SPACs are companies without operating histories that are formed for the purpose of making acquisitions. The targets of the SPAC aren’t disclosed until the acquisition is announced. SPACs generally have 18 to 24 months to make an acquisition, which must be approved by 70% of the shareholders. SPACs are sold as units consisting of one share and one warrant. The SPAC structure requires the company to put approximately 90% of the proceeds raised into a trust, which is refunded to shareholders if an acquisition is not completed within the allotted time frame or if shareholders fail to approve the acquisition. Because SPACs lack any operations, the most important criteria in evaluating them is the reputation of the management team. Thus far, hedge funds have been the primary buyers of SPACs.

It was not a good quarter for SPACs. Navios Maritime Acquisition’s $220 million IPO was the solitary SPAC offering during the 2Q 2008 and the first in nearly four months. Several unsuccessful SPACs were forced to liquidate during the quarter, fueling lingering questions about the viability of the SPAC as a fundamental investment vehicle and weakening the demand for new offerings. The pipeline of SPACs, most of which filed in the 4Q 2007 and the 1Q 2008, has slowed to a trickle. However, the story of the latest generation of SPACs appears far from over. [more]