The US SPAC boom continues, and I do admit that I decided to invest in one of them just this month. It is part of eating my own lunch, but I promise I won’t talk my books (until my SPAC investment finds its target).
Last September I first wrote about SPACs with a focus around Fintech targets.
At that time, the data showed that 50% of US IPOs are SPACs! and in the Fintech space, Bancorp was the entity with solid presence as a manager of several SPACs in the series FNTC, FNTE, etc.
As the SoFi and BakkT SPAC merger announcements are fresh off the press, it is time to highlight the regulatory trick in IPOs via SPACs.
You see, the IPO of a blank check company is done in the traditional way which has elaborate requirements. However, since there is no business, no financials, no growth stories, there is no price discovery or information discovery through this process. Typically, it is priced at $10 with one-quarter of the warrant which gives you the right to buy another share at $11.50. You can think of it as a bridge loan to personalities as Chris rightly highlights in his Bloomberg piece Hedge Funds Love SPACs But You Should Watch Out
`… hedge funds are providing bridge loans that have enabled a host of famous names from the world of business, finance and politics to launch their own SPACs this year. The funds are often arbitrageurs, though, with no intention of remaining investors once a SPAC has found a merger target. Retail investors and institutional investors who hold SPACs as long-term investments once a deal is struck haven’t always done as well.`
Even the former Credit Suisse CEO Tidjane Thiam is rumored (the FT ) looking to launch a $250MM SPAC to “invest in financial services businesses in the developed and developing world”.
Once the target company is announced, the SPAC price starts conveying information about the pricing of the new shares that will be issued. Hopefully, most SPAC investors will see the potential capital appreciation and decide not to redeem their shares and hold them long term.
The regulatory trick here is that the Event is a merger and does not have to abide by the strict rules of disclosure of a traditional IPO. That is why when we look at the investors` decks of SOFI or Bakkt we see marketing pitches like these:
Projections about a total addressable market that is up for grabs from so many different entities & comparisons of user growth from other apps that offer cryptos to retail but in very different business contexts.
Claiming that We — Sofi - are the First & Only full-stack Fintech — one-stop shopping for all kinds of consumer banking services and investing — when the up to date figures show a lending grown-up fintech business adding more products (cross-selling is mainly within the loan vertical)
— — — — — — -
SPACs who have found an acquisition target are hybrid deals — a merger and at the same time issuance of new shares which means circumventing the strictness of a traditional IPO.
– IPOE raised $800 million (80million shares) in an IPO in October 2020 (currently 865million estimated shares outstanding)
– Now will merge with SoFi, valued at $8.6Billion
– IPOE shares are already trading above $19, pricing the entity at $16+Billion which is already above the $13.2billion expected value
Right now, there are 5 Fintech SPAC deals that have announced their target, and their NYSE or NASDAQ listing is pending. This means the issuance of the new shares with a new ticker has not happened yet and the percentage of SPAC shares redeemed is not settled yet.
In addition to Sofi and Bakkt, we have the Perella Weinberg deal, Katapult, and Paysafe. I am only accounting for deals over $1Billion and not referencing insurtech SPAC deals (e.g. Clover).
Looking at the stock price performance to date of the already completed Fintech SPAC deals, we can see which ones are trading above the $10 issuance price and therefore rewarding to one extent and another, the SPAC investors.
The blue SPACs were managed by Bancorp and are currently trading at market capitalizations below $1billion. CardConnect, one of the earliest SPACs if not the first, was actually acquired in mid-2017 at $15 per share by First Data ($750mm). As of Jan 13th close, IMXI (remittance business) and EQOS (Diginex crypto exchange operator) closed $15.81 and $18.90. Global Blue (GB) and Paya which are both in the payments space, closed at $12.31 and $13.97. OpenDoor in real estate $26.84 and OpenLending (LPRO) at $37.62!
Stay tuned and watch what markets believe about these valuations and the 5 upcoming Fintech IPOs via SPACs.
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