Entrepreneur J. Smoke Wallin, bestknown as CEO of software maker eSkye Solutions, hopes to raise $60 million in an initial public offering for a new Indianapolis company that doesn't yet own anything.
Sound bizarre? Perhaps. But Wallin's Taliera Corp. is just the latest in a long line of so-called "blank check" companies that raise money with the intention of going out and purchasing an operating business. In this case, Wallin has his sights on the alcoholic-beverage industry, though the company says an acquisition could be in any field.
Since 2003, 66 blank check companies in the United States have completed IPOs and 27 of them have announced or completed acquisitions. The 39 yet to strike a deal collectively are sitting on more than $2.8 billion.
Observers say the investment vehicle has become popular in part because it gives everyday investors a shot at the outsized returns private equity firms backed by big investors have been racking up in the sizzling buyout market. Big investors pumped $131 billion into buyout funds just last year.
But David Menlow, president of the New Jersey-based IPO tracking firm ipofinancial.com, said investments in blank-check IPOs are fraught with risk. He said private-equity firms control risk by offsetting losses on one deal with gains on another. In contrast, investors in blank check IPOs may tie their fate to a single purchase.
"I have about as negative a view of these as you might want to express," Menlow said. "This is not an IPO investment. This is IPO Russian roulette."
Wallin did not return calls by deadline. Securities and Exchange Commission rules restrict him from making detailed public comments until the offering is complete.
The company, backed by New Yorkbased underwriter Morgan Joseph & Co., filed plans to go public July 28. Taliera said it wants to sell 80 percent of the company to investors by offering 7.5 million shares at $8 apiece. For each share they buy, purchasers also would receive a warrant entitling them to later buy another share at $6.
The other 20 percent of the company is held by Wallin and other insiders. The insider shares cost a total of $25,000.
Wallin's track record
Investors considering whether to plow money into the deal will have to rely primarily on the business experience of Wallin and other insiders.
Though only 40, Wallin is a veteran of the alcoholic-beverage industry who in 2002 served as chairman of the Wine & Spirits Wholesalers of America, a Washington, D.C.-based trade group.
From 1998 to 2004, Wallin served as executive vice president and chief financial officer of National Wine & Spirits, a liquor distributor that is among Indianapolis' largest private companies. He is the son-in-law of company CEO James LaCrosse.
In 1999, at the height of the Internet boom, Wallin founded eSkye to create a Web-based ordering system that would modernize the liquor industry's notoriously inefficient supply chain. After the technology bubble burst, the company struggled and shifted its focus to software for the liquor industry.
Wallin has raised $60 million in equity capital for eSkye since its founding. In recent years, eSkye has regained its footing, according to a 2005 article in Impact, a wine industry trade magazine. At that time, eSkye had 22 employees, and more than 100 wineries were using its wineproduction, vineyard-management and sales-and-distribution software.
Serving as chairman of Taliera is S.K. "Skeeter" Johnston III, who spent 27 years with Coca-Cola Enterprises Inc., the big Georgia-based bottler. His posts included executive vice president and chief strategy and businessdevelopment officer.
If Taliero officials succeed with their offering, they'll be on the hot seat to pull off a deal fast. Under SEC rules designed to protect investors, blank check companies have just 18 months to strike an acquisition deal, or they must liquidate and return money to investors.
The SEC filing suggests Taliero officials think there will be opportunities aplenty. It notes that the alcohol industry remains fragmented, with many familyowned businesses that lack access to capital to expand and strengthen their market positions.
"We believe our management team's experience and reputation in the industry will be viewed as attractive by many prospective sellers," the SEC filing said.