Bill Ackman wants another shot at shaking up IPOs
BILL ACKMAN is hunting for deals. The boss of Pershing Square, a hedge fund, is on the lookout for “large private growth companies” which are seeking to raise $1.5bn or more, but are wary of the “risks and expenses” of a conventional initial public offering (IPO). His solution: a special-purpose acquisition-rights company, or SPARC. On September 29th regulators approved the novel investment vehicle, which Mr Ackman bills as a fairer, cheaper alternative to its tainted cousin, the special-purpose acquisition company (SPAC), which enjoyed a boom in 2021.
There is much to like about this financial innovation. First, unlike SPACs, which raise a pot of money via an IPO and then scour the market for potential targets, the SPARC will find a merger candidate first. Helpfully, Mr Ackman has more time to make the deal—ten years, compared with two years for SPACs. He has also lined up potential investors: Pershing Square has granted SPARC rights at no cost to shareholders of its previously disbanded SPAC. Pershing Square itself can retain up to 5% of the new company.
Once a deal is agreed with a target firm, the SPARC’s shares can start trading on an exchange. The SPARC rights-holders can then purchase stock at a price agreed in the deal within four weeks of the stockmarket debut. If an investor chooses not to exercise the rights, they expire. By pledging to chip in between $250m and $3.5bn as anchor investor, Pershing Square is aligning its incentives with those of its investors.
2023-10-05 07:47:55
Article from www.economist.com
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