SPACs: Australian cash boxes were way ahead of their time

SPACs Australian cash boxes listing stock exchange SPAC
A special purpose acquisition company (SPAC) is a shell company listed on a stock exchange with the purpose of acquiring a private company, allowing the private company to go public without going through the traditional initial public offering process.

Sometimes Australia leads the way in something that becomes really big and that has certainly been the case with cash box companies.

Back in the 1980s, companies stuffed full of cash and nothing else but some good ideas about what they might take over were a common occurrence and helped to foster a range of big takeovers –giving a start to many new technology companies.

It was an experiment that initially succeeded, with more than 482 companies, including many cash boxes, listing on what was then known as the “second boards” of individual state stock exchanges.

But, the 1987 share market crash really ended up killing off the idea.

Cash boxes got swallowed up last time around

The situation turned when cash boxes became the hunted rather than the hunter, as their cash was simply gobbled up at a discount by hungry companies who could buy them for less than their cash contents.

Eventually, the second boards disappeared and the ASX prohibited listings that contained more than half cash, and issued a requirement for plans to be announced for deploying the remaining funds.

Fast forward to now and the cash box company is one of the hottest ideas in the world, dominating new listings in the US and now known as special purpose acquisition companies, or SPAC for short.

Everybody loves a blank cheque

SPACs – also known as blank cheque companies – are now hugely popular in the US with an amazing amount of almost US$26 billion raised by SPACs in January of this year alone.

The idea behind SPACs is that they are a fast and much simpler way to float a company, with the cash sitting on deposit as the company executives try to buy a suitable target within two years – or otherwise the cash gets repaid to investors.

Many big US brokers are now busily underwriting SPACs with experienced takeover executives and there is no shortage of people willing to pour their money in, hoping the SPAC will outperform anything else they could do with their cash during this period of ultra-low interest rates.

The target that they want to buy is usually kept a tightly guarded secret although many SPACs are formed to buy within a certain industry so there is no shortage of speculation about what they are after.

SPACs are a faster, easier and more lucrative way to list

Once the target is bought, SPACs usually list on an exchange – unlike Australia’s cash box companies that were already listed.

SPACs are popular with takeover targets as well because they usually pay more for acquisitions than other methods such as private equity and provide a much quicker and easier path to a listing for those selling as well.

Ironically, Australia’s pioneering dalliance with the cash box company has led to rules that prevent them making a comeback here, although the ASX is watching the space to see if it should allow some sort of SPAC action.

Australia missing out on cash box rush this time around

They may well be foolish not to, given the potential for lots of juicy listing fees, although the ASX believes our conventional listing process is much faster, easier and less complex than in the US.

Critics have warned that Australia’s reticence to once again embrace cash box companies will lead to local companies fleeing to the US to list of NASDAQ or the New York Stock Exchange.

Of course, the interesting thing about SPACs is that they have become popular at a time of great speculation – a very similar environment to their last big iteration in Australia in the flurry of activity that preceded the 1987 share market crash.

Could cash boxes be a sign markets are getting toppy?

Could it be that the rise of the cash box companies in the US in the form of SPACs is once again a harbinger of some volatility to come?

We will have to remain tuned-in to see.

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