SPACs Come into their Own

It sounds like a great yet crazy idea, a SPAC, or Special Purpose Acquisition Company. Also known as a BCC, Business Combination Company, or in the vernacular of Wall Street the deal type is frequently translated to Blank Check Company. In its simplest form, the formation of one of these companies in shipping means that someone – a sponsor – decides they would like to purchase ships or a shipping company. Based on what are typically broad parameters, the sponsor then hires an investment bank and asks public investors to buy into the company. Armed with little more than good reputation and top-notch sales skills, the sponsor of a successful SPAC is able to convince enough equity investors to support them that they raise tens, even hundreds of millions of dollars.

Then the sponsors go shopping – for companies! Any company, really, that fits within the parameters they themselves set. Once they find a company, they can often get 70, 80% leverage from banks because, well, they are a public company. And their target, presumably, is bankable as a standalone entity. Then the shareholders get to vote on the acquisition. But in reality the shareholders invested in the company so that it would make an acquisition. And there’s a limited timeframe to do this, so as long as it’s a decent target for a reasonable price the shareholders can be expected to vote in favor.

We watched all this in the shipping industry first with International Shipping Enterprises (ISE), which was at the very beginning of the SPAC wave in the US. And it seemed a bit quixotic. But then ISE acquired Navios, a long-established company, and brought it public. Just so crazy it might work, some would say. And ISE was followed by Rand, Star Maritime and Aldabra, and more recently Oceanaut and Seanergy. Also contributing equity to shipping has been the SPAC’s cousin, a reverse merger, where an existing public shell has acquired a shipping company. Euroseas and Freeseas are examples of this type of deal, but due to the complexity of the subject are beyond the scope of this article.

This is only an excerpt of SPACs Come into their Own

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