Boomerang throw
When a special purpose acquisition company finds a private company to buy and merge with, what it really does is help put that company public with little oversight and at the cost of a transitional IPO. The entity after the merger bears the name of the target company and its business operations, and inherits the shares of the listed blank check company. For example, special purpose buyout company Healthcare Merger merged with telemedicine provider SOC Telemed and brought it to the Nasdaq in November 2020. The stock closed on the first day of trading under that name at 9 bucks.
SOC was public for less than a year and a half and then came back private in April when it was bought by Patient Square Capital, a private equity firm, for just $3 a share. SOC’s stock market debut wrote off more than $300 million in value for shareholders who held onto its shares.
MetroMile Motor Insurance has also accepted an offer to buy from the publicly traded insurer Lemonade. Metro Mile shares are currently trading at less than $1, well below $17 after the INSU Acquisition Corp. 2 merger ended early last year.
There is a very strange case, which is the company “Redbox”, which is famous for renting DVDs via robots, which accepted a purchase offer from “Chicken Soup” for Soul Entertainment in a deal Total equity was estimated at $31 million, less than 5% of its value when Seaport Global Acquisition helped Redbox go public. But we will find that social media-driven meme traders adopted Red Box shares in 2021 and the stock soared to a much higher price than the shareholders would get if the deal went through.