What Is Blank Check Companies?

Investors or management groups establish BCCs that seek to protect their interests through mergers or acquisitions. Furthermore, these entities offer financial support to the collaborating companies and share the market experience with them to make them more productive. One of the most common examples of BBCs is a special purpose acquisition companySpecial Purpose Acquisition CompanyA Special Purpose Acquisition Company (SPAC) refers to an entity with no commercial operations but intends to merge with or acquire an existing business.read more (SPAC).

How Does Blank Check Company Work?

A blank check company enables private firms to go publicGo PublicGoing public is a corporate practice in which an unlisted, private company allows the public to purchase its old or new stock for the first time. read more without going through the lengthy and complicated Initial Public OfferingInitial Public OfferingAn initial public offering (IPO) occurs when a private company makes its shares available to the general public for the first time. IPO is a means of raising capital for companies by allowing them to trade their shares on the stock exchange.read more (IPO) process as the former is already public. In addition, it acts as an investment vehicle with the ability to invest in any company and profit. These firms have become recently popular, such as SPAC, due to increased market volatility and liquidityLiquidityLiquidity is the ease of converting assets or securities into cash.read more.

Key Takeaways

  • Blank check companies are entities set up with no specific objective, but they look forward to merging or acquiring undefined companies in the long run.These firms raise funds and help private firms to directly go public by easily ignoring the traditional Initial Public Offering (IPO) process.The SEC’s Rule 419 requires BCCs to protect investors’ interests at all costs by putting a part of the funds raised in an escrow or trust account until shareholders approve blank check company mergers or acquisitions.SPACs are BCCs that pool funds to provide financial backup to the companies they merge with or acquire.

You are free to use this image on you website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Blank Check Companies (wallstreetmojo.com)

The skilled and resourceful investors and managements groups, who lack funds, often create a BCC. It intends nothing but to merge or acquire a private firm. However, they never reveal which company they would be combining with.

The term ‘blank check’ in BCC refers to both the company and investors remaining unaware of how successful the mergerMergerMerger refers to a strategic process whereby two or more companies mutually form a new single legal venture. For example, in 2015, ketchup maker H.J. Heinz Co and Kraft Foods Group Inc merged their business to become Kraft Heinz Company, a leading global food and beverage firm.read more or acquisitionAcquisitionAcquisition refers to the strategic move of one company buying another company by acquiring major stakes of the firm. Usually, companies acquire an existing business to share its customer base, operations and market presence. It is one of the popular ways of business expansion.read more will be. For example, if it acquires or merges with a legitimate business, it can turn out to be a profitable decision. But if the company it combines with is a fraud, it will be a bad deal. Hence, they are much like signing a blank check with no knowledge of the outcome. As a result, market experts argue that such an agreement exposes investors to financial risksFinancial RisksFinancial risk refers to the risk of losing funds and assets with the possibility of not being able to pay off the debt taken from creditors, banks and financial institutions. A firm may face this due to incompetent business decisions and practices, eventually leading to bankruptcy.read more.

People can invest in a BCC by purchasing its shares once it goes public. The publicly-traded company holds these funds into an escrow accountEscrow AccountThe escrow account is a temporary account held by a third party on behalf of two parties in a transaction. It reduces the risk of failing to oblige the transaction by either of the parties. It operates until a transaction is completed and all the conditions are met.read more until a merger or acquisition takes place, usually for up to 24 months. After finding a target (private) company, the BCC combines with it or takes it over, forms a new entity, and lists it as a public entity on a stock exchange with a ticker symbolTicker SymbolTicker Symbol is the use of letters to represent shares that are traded on the stock market. It is mainly a combination of two or three alphabets that is unique and easy for investors to identify and buy/sell that particular stock.read more. In the case of a no-deal within the stipulated time frame, the BCC dissolves and returns escrowed funds to investors.

Blank Check Company Facts

Examples

Let us look at the following blank check companies list to find the hidden aspects of the concept and decide on investing in blank check companies stock:

#1 – Vertiv Holdings

Recently, Vertiv Holdings Company has reached an acquisition agreement with E&I Engineering Ireland Ltd. plus its subsidiary, Powerbar Gulf LLC. The transaction would include an upfront payment of $1.8 billion and a cash payment of $200 million on meeting set profit targets by 2022.

In 2020, the blank check company merged with GS Acquisition Holdings Corp. following the approval from the shareholders of the latter. As a result, the firm renamed itself Vertiv Holdings Corp. and began trading on the New York Stock Exchange.

The North American BCC came into existence in 2016 with current assetsCurrent AssetsCurrent assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, accounts receivable, etc.read more worth over $709 million.

#2 – Tuscan Holdings Corp.

Tuscan Holdings Corp. stated in July 2021 that the anticipated business merger with Microvast Inc. will go ahead. Even though the merger was announced a long time ago, it was never completed because stockholdersStockholdersA stockholder is a person, company, or institution who owns one or more shares of a company. They are the company’s owners, but their liability is limited to the value of their shares.read more refused to support it. It was only after getting stockholder approval at a special meeting organized for that purpose that the corporation confirmed it.

Located in North America, the blank check company acquires current assets worth more than $280 million.

#3 – HL Acquisitions

HL Acquisitions is one of the most prominent BCCs, with current assets valued at approximately $56 million. The company made headlines in 2020 after announcing a business combinationBusiness CombinationA business combination is a type of transaction in which one organization acquires the other organization and therefore assumes control of the other organization’s business activities and employees. In simple terms, it is a consolidation of two or more businesses to achieve a common goal by eliminating competition.read more with Fusion Fuel following the approval by HL shareholders. They accepted the material differences between both parties’ charter documents and the issuance of 2,450,000 Class A ordinary sharesOrdinary SharesOrdinary Shares are the shares that are issued by the company for the purpose of raising the funds from the public and the private sources for its working. Such shares carry voting rights and are shown under owner’s equity in the liability side of the balance sheet of the company.read more of Fusion Fuel.

This has been a guide to Blank Check Companies (BCCs) and its meaning. Here we explain how BCCs works along with its facts, examples & list. You can learn more about Finance from the following articles –

Blank check companies are corporations formed with no specified goal but to merge or acquire undefined companies in the future. These publicly traded companies serve as investment vehicles with the ability to invest in any company and profit from it. They are so named because the firms and investors may not know how successful the merger or acquisition would be, akin to signing a blank check with no idea what the outcome will be.

The special purpose acquisition companies (SPACs) are called BCCs as they raise funds to provide financial support to the private businesses they merge with or acquire.

Some of the blank check companies to watch and invest in are as follows:– Vertiv Holdings– Jaws Spitfire Acquisition Corp.– Tuscan Holdings Corp.– TKK Symphony Acquisition Corp.– Graf Industrial Corp.

  • Merger and Acquisition StrategyMergers and Acquisitions TypesAcquisition Premium