No relief in sight for "blank-check" backlog

By Phil Wahba

NEW YORK (Reuters) - A year ago, "blank-check" companies were all the rage, fueling the U.S. market in initial public offerings.

Now they are struggling badly as investors have grown much more risk averse, financing has become tougher to get and costlier, and the economic downturn has made many potential buyout targets less appealing.

There is now a backlog of blank-check entities set up when markets were healthier that are unable to put their funds to work effectively, making IPOs of new ones even less appealing.

Formally known as special purpose acquisition companies (SPACs), these shell organizations raise money in an IPO with the aim of acquiring an unspecified business in the future.

"There's an oversupply of SPACs," said Jorge Freeland, a Miami-based corporate lawyer with law firm White & Case LLC. "People don't want to invest in SPACs if they are not confident a deal can be done."

Businesses acquired by SPACs become publicly traded after shareholders approve the deal. Typically a SPAC has two years to buy a company, or else investors get the IPO money back.

Last year, a record 65 of them went public, raising $11.6 billion, according to Thomson Reuters data. But so far in 2008, only 14 have issued stocks and warrants, raising $3.6 billion.

While the overall IPO market is at a near standstill, what worries investors in SPACs is there are now so many. According to Morgan Joseph, a mid-market investment bank, there are 64 SPACs that raised $12.2 billion still seeking acquisitions.

"They're just sitting there in a logjam," said Francis Gaskins, an analyst with IPO Desktop. "There's stale merchandise in the pipeline."

The volatile equities markets are also making investors scrutinize acquisition targets more closely.

For all the hype surrounding SPACs last year, only a handful have delivered on their promises, with investors balking if they think a deal's valuation is too high.

One exception has been Heckmann Corp (HEK.N), which has seen its shares rise 31 percent since May, when it announced it had acquired a Chinese bottled water company.

In contrast, Marathon Acquisition Corp MAQ.A, which raised $320 million in a 2006 IPO, recently had to restructure its purchase of container ship company Global Ship Lease Inc.

And a plan by Hicks Acquisition Co (TOH.A) to buy plastic container company Graham Packaging Holdings, in a $3.2 billion deal announced in June with Blackstone Group LP (BX.N), got a tepid reaction from investors, with its shares barely moving.

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