| NEW YORK, March 13
NEW YORK, March 13 Marc Lasry's $12.6 billion
Avenue Capital Group has taken the unusual step of funding a
deal in the public markets before it has even figured out what
it wants to buy.
The New York-based hedge fund and private equity firm raised
$220.5 million from investors last month for a "blank check"
acquisition company called Boulevard Acquisition Corp.
Demand for the deal was strong: Avenue had originally planned to
raise just $150 million from investors.
Boulevard itself has no operations - just a pile of cash.
Its mission is to find a troubled company in any industry,
anywhere around the world, that it can acquire and turn around
within two years. If it fails to do that, Boulevard will
liquidate and return remaining cash to investors.
It is not the first time a big hedge fund or private equity
player has pursued a deal through a blank-check company, also
known as a special purpose acquisition company, or SPAC. For
instance, the fast-food chain Burger King was brought
public in 2012 by merging with a SPAC called Justice Holdings,
which was backed by hedge fund manager William Ackman.
But Avenue Capital raising a SPAC is unusual because it
typically operates in distressed debt markets. It has never
invested in or sponsored a blank-check company in the past. By
doing so, the firm was able to raise money from investors who do
not typically do business with Avenue, because they can't invest
in its other funds that tie up capital for years.
"It's a way for traditional, long-only managers to
participate in our space, because there's no lock-up period,"
said Stephen Trevor, who heads Avenue's private-equity arm and
spearheaded its SPAC plan.
In an interview, Trevor and Lasry said the Boulevard deal
garnered far more interest from investors than they expected,
and that Avenue is planning to do more and bigger SPAC deals in
the future if this one goes well.
"This is a natural offshoot of what we do," said Lasry.
Avenue's foray into the SPAC market may also be a sign of
froth. The market for such deals has opened up recently as stock
valuations have soared. But SPAC investments are still
considered high-risk, high-reward bets.
Blank-check IPOs were first created during the buyout boom
of the 1980s. The industry was rife with fraud in the early
days, and strict regulations briefly wiped them out of
existence. The industry came back in the mid-2000s with
structural changes and more disclosure, and raised a record of
$10.8 billion in 2007, according to Thomson Reuters data.
The financial crisis crushed SPAC issuance again, but so did
Data from SPAC Analytics show that about 35 percent of the
SPACs issued since 2003 have liquidated without finding a buyout
target, while shares of those that completed a buyout produced
an annualized return of negative 13.4 percent, on average.
Nonetheless, investors plowed $2.7 billion into SPACs
globally last year, up from $327 million in 2012, according to
Thomson Reuters data. Avenue Capital's SPAC is one of three so
far this year, and is the largest since Silver Eagle Acquisition
Corp's $325 million deal in July.
Avenue raised money from mutual funds, family offices and
hedge funds. Glazer Capital LLC, a New York-based merger
arbitrage shop, acquired 6 percent of Boulevard's stock,
according to a regulatory filing.
Investors are making a bet that Trevor's experience in
private equity will make Boulevard Acquisition Corp a diamond in
The 50-year-old executive spent much of his career at
Goldman Sachs Group Inc, where he worked in principal
investing across energy, power, industrials and real estate in
New York, Hong Kong and London. He also headed Morgan Stanley's
merchant banking business for about five years before
joining Avenue Capital in 2012.
Boulevard's Feb. 14 prospectus says the company's plan
hinges on Trevor's investing experience and professional
contacts. In correspondence leading up to that filing, the U.S.
Securities and Exchange Commission pressed Boulevard to make
that risk clearer to investors.
Although there are no set criteria for Boulevard's buyout,
Trevor said he is looking for companies in what he calls
"industries in transition."
"We're going to see a lot more deal flow than the typical
sponsor of these vehicles," Trevor said. "We've been approached
by a number of companies that have said, 'Boy, if I had $250
million it could help solve a lot of problems.'"