Blank check IPOs soar in popularity, and what you need to remember

in 2007, special purpose acquisition companies, or blank-checks, made up 23% of the total number of IPOs. In other words, nearly a quarter of IPOs this year have been for businesses with no business. A blank check IPO exists to raise money, and then seeks to use that money to acquire another company.

For instance, Endeavor Acquisition went public as a blank-check IPO and then acquired American Apparel. Now the company trades as American Apparel (AMEX: APP), and Kevin Kelly wrote about why he thinks that company is a buy here.

Sometimes companies that go public through this process can be good investments, but there's something investors need to keep in mind: A company that has been acquired by a SPAC has just been put up for sale and is therefore unlikely to be undervalued. If the sellers could have gotten more for it, they would have sold it to someone else.

A piece in the Wall Street Journal discusses (subscription required) blank checks and some of their pitfalls. American Apparel is definitely one of the better/most interesting companies to go public this way (the CEO's alleged perversions aside) in recent years but, in general, I think blank checks are something for investors to avoid.