San Diego, CA - December 17, 2007

Bainbridge Featured in Financial Week Article

By Matthew Quinn

Hicks, Perelman, others launch special purpose IPOs to do deals under deadline. Where? Private firms looking to cash out, for starters.

Despite the slowdown in M&A, investors' appetite for private equity-like investments remains strong, leading to a boom in fund-raising for special purpose acquisition companies, also known as SPACs or blank check companies.

SPACs are companies that have no operations, but go public with the intent of merging with or acquiring a company with the proceeds from their initial public offerings. Under Securities and Exchange Commission rules, a SPAC has 24 months from the time of its initial public offering to make one or more acquisitions that have a fair market value of at least 80% of its total net assets. If it doesn't complete the transaction in that time, it must dissolve.

Since 2003, 143 SPACs have raised roughly $17.4 billion in proceeds-$11.4 billion of it raised this year alone-with annualized returns of 7.6%, according to data from SPAC Analytics. Approximately half of those funds, with $10.7 billion in proceeds, are currently looking for an acquisition. Another 65 have announced or completed an acquisition, while seven, with gross proceeds of $447 million, have been liquidated.

SPACs have made 45 acquisitions this year valued at $6.6 billion, according to data from Thomson Financial. The largest acquisition by a SPAC this year was U.K.-based hedge fund operator GLG Partners' reverse acquisition with Freedom Acquisition Holdings, completed last month and valued at $3.4 billion. The second largest was Symmetry Holdings' $535 million purchase of Novamerican Steel of Canada, also completed last month.

SPAC investments tend to be in the small-cap sector and in a variety of industries. In 2007, acquisitions most frequently targeted the financial industry, with 12 deals valued at $465 million, Thomson data show. Materials and consumer products were also active industries, with seven and five acquisitions, respectively. SPACs can serve as an exit strategy for private equity firms, as well as owners looking to retire.

Investors in SPACs are initially buying little more than the reputation of the holding company's management. "It's very speculative," said Chip MacDonald, a partner with law firm Jones Day. "You give someone a load of money to go out and buy something and you wonder whether that money is burning a hole in their pocket in between. You're betting on a management team, that they can pull off an acquisition that makes sense within a given time frame."

Lately, some high-profile names have been filling their pockets in this fashion. In September, a SPAC headed by billionaire Thomas Hicks, owner of the Texas Rangers and Dallas Stars, raised $550 million. Sapphire Industrial, headed by Donald Drapkin, the chairman of Lazard's investment committee and former head of Ron Perelman's investment company, MacAndrews & Forbes, filed to raise $500 million in October. Lazard rival Greenhill filed to raise $400 million through an IPO last month for its GHL Acquisition Corp. Mr. Perelman got in on the action himself earlier this month when his MAFS Acquisition Corp. filed to raise $500 million. And the largest SPAC offering ever, Liberty Acquisition, raised more than $1 billion earlier this month.

Though SPACs need not, and so tend not to, spell out which industries they are targeting, their management teams often have expertise in specific areas, and when they do, they extol that. For example, the prospectus from Mr. Perelman's company points out that its management team has experience in consumer products, gaming, entertainment, financial services, defense, private security, medical devices and biotechnology.

It can be a real challenge to identify, agree to and find financing for an acquisition in such a short time. Endeavor Acquisition averted a forced liquidation by three days last week when shareholders for clothing line American Apparel approved their merger, which the two agreed to 12 months ago.

The fund-raising momentum is nonetheless expected to continue into 2008. Boutique M&A advisory firm Bainbridge, for one, is looking to raise $225 million through a SPAC to soak up some of its excess deal flow.

"We have a tremendous amount of deal flow for private equity and corporate clients," said Nick Chini, a managing principal at Bainbridge. "We sat on this deal flow and the orphans were very qualified companies. We needed a home for them. The SPAC was the way to go."

With large buyouts-and the hefty fees that come with them-out of vogue at the moment, investment banks are eager to find anything to underwrite.

"A lot of the investment banks are all of a sudden getting into SPACs," said Mr. Chini.

Citigroup has been particularly busy, underwriting both Mr. Perelman's deal and that of Liberty. Others are working on growing their businesses, with Bear Stearns underwriting its first-ever SPAC earlier this month and Deutsche Bank hiring three more bankers to focus on SPACs last month. FW

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