a company in the future.
The Anatomy of a Blank Check Company
When you want to file an IPO for a normal company, you might have to go through many regulatory frameworks. It is not that easy to go through all of that.
You have to file all the regulatory paperwork and, after that, hold a roadshow.
Depending on the response of the roadshow, you can decide the number of shares you want to sell and its price. Only after all of this will you be able to launch the IPO of the company.
No prizes for guessing; this entire process is pretty cumbersome and expensive.
On the other hand, the Blank check company clearly states that they do not have an existing business model. That is why; the amount of paperwork is negligible. Apart from that, rather than convincing the investors, you have to just let them know about the type of company you are willing to acquire in the future. Once again, this significantly minimizes the paperwork which you have to file.
With this limited information, you will be able to launch the IPO easily. Once you do so, it becomes easier for you to raise money directly from the public.
Now that you are aware of the basics of a blank check company, it is time to look at an example to know more about such companies.
An Example of Blank Check Company
The most popular Blank check company to list to date is Virgin Galactic holdings. The company merged with Social Capital Hedosophia and was listed on NYSE in the year 2019. Till date, it is the only company listed which offers commercial space flights. On the very 1st day of its listing after the merger, the shares closed at $ 11.75. Currently, as well, it is priced at around $ 24.5. It indicates that not only is it one of the 1st blank check companies to list, but it provides one of the best returns as well.
This might be one of the most popular examples of such a company, but it is not the only one.
Another example is Nikola which is a result of the merger of a blank check company with VectoIQ Acquisition. The merger happened in 2020. It is often regarded as a fierce rival to Tesla.
As you can see, numerous companies offer you the opportunity to invest in a blank check company.
Blank Check Company IPO
As we highlighted above, one of the main reasons blank check companies are launched is to make the IPO process easy.
Want to know how exactly the IPO process of a blank check company works?
We will highlight that below.
The IPO process of a blank check company is relatively simple.
Step 1: Formation:
The 1st step is the formation of the special purpose acquisition company. Since this company is solely created for the purpose of acquisition, it is easy to create such a company.
Step 2: Filing for the IPO and getting the approval
After the formation of the company, the owner of the company applies to the SEC for approval. The SEC asks the company to submit minimal documentation since it does not have an existing business model. That is why the approval process is quick.
Step 3: Fundraising
Once it gets the SEC approval, then the IPO is open for the public investors. The public investors apply according to the capital appetite that they have.
Step 4: Identifying the acquisition target
After that, the company has a period of 24 months or less to identify a target company that they have to acquire. During this time, the stock trades on the exchanges, but the activity is subdued. That is why; there is hardly little appreciation during this time.
Once the Blank check company announces the acquisition, that is when the investors determine whether the acquisition can benefit the Blank check company or not. Accordingly, the stock price moves up and down.
Step 5: Merger
When the Blank check company announces the company they have to acquire, they also announce the merger date. They also let the investors know whether the merged company will trade under a new ticker or the same ticker.
On that date, the shares of the company are credited to the account of the shareholders. In these five simple steps, the IPO and the trading process of a blank check company take place. Now that you are aware of the same, it is time to understand if it is worth investing in such companies or not.
Are Blank Check Companies a Good Investment?
Yes, Blank check companies can be a good investment, but only if you use proper research tools like spacrun to choose the right companies.
There are a few other reasons and caveats as well, which we will highlight below.
1. Great results with proper research
Not every blank check company results in appreciated stock prices. The reason for the same is because if the company acquires another company at inflated valuations, the existing shareholders might suffer from a loss.
To avoid all this trouble, it is a good idea to use a website like Spacrun.com. Spacrun allows you to keep track of such blank check companies and helps you track such companies’ news. It provides you with email and SMS alerts regarding the same as well.
In a nutshell, when you want to research blank check companies, this website can certainly come to your rescue.
With the help of proper research, it will become easier for you to choose the right company from a blank check company list.
Once you invest in the right blank check companies, you can easily make between 100% to 300% in a couple of years.
If you end up picking a blank check company without any research, you won’t make money.
2. Ability to invest at the start
Another reason blank check companies are an excellent investment is that you can invest at the base price of $ 10 per share.
It means that you might not be required to invest a lot of money as well. It is another reason why you cannot ignore blank check companies.
3. Numerous options
These days, when you look at the upcoming IPOs, you will realize that the majority of them consist of blank check companies. That is why the number of options you have while investing in such companies is higher.
Before investing, you can easily find out what kind of companies they are looking to acquire. Accordingly, you can decide whether you need to invest in that sector or not.
For example, many such companies are looking to acquire other companies in upcoming and growing sectors like big data, artificial intelligence, Electric mobility, etc.
If you want to take advantage of the growth in such sectors, you can certainly think about investing in respective blank check companies.
The ability to invest in these sectors and choose from a whole host of companies makes blank check companies a worthy contender.
4. Low entry threshold
The low investment threshold is another reason why investing in a blank check company makes sense.
However, you should keep in mind the 1st point which we have highlighted above. Only after proper research can you take advantage of this low investment threshold.
5. Ability to buy more shares at the base price
When you invest in the IPO of a blank check company, you not only get stock but also get warrants. Of course, the stocks will start trading, and you can decide whether you want to sell the stock or whether you want to hold them.
Many blank check companies provide you warrants as well. The advantage of warrants is that later on, you will be able to buy more shares at the predetermined price. This prize is often very near to the base price. It means that if, later on, you want to increase your investment, you can do so, provided you meet the terms and conditions of the warrants.
That is like being able to buy more stock at a lower price.
SPACrun – An Ultimate Source to Research Blank Check Companies
These are the reasons why you should think about investing in a blank check company. Read More on Blank Check Company Investment at SPACrun.
SPACrun can help you know right away regarding the news about mergers and agreements for Blank check companies. So, even if you haven’t invested in them initially, you can easily take a dip when the news breaks out.
Apart from that, Spacrun.com offers you a dashboard through which you can track the Blank check companies. It provides you with various research tools which allow you to conduct due diligence on such companies.
The tool helps you keep track of any new development in Blank check company space.
The tool is known for its lightning speed when it comes to news collection and real-time chat monitoring. Additionally, it offers SMS/text alerts that let you know about any new development in the company.
Considering all these factors, it is undoubtedly a website you should use before investing in any of the Blank check companies.
Thus, Blank check companies are pretty lucrative and can help you make money but only when you have a reliable tool like SPACrun to conduct due diligence.