These special purpose acquisition companies (SPACs) have no assets but use the IPO proceeds, together with bank financing, to buy other companies and boost their value through operational improvements. The companies that are acquired by SPACs go public without ever going through the IPO process.

SPACs have traditionally struggled to attract long term investors, due to their complicated structure and investment risks. Instead, they appealed to hedge funds and other opportunistic investors, who bought into the SPAC only to take advantage of the structure's inefficiencies.

But tweaks in their bylaws and leadership by a new crop of industry veterans with acquisition experience are gradually making them more mainstream.

As a result, Goldman Sachs Group Inc's (>> Goldman Sachs Group Inc) biggest successfully completed IPO assignment so far this year is not a red-hot technology startup or a multibillion-dollar leveraged buyout; it is an energy-focused SPAC called Silver Run Acquisition Corp , whose $450 million initial public offering last month raised $50 million more than originally planned.

It was the first SPAC successfully taken public by Goldman, which served as an underwriter alongside Deutsche Bank AG (>> Deutsche Bank AG) and Citigroup Inc (>> Citigroup Inc), which have been working on SPACs for more than a decade.

Chinh Chu, a private equity veteran who ended a 25-year career at Blackstone Group LP (>> Blackstone Group LP) last year, is preparing to launch a $1 billion SPAC and is working with Citigroup, Bank of America Corp (>> Bank of America Corp) and Credit Suisse Group AG (>> Credit Suisse Group AG) on its IPO, Reuters reported this week.

Another SPAC planning a $300 million IPO, Colony Global Acquisition Corp , sponsored by real estate mogul and Donald Trump supporter Thomas Barrack, is set to name Bank of America, JPMorgan Chase & Co (>> JPMorgan Chase & Co.) and Barclays Plc (>> Barclays PLC) among its underwriters alongside already publicly disclosed underwriter Credit Suisse, according to people familiar with the matter. It would be Barclays' first U.S.-based SPAC IPO since 2007 and JPMorgan's first since 2008. Representatives for Colony and the banks declined to comment.

"It is becoming more fashionable, we are starting to see more banks interested in the product," said Gregg Noel, a capital markets partner at law firm Skadden, Arps, Slate, Meagher & Flom LLP.

Overall, U.S. IPO volumes are down 93 percent year-to-date, totaling $317 million, as stock market volatility prevents many companies from going public. SPAC IPO volumes, however, are up 26 percent over the same period to $619 million, according to data compiled by Thomson Reuters.

This is because SPAC IPOs are less vulnerable to market jitters, since they have no existing business to fret over. Investors can speculate about the companies SPACs will buy, but initially SPACs are only worth the money they raise.

No data is publicly available yet on Silver Run's investor base, but sources familiar with the offering said the investors included traditional oil and gas investors, as well as long-term institutional investors. Other IPOs of late, where shareholder information is available, show that the SPAC investor base has been slowly expanding.

Private equity firm TPG Capital LP's SPAC, Pace Holdings Corp (>> Pace Holdings Corp), which went public last year after raising $450 million, enticed Janus Capital Management LLC, according to securities filings compiled by Symmetric. Wilber Ross' $435 million WL Ross Holding Corp attracted MFS Investment Management, TD Asset Management Inc and Wellington Management.

The investment firms either did not respond to requests for comment or declined to comment.

STRUCTURAL CHANGES

Typically, SPACs allow investors to redeem their common stock at the IPO price if they disagree with a proposed acquisition. This can challenge a SPAC's ability to write the equity check needed for a potential acquisition.

To address this, Chu and his partner in the new SPAC, William Foley, chairman of the board of U.S. title insurance services provider Fidelity National Financial Inc (>> Fidelity National Financial Inc), have sought to attract some cornerstone investors ahead of the IPO.

These cornerstone investors have committed not to redeem their money if they disapprove of a proposed acquisition, giving the SPAC more financing certainty to be able to go after the companies it wants.

Other structural changes SPAC managers are making include improved disclosure over potential acquisitions, investment bankers and SPAC participants said.

"We have been able to drive improvements in the structure so that today it attracts high-profile sponsors and better transactions, which in turn has attracted the attention of high-quality investors," said Jeff Bunzel, head of Americas equity capital markets at Deutsche Bank.

More private equity executives, well-seasoned in identifying and managing acquisitions, are also launching SPACs, seeking to diversify their buyout business.

"After a few years, (private equity) investors want you to realize the gain ... you're kind of forced to sell things fairly quickly. With a SPAC, our investors can each independently decide when they want to sell their shares, and I don't have to liquidate my position," said Wilbur Ross, whose SPAC announced this week an agreement to buy U.S. chemical distribution company Nexeo Solutions Holdings LLC for roughly $1.6 billion including debt.

SPOTTY TRACK RECORD

To be sure, many of the historical risks that SPACs entail remain for both banks and investors.

Of the 130 SPACs that have completed an acquisition since 2003, the average annual return has been a 15.3 percent loss, versus the Russell 2000 index's <.RUT> annualized return of 4.5 percent over that period, according to data provider SPAC Analytics.

There are 31 U.S.-based SPACs still looking for a deal, several of which are coming up against their two-year deadlines to invest the money they raised in their IPO or return it to investors.

For banks, roughly half their fees are paid after a SPAC's IPO, when it finalizes an acquisition. Even when an attractive acquisition target is found, SPAC shareholders can veto a deal.

"I say about raising the money, 'congratulations, 25 percent of your work is done,'" said Neil Shah, head of alternative capital markets at Citigroup.

Deutsche Bank and Citigroup have big SPAC practices, taking between 40 and 80 percent of the SPAC IPO proceeds every year since 2006, according to Thomson Reuters data.

Other banks, however, have bulked up their SPAC capacity. For example, earlier this year, UBS Group AG (>> UBS Group AG) hired SPAC veteran Jeff Mortara from Deutsche Bank. Last year, Credit Suisse hired another Deutsche Bank SPAC practitioner, Niron Stabinsky.

(Reporting by Lauren Hirsch in New York; Additional reporting by Jessica DiNapoli in New York; Editing by Greg Roumeliotis and Matthew Lewis)

By Lauren Hirsch