The IPO Buzz: The Pause That Refreshes

The forward IPO calendar shows three deals on tap for this week and another two on tap for the week of February 20.

 

But the apparent slowdown is nothing to worry about. Think of it as “the pause that refreshes,” to use an ad slogan from yesteryear.

 

It is not unusual to see the number of companies filing to go public taper off in mid-February. One reason could be they are waiting for their auditors to complete the year-end results before they move forward with their IPOs.

 

Until Friday afternoon, February 10, only four companies filed to go public during the week. After the stock market closed, the Securities and Exchange Commission window posted six new filings. So you might see the filing traffic start to pick up in the coming weeks. But the IPO show does go on.

 

Let’s take a look at this week’s IPO calendar. It shows two special purpose acquisition companies, or SPACs, on the launching pad, as well as an owner and operator of luxury hotels.

 

The SPACs, also called “blank check companies,” are companies that are recently formed for the purpose of acquiring other similar businesses.

 

Once a SPAC raises capital through an initial public offering, the proceeds — less about 10 percent — are placed in an escrow account for about 18 months. During that time, the company tries to execute its game plan.

 

Should it be successful in acquiring a similar business, the shareholders are usually given the option of approving the plan or getting their money back. If the company is not successful in its acquisition plan, then the investors get their money back. Each prospectus outlines the business plan and the investors’ rights.

 

Over the last couple of years, the SPAC IPO traffic has been building.

 

In 2003, one SPAC made its debut in the new-issues market.

 

In 2004, four more SPACs trickled into the market, which raised $237 million. Then the groundswell started.

 

In 2005, 27 SPACs were priced, which raised $1.9 billion.

 

So far this year, one SPAC has been priced. Two more are on this week’s calendar.

 

There are more in the wings.

 

At press time, there are about 40 IPOs in the pipeline with the word “acquisition” in the IPO’s name. They are looking to raise about $2.8 billion.