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The CEO who made one of Silicon Valley’s worst acquisitions wants a $400 million blank check

The blank-check bonanza has already reached mind-boggling heights, however now we appear to have jumped the shark.

A preliminary prospectus was filed final week by a firm known as Burgundy Technology Acquisition Corp. searching for to lift $400 million for a special-purpose acquisition firm, or SPAC, an entity that seeks to lift cash to amass an unnamed firm that’s often known as a “blank check” firm. Behind Burgundy is a acquainted face for tech traders, although one that hasn’t been seen in a few years: former Hewlett-Packard Co. and SAP AG

Chief Executive Leo Apotheker, who shall be co-CEO of Burgundy together with former SAP colleague James Mackey.

In case you don’t keep in mind Apotheker’s reign as CEO of pre-spinout H-P, the essential half of that transient interval for these functions is one of the worst acquisitions in tech: the $11 billion acquisition of a U.Okay.-based knowledge analytics software program firm known as Autonomy. Just a yr after making that deal, H-P stunningly wrote off $8.Eight billion of the acquisition worth and admitted it had considerably overvalued Autonomy, resulting in lawsuits and costs on each side of the Atlantic.

Apotheker was ousted after lower than a yr on the job, however Hewlett-Packard Enterprise Co.

remains to be coping with the fallout, largely within the type of countless litigation. It has already paid out $100 million to settle a shareholder swimsuit and different lawsuits, together with a civil case it filed within the U.Okay. and a legal case within the U.S. which can be nonetheless ongoing.

While it might be foolhardy at hand a CEO with such a horrific acquisition on his résumé a blank check to have one other attempt, the SPAC bonanza on Wall Street has grown so big that something is plausible. After a raft of blank-check acquisitions made big waves with the Robinhood crowd — Virgin Galactic Holdings Inc.

, Nikola Corp.

and DraftKings Inc.

most distinguished amongst them — there was an unprecedented flood of filings.

All advised, the SPAC-fest is like nothing Wall Street has ever seen, already setting an annual document for quantity raised. So far this yr, 57 SPACs have raised $21.Three billion within the IPO market, excluding overallotments; final yr, a complete of 59 blank check firms raised $12.1 billion, which was a document on the time.

At the speed new choices are flowing into the Securities and Exchange Commission, we could have already got crushed the document for quantity of SPACs with four-plus months to go in 2020. Since July 31, 14 blank check firms have filed to lift a gorgeous sum of $5.5 billion, in response to Renaissance Capital. That wave follows a submitting for the largest blank check firm but, billionaire hedge-fund supervisor Bill Ackman’s $Four billion Pershing Square Tontine Holdings Ltd.

“We’re about to break last year’s full-year SPAC IPO count of 59, the highest number in a year ever,” stated Matthew Kennedy, a senior strategist at Renaissance Capital, a supplier of IPO-focused ETFs

“And based on recent filings, activity is only going to increase heading into the fall.”

See additionally: Why this Wall Street analyst turned his Twitter feed into ‘Sell-Side Stories with Stacy’

SPACs had been created within the 1990s, an outgrowth of a far riskier automobile in style within the go-go 1980s: the blind pool. Some blind swimming pools had been created and dissolved with out making a single funding, resulting in the eventual creation of the SPAC, the blank check firm, which has tighter controls. The greatest safety is that in alternate for not understanding what firm shall be acquired, traders have the choice on the time an acquisition is introduced to resolve to carry or redeem the preliminary funding at value (plus accrued curiosity).

SPACs basically are a totally different proposition for traders as a result of they’re investing within the individuals working them, with no info or monetary knowledge on an acquisition goal till a deal is struck. Renaissance famous in a current weblog submit for subscribers that the majority SPACs fail to stay as much as the hype — the return thus far this yr is a bit over 4%, Kennedy stated in an electronic mail, regardless of the wild beneficial properties for a few outliers.

Goldman Sachs in a current report famous that the majority of these offers carry out poorly over the long term, after an acquisition is lastly made, underperforming each the S&P 500

and the Russell 2000

“During the 1-month and 3-month periods following the acquisition announcement, the average SPAC outperformed the S&P 500 by 1 percentage point and 11 percentage points, respectively, and beat the Russell 2000 by 6 percentage points and 15 percentage points, respectively,” Goldman wrote within the report. “However, the average SPAC underperformed both indexes during the 3, 6, and 12-months after the merger completion.”

