The Dallas-based private equity icon recently filed for his second special purpose acquisition vehicle (SPAC), with plans to raise $200 million. He’ll have 21 months from the IPO until transaction completion, or else he’ll be required to return proceeds to investors.
Hicks, in a June 28 regulatory filing, didn’t identify what sectors he would be targeting but he has typically invested in consumer goods and media companies. Citi and Deutsche Bank Securities are underwriting the deal.
Hicks’ first SPAC went public in September 2007 and tried the following year to buy Graham Packaging from The Blackstone Group. That deal failed, so in 2009 Hicks bought Resolute Energy and took it public via a reverse merger.
So why a SPAC now? Hicks has had many troubled investments and blank check vehicles are the only way he can raise money, sources said. For example, he’s in the process of selling the Texas Rangers baseball team after defaulting on more than $525 million in loans last year.
“A SPAC may be his only route as institutions are not going to invest in his poor record,” a buyout executive explains.
In general, SPACs have lost some of their cool of late.
In 2008, 27 SPACs filed to go public with an aggregate value of roughly $3.5 billion. This dropped to one in 2009 and only two have filed so far this year. Of that pair 57th Gen Acquisition Corp. raised $54.6 million in May.
SPACs are simply vehicles for raising cash. An investor, typically a private equity or hedge fund, will back a “blank check company” with the only purpose to effect a merger or business combination within a certain time period. SPACs have been considered very speculative investments but became popular during the credit boom of earlier this decided. While many have failed, a few have done well. GHL Acquisition Corp., backed by Greenhill & Co., raised $400 million in February 2008. Later that year, GHL merged with Iridium Holdings, a mobile satellite services company.
“They are correctly perceived as the avenue of last resort for raising money,” one private equity executive said.
“Very few get invested and of those few many have been crappy investments,” said another.