A:

A blank-check company is a development-stage company that either does not have an established business plan or its business plan is based around a merger or acquisition with another company or companies.

Blank-check companies generally are speculative and often fall under what the Securities and Exchange Commission (SEC) defines as "penny stocks", or speculative securities that trade for fewer than $5 per share.

A popular type of blank-check company is a special purpose acquisition corporation (SPAC). The founder of a SPAC pools money from investors and he or she may contribute to the SPAC to form a blank-check company with the sole purpose of acquiring another company or companies.

Investors do not have knowledge of how their money will be spent, so they issue blank checks to the SPAC. In turn, the SPAC must receive shareholder approval for all acquisitions and 80% of investor funds must be used in any single deal. If the SPAC fails to find a shareholder-approved deal within two years of creation, it is liquidated and the SPAC's founder loses the investment. Blank-check companies present investors with an alternative similar to private equity.

For more on this topic, read SPACs Raise Corporate Capital, Mergers and Acquisitions: Introduction and The Lowdown on Penny Stocks.

This question was answered by Richard C. Wilson.

RELATED FAQS

  1. How long does it take to execute an M&A deal?

    Read about the mergers and acquisitions process, and find out why the average M&A deal can take half a year to three years ...
  2. What are some common accretive transactions?

    Find out about accretive transactions and how analysts determine whether or not an acquisition is accretive or dilutive by ...
  3. Why would you undertake a reverse split?

    Find out how to identify and interpret a reverse stock split, and take a look at a few historical examples from major financial ...
  4. Why would a company perform a reverse stock split?

    Understand what a reverse stock split entails, and learn what the common motivations are for a company to perform a reverse ...
RELATED TERMS
  1. Runoff Insurance

    An insurance policy provision that provides liability coverage ...
  2. Hunting Elephants

    The practice of targeting large companies or customers.
  3. Precedent Transaction Analysis

    A valuation method in which the prices paid for similar companies ...
  4. Poison Put

    A takeover defense strategy in which the target company issues ...
  5. Assented Stock

    A share of stock owned by a shareholder who has agreed to a takeover.
  6. Back-End Plan

    An anti-acquisition strategy in which the target company provides ...

You May Also Like

Related Articles
  1. Brokers

    10 Most Famous Public Companies That ...

  2. Mutual Funds & ETFs

    Top 3 ETFs For Investing in China

  3. Fundamental Analysis

    Which US Airlines Are Poised For Long-Term ...

  4. Stock Analysis

    The Delhaize/Ahold Merger: A Buy for ...

  5. Stock Analysis

    AT&T: Just Boring Or Bad?

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!