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LAVA Meeting Recap

2008-06-11

Well, I have to say that I was immensely pleased by the Los Angeles Venture Association breakfast. The people were friendly, even to a no-assets-under-management MBA student, and the panel was extremely engaging.

First Heckmann. It would be an understatement to say that Heckmann is a great salesman for his own point of view. His special purpose acquisition company (SPAC) was the first to trade on the NYSE, and he raised $600 million in less than a year.

SPACs have a somewhat checkered history — they used to be called “blank-check” companies, and had a less than stellar reputation. Some blank-check managers drained the resources of the corporation through fees, or held on the money so long that investors became frustrated.

New rules require the management team to cover part of the equity of the SPAC with their own money, and if the SPAC dissolves without finding an acquisition target, all the money is returned to investors with interest. Once the money is invested in a target company (or companies), the SPAC works like any other equity holding company. The majority of IPOs in 2007 were actually SPACs, and the managers of these SPACs are actively searching the marketplace looking for quality companies to purchase and build up.

Heckmann was asked the question, “why not get money from private equity financiers, and avoid the difficulties associated with public offering?” Heckmann’s response — a consummate salesman’s response, I think — was that being public and being traded on the NYSE brings a cachet to negotiations that you just can’t get with privately raised money. Public trading is above-board, and addresses the concerns of foreign owners that they might be getting involved with a shady buyer. And Heckmann doesn’t like the idea of walking “hat in hand”, as he puts it, to beg for $2 million here and $1 million over there.

He and his management team will use the money to buy China Water and Drinks, a bottled water company in China that currently provides water for most of the beverage companies operating in China.

As Heckmann puts it, 1/3 of the Earth’s population lives between Hong Kong and Dubai, and it’s pretty rare to find a place in that region where you can get a safe drink of water from the tap. Without a safe water delivery infrastructure, it only makes sense to start in bottled water. Then he can start looking for ways to build out their tap water infrastructure. If anybody can do it, Heckmann can.

A working clean water infrastructure means better health and greater opportunity for everyone involved. That’s the kind of globalization that I can get behind.

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