Special purpose acquisition companies are providing a back-door way for money managers to go public.
Already used by private equity firms to acquire and go public with individual companies, SPACs now are being formed as a way to purchase asset managers. Since November, two asset management firms have been acquired by SPACs and at least three different SPACs are now targeting investment shops.
Shares of a SPAC also known as a blank-check company are sold on the public market. Investors buy shares of the SPAC knowing the corporation intends to acquire another firm. When the public capital is raised, the SPAC acquires a majority stake in another business and the acquired firm then becomes a public company.
SPACs have been in existence for a long time, but the focus on asset management firms is new. The SPACs offer managers new avenues to public capital without the hassle of an initial public offering and with less risk.
The vehicles have won new attention since Freedom Acquisition Holdings Inc., took London based hedge fund manager GLG Partners Inc. public in November in a deal valued at $3.4 billion.
Most recently, executives at New York-based Grail Partners filed a registration statement with the Securities and Exchange Commission last week to form a SPAC called Grail Investment Corp.
Grail Investment Corp. plans to raise $200 million, according to the filing. By law, a SPAC cant go public with an acquisition target in mind. But given the history of Grail Investment Corp.s founders, it is a safe bet the firm they acquire will come from the asset management industry. The chairman is Donald H. Putnam, founder of Grail Partners LLC, a merchant bank that acquires minority stakes in money managers and also provides advisory services to investment shops on mergers and acquisitions.
Grail Investment Corp.s president and chief executive officer, John C. Siciliano, is a managing partner for Grail Partners. Executives at Grail declined to comment for this story.
Another SPAC Alternative Asset Management Acquisition Corp., New York raised $414 million during the summer and has not acquired a firm yet.
Our intent is to merge this vehicle with an alternative asset manager, Mark Klein, the founder of Alternative Asset Management Acquisition Corp., said in an interview.
Another SPAC, Prospect Acquisition Corp., Stamford, Conn., has raised $250 million According to its filing with the SEC, Prospect Acquisition was formed to acquire one or more businesses or assets in the financial services industry, which includes investment management firms.
Not a new phenomenon
SPACs have bought money managers public before. In addition to the Freedom-GLG deal, Tailwind Financial Inc. acquired the alternative investment management firm Asset Alliance Corp. in January.
Also, back in November 2006, a SPAC created by the founders of Berkshire Capital Securities LLC, called Highbury Financial Inc., acquired for $38.6 million the U.S. mutual fund business of ABN AMRO and renamed it Aston Asset Management.
More SPACs are targeting asset management firms after the success of the GLG Partners deal, said David Cohen, president of Athena Capital Management, Bala Cynwyd, Pa., a value manager that invests in SPACs.
The SPAC acquiring GLG has been a nice return for a very low-risk vehicle, Mr. Cohen said. He said the original units of the SPAC that acquired GLG were sold for $10, and are now trading at $16.68, despite all the turmoil in the market. When GLG worked you had a lot more people looking for asset manager deals, Mr. Cohen said.
People familiar with SPACs say the companies could be an attractive vehicle for asset management firms that want to go public for several reasons, including that they dont have to hassle with the fundraising efforts of an IPO.
It saves time and has a greater probability of success than a traditional IPO, said a partner of Berkshire Capital who helped found Highbury, and asked not to be named. The money has already been raised
Asset managers might be open to being acquired by a SPAC, Mr. Cohen added, because some IPOs were flameouts. He cited the IPOs of The Blackstone Group, Fortress Investment Group LLC and Och Ziff Capital Management Group LLC as ones in which the firms stock did not perform as well as expected after they went public.
Going public through a SPAC is advantageous to the asset manager because it allows staff to focus on the business rather than spend a protracted period of time on an IPO road show, said Alternative Asset Management Acquisition Corp.s Mr. Klein.
Mr. Klein estimates there are seven or eight SPACs that are public or will go public with the intent to merge or acquire asset management firms.
His company is seeking to merge with an alternative asset manager. He explained that firms with alternative investing capabilities are particularly attractive to investors who would invest in a SPAC.
Alternative asset managers are high-margin, cash flow generating businesses, he said. Thats a wonderful story for a fundamental investor.