Last week we discussed SPACs, or special purpose acquisition companies, the red-hot investment trend that has taken off like a rocket this year.
According to Renaissance Capital, in just the last 9 days, 14 SPACs have filed to raise a sum of $5.5 billion. Year-to-date, there have been 57 SPACs created and combined they have raised $21.3 billion in the IPO market. This includes Bill Ackman’s $4 billion Pershing Square Tontine Holdings Ltd.
For comparison, last year a total of 59 blank check companies raised $12.1 billion. This was considered a record at the time. So with almost four full months left this year, we’ve nearly exceeded last year’s total.
“We’re about to break last year’s full-year SPAC IPO count of 59, the highest number in a year ever. And based on recent filings, activity is only going to increase heading into the fall,” said Matthew Kennedy, a senior strategist at Renaissance Capital.
We pointed out a few promising SPACs in last week’s article. However, a recent filing is one that you definitely want to avoid. It also highlights the importance of doing due diligence before you invest.
Investing in SPACs Wisely
A company called Burgundy Technology Acquisition Corp. filed a preliminary prospectus last week. It said it is looking to raise $400 million. Burgundy will be led by former Hewlett-Packard and SAP AG Chief Executive Leo Apotheker. Apotheker will also be co-CEO of Burgundy along with former SAP colleague James Mackey.
Unless you are a student of Hewlett-Packard history, you likely don’t remember the tenure of Apotheker, which only lasted about a year. That’s because while he was CEO, Apotheker oversaw what many consider to be one of the worst, if not the absolute worst, acquisitions in corporate history.
Hewlett Packard acquired a data analytics software company called Autonomy for $11 billion. Before the deal even closed, Chief Financial Officer Cathie Lesjak expressed concerns about the hefty price, yet Apotheker pushed on to close the deal. There were even concerns about Autonomy’s aggressive accounting tactics.
The end result is that Apotheker was fired a little more than a month after the deal was closed and Hewlett-Packard wrote off $8.8 billion of the purchase price less than a year later. The company admitted it had substantially overvalued Autonomy, and nearly a decade later, lawsuits are still pending over the acquisition.
Most appalling, in his testimony as part of the numerous lawsuits, Apotheker admitted that he never bothered to read Autonomy’s most recent financial results before signing the deal, which lawyers pointed out would have taken him about 30 minutes.
“I was running a $125 billion company, sir, and minutes are pretty precious,” Apotheker testified.
Now he’s back, hoping to have a $400 million blank check to go looking for a company to acquire.
This time around, will he take the time to read financial statements?