Back in December, The Wall Street Journal reported on the resurgent demand for special-purpose acquisition companies, also knows as SPACs or blank-checks. These are companies that are taken public for the sole purpose of seeking to acquire another operating company. If they can't find one with in a set period of time, they return the money to investors.

I was skeptical, writing that "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 ... in general, I think blank checks are something for investors to avoid."

Now, less than six months later, Wall Street has turned on SPACs, and the rapid growth in blank check IPOs of late 2007 and early 2008 has subsided. According (subscription required) to the Wall Street Journal, the glut of these IPOs in recent months has left hedge funds -- their primary investors -- tired of them and, more dangerously, there are so many recently-formed SPACs on the prowl for acquisitions that they're "bumping into each other."

Of course some SPACs will be tremendously successful, but, in general, I still think investors should look elsewhere.

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.