When an investor invests in they-don’t-know-what-securities.
Yes, blind bids can be as risky as they sound (for individuals), but they don’t have to be (for companies). Usually, institutional investors (think: mutual funds, banks, hedge funds, and other financial institutions) are the ones using blind bids, spending hundreds of millions of dollars.
While they don’t know exactly what they’re buying, typically they do know the general characteristics of the chunk of securities they’re investing in. Like...if it’s mostly safe bonds or mostly growth stocks.
While savvy individual investors would never do such a thing, it’s commonplace among large institutional investors, who still have a pretty good idea of what they’re getting themselves into.
Related or Semi-related Video
Finance: What is a Blank Check Company?14 Views
Finance, a la shmoop. What is a blank check company? All right well when Russia
was the big bad USSR in the Cold War of the 70s there was a secrecy about everything [The USSR shown on the map]
that they did as they expanded their territory, [Formation of tanks driving]
oh wait that's a blank Czech company a little different... All right a blank check
company yeah you knew we were gonna do that come on, well it's actually an
investment vehicle that in practice well isn't that far off the Russian flavor of [Definition of a blank check company written on a 100 dollar bill]
things. Specifically a blank check company isn't specific, see what we did there...
Hence the word blank in there, think of it as the operating version of a venture capital
partnership or of a private equity growth capital company thing.. yeah it's one of
those. There's no specific game plan or structure other than to just go make [Football players talking to their coach]
money from shareholders. Well the dough in this kind of
investment vehicle is generally viewed as weaponry to acquire companies. [Pile of money attacks the company]
Usually speculative dead dying or otherwise extremely cheap companies
think penny stocks delisted from Nasdaq zombies with the view that the operators [Zombie]
of the blank cheque company can take over the company, run it better, improve
profit margins and regenerate growth. Well one type of blank cheque company is
called SPAC, stands for special purpose acquisition corporation. [The meaning of the letters is shown]
Which might have a sole directive of rolling up or consolidating a niche
industry like yes of course the whoopee cushion industry, where if there exists [Whoopee cushion industry]
the Minkleman family and the Snookerdoodle family they're kind of the Coke
and Pepsi of whoopee cushions, and if they merged well then they would have a [The two families with Coke and Pepsi logos over their heads]
virtual monopoly over whoopee cushions. They could raise prices and profit [The two families come together and a monopoly logo appears]
margins would soar with cheaper rubber supplies and they'd go from being worth 1
whoopie to being worth several yeah that'll put some wind in your cushion... [Several whoopee cushions appearing]
That's a blank check company go buy stuff raise price. [Pair of kids prank a mum with a whoopee cushion]
Up Next
What is the Bid-to-Cover Ratio? The Bid-to-Cover ratio compares the amount of bids made for Treasury securities to the amount that is actually sold...
What is a Dutch Auction? A Dutch Auction is either one where closed quantity and price bids are entered and the price is set at the highest price t...