Bad Bounce for Blank-Check Companies

Wall Street has been marketing blank checks as a relatively safe way for hedge funds and others to invest in private equity-type deals. Investors in a blank-check IPO are guaranteed to get back most of their money if the company can't find a suitable business to acquire within 18 months. In essence, an investment in a blank check is a gamble on the resumes of the company's management team, and on management's ability to pull a rabbit out of the hat.

But with the traditional private equity market booming, having raised $159 billion in new money this year, blank checks are losing a bit of their luster.

Just nine blank-check IPOs have come to market since July 1, raising a total of $842 million from investors, according to Dealogic. But one deal, a $300 million stock offering from Marathon Acquisition, accounted for much of that sum.

By contrast, Wall Street was awash in blank-check IPOs in the first half of the year. In the first six months of 2006, Dealogic says 25 blank-check IPOs were completed, raising $1.7 billion. In 2005, 29 blank-check companies took in $2 billion.

To be fair, not everyone is pessimistic about the future of blank checks. One analyst who follows the sector says it was only natural that the pace of deals would slow. Fans expect investors to start warming again once they see more deals getting done.