ITDN~is a Blank Check Company and will bring a private company public,load up
Blank Check Company
REVIEWED BY GORDON SCOTT, CMT Updated Sep 15, 2019
What Is a Blank Check Company?
A blank check company is a publicly-traded, developmental stage company that has no established business plan. It may be used to gather funds as a startup or, more likely, it has the intent to merge or acquire another business entity. Blank check companies are speculative in nature and are bound by Securities and Exchange Commission Rule 419 to protect investors.
KEY TAKEAWAYS
Blank check companies do not have established business plans.
This type of company is often used to gain funds, with the plan to merge with or acquire another business.
SPACs are a type of blank check company.
How a Blank Check Company Works
Blank check companies are often considered penny stocks or microcap stocks by the SEC. Therefore, the SEC imposes additional rules and requirements of these companies. For instance, they must deposit the raised funds into an escrow account until shareholders officially approve an acquisition and the business combination is made. Also, these companies are not allowed to use certain exemptions under Regulation D of the Securities Act of 1933. Rule 504 of Regulation D exempts companies from registration of securities for offerings up to $1 million. The SEC prohibits blank check companies from using Rule 504.
Their Purpose
Blank check companies are an alternative to traditional
IPOs for bringing private companies public. Whereas a
traditional IPO is initiated to capitalize a specific company,
a blank check company is formed to raise the capital first
and then find an attractive operating private company to
capitalize—either through acquisition or merger (the “deal”).
Blank check companies are popular because they offer
valuable benefits to all parties involved:
• For the private company—a quicker, cheaper way to
access the public markets.
• For the sponsor of the blank check company—access
to ready capital for doing private-company deals, from
which they can earn a substantial return on investment.
• For investors—the opportunity to invest in a private
equity-esque investment with strong checks and
balances and attractive financial benefits.
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Blank Check Companies—
the Basics
Their Mechanics
A blank check company issues shares to the public,
typically at $10 per unit. Each unit is comprised of one
common share and a combination of warrants and
(sometimes) rights. Shortly after the IPO, the units split and
the components (common shares, warrants and rights)
trade separately. The proceeds from the IPO are placed in
a trust account where they are invested in short-term U.S.
Treasury Bills. Following the IPO, the sponsor typically has
18 to 24 months to complete a deal with a private company:
• If the sponsor is unable to complete a deal, the trust
account is liquidated and funds are returned to investors
with interest.
• If the sponsor is able to arrange a business combination
with a private company, investors in the blank check
company vote “yea” or “nay” on the deal.
• If the deal is a good one, an investor can remain
invested, with the possibility of capital appreciation on his
or her units.
• If the deal is unattractive (or there is no deal), the investor
can ask for his or her money back.
$9.4 BILLION
has been raised
by 31 blank check
companies in 2017
alone
Their Scope
As of December 2017, there are 49 U.S.-listed blank check
companies trading, with a total market cap of more than
$12 billion.
