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IPO Market Parties Like It's 1999 -2-

To ensure these IPOs went smoothly, companies and their bankers lined up institutional investors, including T. Rowe Price Group Inc. and Fidelity Investments, to commit to buying large portions of the company either ahead of the IPO or as part of the public offering. Fund managers told The Wall Street Journal that after a choppy spring that hammered some of their portfolios, they were happy to be able to buy into IPOs, which tend to outperform the broader stock market.

Shares of companies that went public in late May and early June soared, leading a bevy of new issuances this summer. The New York Stock Exchange said August, typically a sleepy time for IPOs, was its busiest month since October 2013.

This spring also brought a surge in financing for blank-check companies -- a sign that there's more demand for IPOs this year than there are companies able to quickly go public.

While the niche has been around for many years, it often wasn't taken seriously. Their legitimacy was bolstered over the past year after high-profile companies like Virgin Galactic Holdings Inc. and DraftKings Inc. went public through reverse mergers with blank-check firms.

Their structure tends to offer a big payday to the blank-check company's sponsors even if shares fall. Typically, those sponsors are awarded shares equivalent to about 20% to 25% of what is raised in the IPO at the time the target is bought. Some newer blank-check offerings are reducing their cut of the deal. Blank-check IPOs also haven't always performed well; historically, many traded below their offer prices, and deals they strike aren't always approved by shareholders. The newest generation of blank-check sponsors say they want to change that.

The case of electric-truck startup Nikola Corp. shows how risks remain. One of this year's high-profile IPOs through a blank-check company, it is now embroiled in legal and stock-trading woes, with the Justice Department examining allegations that it made exaggerated claims about its technology. A spokeswoman for Nikola declined to comment. Shares have tumbled, but remain above the level they traded when their merger deal was announced.

Meanwhile, struggling streaming-video service Quibi is considering a reverse-merger with a blank-check company to go public, The Wall Street Journal reported Monday.

Vivek Ranadivé is no stranger to capitalizing on an IPO boom. In 1999, the tech entrepreneur brought his company, Tibco Software Inc., public and watched shares double during their first day of trading. Since then, the software entrepreneur sold Tibco to a private-equity firm in 2014, stayed involved in the world of tech investing and became majority owner of the Sacramento Kings.

In February, Mr. Ranadivé attended the NBA All-Star Game and ran into some investors who told him he should try his hand at a blank-check company. At first, he was skeptical.

"A SPAC was a sleazy thing 20 years ago," he said. Then the pandemic hit with full force, and the timing seemed perfect to launch a SPAC of his own. So he did.

This summer, Mr. Ranadivé raised more than $480 million for his new blank-check company. Now he is on the hunt for a target to buy.

--Graphics by Ana Rivas

Write to Corrie Driebusch at corrie.driebusch@wsj.com

 

(END) Dow Jones Newswires

September 25, 2020 13:01 ET (17:01 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.