It’s a rather slow year for IPOs, but Thursday we’ll see an IPO floated at the NYSE that is getting more than the usual amount of attention.
The company is Social Capital Hedosophia, and they are planning a fairly healthy IPO of $600 million: 60 million shares at $10. (That’s up from 50 million shares first indicated.). The company’s shares rose 2.8 percent mid morning Thursday after it opened for trading.
Normally, of course, IPOs announce price ranges, say, from $9 to $11, not just one price of $10. Why is this just $10 with no range?
Because the company has no assets, at least not yet. It is a special purpose acquisition company (SPAC), a company that is being set up to invest in technology companies that are not yet public.
These SPACs are enjoying a banner year: more than 20 have gone public so far in 2017, the highest number since 2007, according to Renaissance Capital, a research firm that tracks IPOs and runs the Renaissance Capital IPO ETF (IPO), a basket of the most recent IPOs.
SPACs are based on a simple premise: a seasoned manager in an investment space (energy, tech, etc.) buys assets and assembles them in a portfolio for investors. They are sometimes referred to as “blank check” companies.
“What you’re buying is a management team with a lot of experience, which is very attractive to investors,” Carolyn Saacke, chief operating officer for capital markets at the NYSE, told me. “They usually have a lot of M&A experience in the companies and the industries they are coming from, so there’s some faith they will be able to buy a company at a decent price.”