Long Island is grabbing a bigger slice of the sizzling market for "blank check" companies that shepherd startups to the public stock exchanges.
An affiliate of Uniondale-based RXR Realty LLC has rolled out a blank-check company — also known as a special purpose acquisition company, or SPAC — and a group of auto-industry executives based in Westbury have launched their second.
Five times as many SPACs reached the market in 2020 as the previous year, according to London-based business research firm IHS Markit. They are known as blank-check companies because investors buy shares before they know which startup will be acquired.
RXR Acquisition Corp., led by Scott Rechler, the commercial realty giant's chief executive, plans to raise as much as $295.25 million through a public stock sale plus a private placement of warrants and use the funding to take an unspecified company public.
Warrants give the holder the right to buy a security in the new company at a specified price within a specified time period.
Unlike traditional initial public offerings, a SPAC goes public and begins trading on the public markets as it searches for a merger partner. Once a deal is consummated, the operating company begins trading under its own ticker symbol.
A government filing said that the RXR vehicle could seek a company in the property technology — or "PropTech" — field.
Kensington Capital Acquisition Corp. II, run by the auto industry executives, sold 20 million units at its initial public offering for $10 each, but underwriters could expand the offering by three million shares. If that option is exercised and all warrants are converted into shares, the deal could be worth as much as $296.1 million.
The Kensington SPAC represents a shift in strategy by Kensington Capital Partners LLC, a Great Neck private equity firm.
Justin Mirro, chief executive of KCAC II, said two years ago the private equity firm, where he is president, began unwinding its controlling investments to focus on the SPAC market.
Mirro, a former auto industry engineer, executive and investment banker, said his team ran "thorough due diligence" on the technology of QuantumScape Corp., a San Jose, California, developer of solid-state batteries for electric vehicles.
"All we know is auto," he said of his team of auto-industry veterans. "We feel we add a lot of value."
QuantumScape was merged into the Kensington Capital Acquisition Corp. I SPAC and began trading under its own ticker, "QS" in November. Even after the recent rout of technology stock, QuantumScape had a market capitalization of about $16 billion
Mirro's next target has yet to be announced.
Luciano Centanni, audit partner and international business center director at Grant Thornton LLP's Melville office, said SPACs have an advantage in that they can bring a company to the public markets far faster than a traditional IPO.
"You're talking two to three months" after the IPO of the sponsoring SPAC, he said, versus a year for a traditional IPO.
The short runway of a SPAC can help companies avoid "market fluctuations," Centanni said, but sometimes gives startups little time to prepare for the rigors and reporting requirements of being a public company.
"There's a lot that need to be done," he said.
Another SPAC, Clarim Acquisition Corp., is led by James McCann, a Manhasset resident who founded 1-800-Flowers.com. That SPAC, which has yet to name a merger target, raised $287.5 million in its IPO.
In the event that a merger fails to materialize, SPACs are required to unwind and return their money to investors.
CORRECTION: An earlier version of this story had incorrect names for Kensington Capital Acquisition Corp. I and II.
RXR Acquisition Corp. plans to raise as much as $295.3 million from the sale of stock to the public and warrants in a private placement.
Kensington Capital Acquisition Corp. II plans to offer securities worth as much as $296.1 million once warrants are exercised.