Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

A decade after the financial crisis, U.S. stock indexes are routinely rising to new records -- and now, another corner of the market is set to reach a milestone. It just needs a few more blank checks.

Initial offerings by special-purpose acquisition companies, or SPACs, are poised for their biggest year ever, with Bloomberg News reporting late Monday that former executives of Jarden Corp. are seeking to raise between $750 million and $1.25 billion by selling shares to the public. The IPO is poised to surpass that of another SPAC, Social Capital Hedosophia Holdings Corp., which raised $600 million earlier this month, and could even best the biggest blank-check offering of the year to date, Silver Run Acquisition Corp. II, which raised $1.035 billion in March. 

Return of the SPAC
Already this year, $6.8 billion has been raised by U.S. special-purpose acquisition companies. With additional IPOs in the wings, this figure it set to eclipse the record set in 2007.
Source: Bloomberg

SPACs -- also known as "blank-check" IPOs -- are entities that are formed with the purpose of striking a deal within a certain time frame using the funds raised in their offering. This new entity, called J2, marks a second-coming of sorts of its predecessor Jarden, which bought up a stable of consumer brands that it later sold for a handsome profit to rival Newell Brands Inc. J2's target also will likely be a consumer-products company, according to the Bloomberg News report. 

The popularity of such companies has grown because public investors have been increasingly willing to bet on proven management teams pursuing new acquisitions. This one is no different. 

J2 is the brainchild of Martin Franklin and other former Jarden executives who built up that consumer-products company with more than 20 acquisitions -- from Yankee Candle through to the United States Playing Card Co. -- before selling to Newell. The Jarden deal handed shareholders who invested during the executives' tenure a return of more than 50 times their initial investment. For that reason, investors will likely be ready to roll the dice once again -- that and Franklin's long and strong track record in dealmaking.  

Not all of Franklin's ventures have been home runs. He is chairman of another blank-check company, Platform Specialty Products Corp., which admittedly, isn't in the consumer sector where J2 will likely be hunting. The $3.2 billion SPAC has posted total returns of just 10.3 percent since its debut in 2013, an underwhelming showing when compared to the S&P 500 Index's gains of 54 percent over the same period.  

How They've Fared
Recent initial public offerings that raised more than $500 million for blank-check companies have delivered positive mixed results
Source: Bloomberg
*Yet to agree a deal ^Silver Run Acquisition Corp II has agreed but not yet completed a deal

But Franklin has had success elsewhere. He is co-chairman of Nomad Foods Ltd., a U.K.-based acquisition vehicle, which has delivered 45.7 percent in total returns since listing on the New York Stock Exchange compared to the benchmark S&P 500's 34 percent. Nomad has made two acquisitions, both in the frozen-food arena, and Franklin had earlier indicated he wanted the company to expand into compelling retail brands. 

With J2 raising money now and likely seeking out at least one consumer brand of its own, there's a risk that Nomad gets left out in the cold. At the least, there's a potential conflict of interest about how its co-chairman directs any deals that he's able to source. But this wrinkle is less of a worry for J2's potential investors.

A slight concern about J2, though, is that Franklin and his comrades are pivoting to the public markets after first seeking private capital for their new venture. 

J2's inability to raise enough funding entirely from private sources may raise some eyebrows, especially these days when sophisticated investors like pension funds and family offices are writing checks to private equity funds at a frenetic pace. The difference here is that those investors' faith in private equity firms is generally a result of stronger track records as well as the appeal of diversity, rather than just one make-or-break deal.

And it won't be as easy for these former Jarden executives to deliver killer returns. Valuations have climbed higher yet and competition from buyout funds and strategics has intensified since they last went on a buying spree. 

War Chest
The private equity industry's capacity to raise capital may have pushed blank-check company J2 toward public markets. It now must compete with such firms for deals.
Source: Preqin

One positive? From the time of J2's IPO, executives have two years to strike a deal. The world may be a very different place by then. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. For background, it includes the merger of one of his SPACs, Justice Holdings Ltd., with Burger King Worldwide Holdings years before the company merged with Tim Hortons Inc. to form Restaurant Brands International Inc. 

  2. Notably, the company is aware of this underperformance and is planning to split off its agriculture arm in an IPO next year in a move designed to enhance shareholder value

  3. Still, the change in tack opens J2 up to collect cash from hedge funds such as Bill Ackman's Pershing Square Capital Management LP, which has backed Franklin's past endeavors.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net