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SPACs Live on Without the Acronym

NEW YORK (TheStreet) -- Remember SPACs? You can easily be forgiven for not doing so, since they never amounted to much.

Nonetheless, and despite lower upfront fees, banks are finding it worthwhile to underwrite these deals, which they predict will become more frequent.

Special purpose acquisition companies, which had their heyday from roughly 2005-2007, are shell companies sent out in search of acquisition targets. SPACs from that era weren't especially successful, which may explain why dealmakers involved in trying to revive the structure are shying away from dusting off the old acronym.

"We feel very much that we're in the early innings in the post-financial crisis era of acquisition vehicles," says Philip Drury, co-head of Equity Capital Markets for the Americas at Citigroup (C). "We're certainly getting a lot more inquiries."

Drury says an impressive roster of well-respected investors participated in the IPO of Capitol Acquisition Corp. II (CLACU), which raised $200 million via a Citigroup-led initial public offering in May.

Other post-crisis SPACs include JWC Acquisition Corp., which went public in late 2010 and bought Tile Shop Holdings Inc. (TTS) in 2012, and Justice Holdings, which went public in 2011 and acquired Burger King Worldwide (BKW) last year.

One of the attractions of SPACs for investors is their limited downside. Acquisitions vehicles that don't complete a deal within a specified time frame (usually two years) return the money they raised to investors. As a result, investors who bought into SPACs in 2007 avoided the worst of the financial crisis in 2008 and early 2009.

For investors who believe the market is likely to move lower or sideways over the next several months, the opportunity to effectively put one's money in escrow while waiting for a potential pop from a successful deal may prove attractive, say proponents of the structure.

"We're entering into a stock picking environment. That is where the acquisition vehicles come into their own," Citigroup's Drury says.

The structure has been tweaked a bit to function more smoothly. Pre-crisis SPACs often included two in-the-money warrants, which was dilutive and encouraged investors to take advantage of the arbitrage between the value of the warrants and the shares. Now they include fewer warrants or none at all. Other changes make it more difficult for investors to block potential deals. And SPAC sponsors tend to be people who have done them previously and successful made acquisitions using the structure, according to Mark Ein, an investor who worked at The Carlyle Group (CG) and Goldman Sachs (GS) and is Chairman and CEO of Capitol Acquisition Corp. II.

"We consider this sort of the next generation vehicle," Ein says.

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