• Bill Ackman has filed for a $3 billion IPO to create a "blank check" company to do mergers, acquisitions, and other deals.
  •  Ackman sees 4 major areas where the company will profit from the COVID-19 crisis.
  • One target is "mature unicorns," which are companies with big scale and market share.

Billionaire hedge fund manager Bill Ackman has filed a preliminary prospectus with the U.S Securities and Exchange Commission for an upcoming IPO aimed at profiting from the severe financial dislocations spurred by COVID-19. The new IPO would be called Pershing Square Tontine Holdings Ltd., a blank check company formed for "the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses." Pershing proposes to offer 150 million units at an estimated offering price of $20 each, thus raising about $3 billion from investors.

The IPO is the latest aggressive investment by Ackman, CEO of Pershing Square Capital Management, who has a track record of both outsized profits and giant losses during his career. The IPO is being sponsored by an "affiliate" of Pershing Square Capital.

As the filing states, "the economic and market dislocation resulting from the COVID-19 pandemic has created market conditions and a resulting set of investment opportunities in four principal areas that we intend to pursue."

These four areas are summarized below, with quotations from the filing.

High Quality Companies Unable to Launch IPOs

First, the filing says that, as a result of high stock market and debt capital market volatility, it has become "increasingly difficult for even a high-quality, well-managed, large capitalization company to execute a public offering on favorable terms...we believe that our ability to finalize the principal terms of a transaction with a merger partner prior to their public disclosure will make us a more attractive alternative."

'Mature Unicorns'

Second, over the past decade, many high-quality, venture-backed businesses have achieved "significant scale, market share, competitive dominance and cash flow—we call these companies 'Mature Unicorns.' Many of these companies have chosen to remain private."

However, the filing says that "recent dislocations in both the stock market and private growth equity markets, combined with a number of high-profile private investment failures and disappointing IPO outcomes, have substantially reduced the amount of private funding available for these companies." 

In this world, even "Mature Unicorns" are in need of additional capital. "We believe that we are well positioned to facilitate the recapitalization and public offering of a Mature Unicorn on terms that will generate attractive returns."

Large Private Equity Portfolio Companies

Third, economic disruption from COVID-19 has caused significant drops in the revenues and cash flows of many large private equity portfolio companies. "In light of their typically highly leveraged balance sheets, these companies will likely require substantial equity infusions...we believe that we are well positioned to acquire an interest in such a target company on highly favorable terms while facilitating the company’s public offering."

Large Private Family-Owned Companies

Fourth, COVID-19 also has slashed cash flows at many large, high-quality, private family-owned companies, which will require them to raise equity capital. "We believe that our ability to recapitalize and facilitate a public offering of a family-owned business without the typical uncertainty, upfront costs and the time-consuming nature of the IPO process, will enable us to merge with a large, family-owned business on highly favorable terms."