Breakingviews: Buyout shops would cash in redesigned blank checks

Fewer blank checks are being written on Wall Street, but bankers are still happily cashing them. Even amid sluggish deal markets, money managers keep tinkering with special-purpose acquisition companies, ensuring a steady drip of activity. Buyout shops have good reasons, however, to help them really revive the sullied model.

Taking shell companies public on the promise of finding takeover targets peaked in 2021, when nearly 700 of them raised more than $165 billion, according to LSEG data. The frenzied hype broke in large part after higher interest rates curbed risk appetites for speculative ventures and U.S. securities regulators blocked wild-eyed projections associated with SPAC M&A.

Although volume has slowed, it hasn’t stopped. Through mid-August, 19 cash-stuffed shells had debuted on U.S. public markets in 2024, accounting for a quarter of all initial public offerings by number and 15% of the $20 billion raised. Much of the issuance is supported by serial SPACsters, like financiers Stephen Kadenacy and Joe Reece, whose SilverBox Capital just rolled out its fourth blank-check company.

Roughly 100 of them are seeking deals, per data outfit SPAC Research, like the one unveiled on Tuesday by Concord Acquisition Corp II for specialty software developer Events.com. Others, which completed mergers earlier, are also increasingly being bought. All the transactions help feed financial and legal advisers. Take Bridgetown 2 Holdings, backed by billionaires Richard Li and Peter Thiel. Its 2021 IPO was led by Citigroup and BTIG. Then, Bank of America’s Merrill Lynch advised on its merger with PropertyGuru. Now, Moelis, Morgan Stanley and JPMorgan are working on the Southeast Asian real-estate portal’s $1.1 billion sale to EQT.

Further revving up fees probably requires structural changes, though. One industry, in particular, has reason to push for them: private equity. Sitting on some $3 trillion of investments, by research firm Preqin’s count, buyout barons are hungry for exits. With traditional IPOs frustrating their ambitions, opening the SPAC route would be useful.

As things stand, SPACs mainly attract hedge funds eyeing the safe, and leverageable, yield of cash kept in trust and playing with warrants. These investors bear little risk because they can vote on acquisitions and demand their money back either way. Such ambiguities mean these blank checks are suboptimal currencies for slow-and-steady private equity businesses. Making U.S. SPACs more like their British cousins, which entrust deal approval to boards, might attract different kinds of sponsors and investors. By devoting some political capital to lobby Washington for revisions, buyout firms might just generate a healthy return.