By Tom Zanki

Law360 (March 20, 2020, 8:49 PM EDT) -- Market turmoil generated by the coronavirus pandemic has begun halting initial public offerings among blank-check issuers, normally a more resilient segment of the IPO market, though lawyers continue to advise clients and hope to be well-positioned for an eventual rebound.

While the IPO market has been mostly shut for operating companies since March 1, blank-check companies have fared better until recently. Only one blank-check company filed an IPO in the week of March 16, according to research firm Renaissance Capital. The slowdown marks a contrast from the first two weeks of March, when seven blank-check companies filed IPOs and three priced offerings. No blank-check IPOs have priced since March 10.

Blank-check companies, also known as special purpose acquisition companies, or SPACs, are shell entities that raise money through IPOs in order to acquire a business. Blank-check companies largely consist of cash and own no assets and have no earnings to report, making these structures less sensitive to price swings than operating companies.

But with the coronavirus pandemic triggering far-reaching government actions — including lockdowns in New York and California that are upending daily life and business routines across the country — lawyers say they and their clients are taking a wait-and-see approach on blank-check deals. Markets remain volatile amid the uncertainty, evidenced by the Dow Jones Industrial Average's 913-point drop on Friday.

"I don't think you will see pricings or SPAC IPOs launching until there is stability in the market," Paul Hastings LLP partner Jonathan Ko said.

The caution follows reports that Social Capital Hedosophia, a technology-focused SPAC organizer that last year combined its first blank-check company with Richard Branson's space tourism business Virgin Galactic, has postponed two follow-up IPOs projected to raise $900 million combined. Social Capital on Wednesday amended the warrant structure for both IPOs to include terms friendlier to investors, which Renaissance Capital said are signs of a tough environment.

Messages to Social Capital officials were not immediately returned on Friday.

The slowdown comes as IPOs have largely stopped among operating companies, only two of which have gone public this month and none since March 11. Blank-check IPOs are typically steadier forces in the market. Such offerings often price at $10 each and tend to stay relatively flat in post-IPO trading, though certain blank-check companies, including two run by Churchill Capital, fell below $10 a share this week. The drop coincided with broader market plunges.

Blank-check companies have a time frame, usually 18 to 24 months, to complete an acquisition with an operating company. SPACs are seen as a low-risk proposition for investors, who can vote to redeem their shares and get their money back if they oppose the acquisition.

Lawyers say discussions with blank-check companies and investors are ongoing, both in terms of new IPOs and potential acquisition that follow previous fundraisings. Loeb & Loeb LLP partner Mitchell Nussbaum said marketing roadshows for IPOs are generally being deferred as market participants get a handle on the situation.

"Processes are continuing on both sides," Nussbaum said referring to IPOs and acquisitions. "But it's very, very hard."

Some deals have consummated under difficult conditions, including two acquisitions involving blank-check companies announced on Tuesday. Drug developer Immatics Biotechnologies GmbH agreed to combine with blank-check company Arya Sciences Acquisition Corp. and International General Insurance Holdings Ltd. combined with Tiberius Acquisition Corp.

Tiberius and Arya respectively completed their IPOs in March 2018 and October 2018.

Ellenoff Grossman Schole LLP partner Doug Ellenoff, who was part of an Ellenoff team that took Tiberius public, expects deals to proceed, though IPO marketing may slow. Companies going public conduct a marketing event known as a roadshow in which they travel the country and pitch their offerings to prospective investors. This is normally the last step before pricing an IPO.

"A couple of SPAC IPOs have pushed their marketing back a week or two for market conditions to settle," Ellenoff told Law360 on Thursday. "Our business combinations though are continuing a pace with no letdown."

Given restrictions on travel, Ko said market participants are relying more on video and teleconferencing, continuing a trend that began before the coronavirus outbreak. Lawyers note that roadshows for blank-check IPOs could lend themselves to virtual gatherings given that SPACs have no assets and provide leaner disclosures than operating companies, leading to quicker discussions with investors. Buying shares in a blank-check company is seen as a bet on the SPAC's management, which typically target a particular industry based on their expertise.

"That practice may continue because folks may find the efficiencies of not having to travel and the potential of getting more done," Ko said of the possibility of fewer in-person meetings.

Before the slowdown, blank-check IPOs were coming off a record year. According to Datalogic, 59 blank check companies went public in 2019, raising $13.5 billion. That exceeded 2018 levels in IPOs and proceeds and eclipsed the prior record of $12.1 billion in proceeds, set in 2007.

SPACs were off to a hot start in 2020 as well. According to Dealogic, 13 blank-check companies completed IPOs raising $3.7 billion year to date, roughly similar to last year's pace at this time.

Going forward, Ko said completing SPAC acquisitions will depend on the ability to finance transactions, which could be impacted by current financial turmoil. He added that blank-check acquirers may also benefit from reduced valuations of target companies once markets recover.

"From that perspective, [blank-check companies] are going to be able to acquire assets at relatively low values potentially," Ko said.

--Editing by Emily Kokoll.

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