Read: Luckin Coffee exhibits how dangerous Chinese IPOs could be, however traders are simply not listening

Recent high-profile SPAC acquisitions have began off nicely, however might battle for any beneficial properties within the close to time period as the businesses might be years away from making actual cash. One such instance is much-hyped area tourism firm, Virgin Galactic, which was taken public final yr via a SPAC shaped by enterprise investor and former Facebook Inc.

government Chamath Palihapitiya. Earlier this week, Virgin Galactic

reported no income within the second quarter and once more delayed its first journey to area for founder Richard Branson, whereas saying that it’s going to dilute its SPAC traders by issuing one other 20.5 million shares.

Virgin Galactic, although, is a dream of an acquisition in contrast with H-P’s buy of Autonomy, one of the worst acquisitions in Silicon Valley. And the myriad court docket instances and leaks concerning the course of have proven that Apotheker was on the heart of all of the issues.

As H-P was getting near finishing its bid for Autonomy, Chief Financial Officer Cathie Lesjak expressed considerations concerning the hefty worth. Apotheker pushed ahead, although, with H-P finally shopping for a firm that it has since accused of misrepresenting its monetary efficiency by slipping {hardware} gross sales onto its stability sheet whereas promoting itself as a “pure-play” software program firm.

After the deal was introduced in August 2011 — together with Apotheker’s plan to spin off the {hardware} enterprise — Chairman Ray Lane came upon that many of H-P’s giant traders opposed the deal, and that there had been dialogue amongst some bloggers and monetary analysts up to now about Autonomy’s aggressive accounting ways, in response to The Wall Street Journal. Lane additionally uncovered widespread considerations amongst senior H-P executives that Apotheker wasn’t proper for the job, which result in his dismissal simply 35 days after the Autonomy deal was introduced.

More on SPACs: Billionaire Bill Ackman has a $Four billion ‘blank check’ to purchase a firm, however he hasn’t stated which one

At the civil trial final yr within the case filed by HP Enterprise within the U.Okay. in opposition to Autonomy founder Mike Lynch and its chief monetary officer, Apotheker stated the Autonomy deal was “not a happy memory.” Lynch’s protection argued that H-P wrote off the deal in an aggressive transfer guilty its former management for mismanaging the mixing of Autonomy, and to guard the credibility of then new chief government, Meg Whitman. The consequence of that case remains to be within the palms of the choose, who has not but made a determination for the reason that trial concluded in January, an HPE spokesman confirmed.

In his testimony, Apotheker admitted that he had not even learn Autonomy’s most up-to-date monetary outcomes earlier than signing the deal, which attorneys identified would have taken him about 30 minutes.

“I was running a $125 billion company, sir, and minutes are pretty precious,” Apotheker testified, in response to a Business Insider report of the trial.

In case you haven’t been paying consideration, the unique H-P is now not a $125 billion firm, and the Autonomy deal is among the many many the explanation why. When Whitman was named CEO of H-P after Apotheker, she handled the mess by finally blowing it up into totally different items, with Autonomy turning into half of the enterprise-tech enterprise, HPE, and finally having most of its belongings spun out in a sophisticated three way partnership with Computer Sciences Corp. that created DXC Technology Co.
Another ill-fated acquisition hanging over the enterprise enterprise was the practically $14 billion deal for Electronic Data Systems in 2008, which additionally led to a huge write-down.

More from Therese: COVID-19 might be the ultimate nail within the coffin of HP’s printing enterprise

DXC has misplaced greater than three-quarters of its worth up to now two years, and mixed with the 2 entities that spun out from the unique Hewlett-Packard — HP Inc.

and HP Enterprise Co.

— they’re all value lower than $50 billion mixed. MarketWatch reached out to contacts in Burgundy’s SEC submitting to talk to Apotheker, however didn’t obtain any response.

SPACs are dangerous performs basically. Buying into a SPAC is a bit like shopping for a home with out understanding the neighborhood or the model of structure. Instead, you hand your down cost to a real-estate agent to select a home for you, sight unseen, with the choice to get your down cost again should you don’t like the home.

If you go that route, you higher belief your real-estate agent. Trusting Apotheker to make an acquisition, although, is like purposefully selecting one whose declare to fame was shopping for “The Amityville Horror” home.

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