NASDAQ SPAC attack

Raising special purpose acquisition companies (SPACs) seems to be the new venture of choice for the big names in finance, including Ron Perelman, Robert Greenhill and Tom Hicks. In December Nicholas Berggruen's and Martin Franklin's Liberty Acquisition Holdings became the largest SPAC ever after its $1 billion initial public offering on the American Stock Exchange. The two had raised a $480 million SPAC for the reverse merger of hedge fund GLG Partners just under a year ago.

Until now, all US SPACs have listed on the American Stock Exchange. But in February the NASDAQ stock market submitted a set of proposals to the Securities and Exchange Commission for its own SPAC listings. NASDAQ plans to subject SPACs to all of its standard initial listing requirements, as well as a few new rules designed specifically for the asset class. Among them: gross proceeds from the IPO must be deposited in an escrow account maintained by an insured depository institution; the SPAC must complete a business acquisition equal to at least 80 percent of the value of the escrow account within 36 months of the IPO; and all business combinations must be approved by the SPACs shareholders and the majority of the SPACs independent directors.

None of these rules are particularly novel, though NASDAQ said in a statement they are intended to protect investors. Nearly all SPACs in recent years have had the same or stricter requirements as a matter of contract, notes Thomas Friedmann, a partner in Dechert's corporate and securities group. But NASDAQ's interest in SPACs is notable in that it reflects the vehicles' arrival as an asset class, validating their legitimacy and their profitability.

The market hasn't always looked favorably on SPACs. When they first emerged as an asset class, there was a perception that they were speculative and potentially risky, Friedmann says. When SPAC marketers first sought an exchange to list on in 2003, only the American Stock Exchange ? which has long been more open to innovative products than its peers – would take them.

But in recent months investors have shown increasing enthusiasm for the asset class. There are many factors behind this trend: the product has matured and further along in its life cycle; it's better understood by the investment community; and many of the industry's big names have been seen promoting their own SPACs.

Current market conditions also have a lot to do with SPACs' increasing popularity, says Schulte Roth & Zabel attorney Michael Littenberg.

?Given that it's harder to do traditional private equity deals with leverage, this is now another arrow in the quiver for diversified investment groups to be able to make money, so they're using it as an adjunct to other strategies,? Littenberg says. ?Certainly some of the people that are looking to do SPACs are also people that are involved in private equity?maybe they're doing this now because they view it as a better alternative than being involved in traditional private equity for the short term.?

Last year SPAC IPOs accounted for a quarter of all US IPO volume, and this year they account for half of all IPO volume to date. It seems NASDAQ has taken notice, and wants a share of the profits.

?This is all about revenues, pure and simple,? says Littenberg. ?NASDAQ sees this as a real moneymaking opportunity. They see listing fees, they see commissions, they see additional listed companies on the back end after the SPAC has done the merger with an operating company or an acquisition.?