Life after deal termination for SPAC targets

News Analysis 2 November

Life after deal termination for SPAC targets

This is an excerpt from 'Spotlight on SPACs', a weekly column that tracks the latest news, data, and analysis on special purpose acquisition companies, drawing on proprietary intelligence from Mergermarket and Dealreporter, as well as data from Dealogic.

Fintechs finding funding, remain attractive SPAC targets

While fintech companies continue to be attractive targets for special purpose acquisition companies (SPACs), the number of deals making it to the finish line is dwindling.

At least 11 announced SPAC transactions with fintech targets have terminated this year, including one of the largest deals to fall through – eToro Group’s terminated merger with FinTech Acquisition V [NASDAQ:FTCV], which had an estimated implied equity value of USD 10.4bn at closing when the deal was announced in March 2021.

Each of the fintech targets that terminated deals in the first three months of the year – FinAccel, PICO Quantitative Trading, Kin Insurance and Acorns Grow – have since announced additional private funding.

Online home insurance company Kin Insurance, which announced an USD 82m Series D in March, expects to reconsider a public debut after reaching profitability or growing premiums to USD 1bn, co-founder and CEO Sean Harper told this news service at the time. It terminated the planned merger with Omnichannel Acquisition [NYSE:OCA] in January, when redemptions meant the listing would not reach the USD 200m minimum fundraising mark.

Next steps following a deal termination can vary, with companies that have strong balance sheets likely trying to ride out the wave, said Will Braeutigam, national SPAC execution services leader at Deloitte.

Whether a fintech can raise capital in today’s tight credit market likely is unaffected by a terminated SPAC deal, Braeutigam said. Some fintechs – even those that were not SPAC targets – will face the decision of raising capital below prior raise valuations. A company’s value will be based on the health of its balance sheet and long-term earnings potential, he explained.

Just three fintech SPAC deals have been announced year to date, compared with 14 transactions in 2021 and nine in 2020, according to Dealogic data. While some of the terminated deals involve crypto-related targets, each of the transactions announced this year has been for a crypto company.

Coincheck, one of the largest multi-cryptocurrency marketplaces and digital asset exchanges in Japan and a subsidiary of Monex Group [TYO:8698], agreed to merge in March with Thunder Bridge Capital Partners IV [NASDAQ:THCP] in a deal worth USD 1.25bn. Tomorrow Crypto Group announced in August it would merge with blank-check firm Globalink Investment [NASDAQ:GLLI] in a deal valuing the blockchain and bitcoin trading platform at USD 310m. Also in August, Bitcoin ATM operator Lux Vending announced it would merge with GSR II Meteora Acquisition [NASDAQ:GSRM] for an estimated post-transaction equity value of USD 885m.

Braeutigam expects more movement in the crypto space and said market volatility in the sector is the main driver of the “wait-and-see” mentality rather than the SPAC vehicle itself.

Fintech broadly is likely to remain an attractive SPAC target, according to Braeutigam. “However, given the large amount of capital likely needed for these entities, targets need to consider whether the vehicle is right for them given the high redemption rates.”

In other news:

  • TheGuarantors, a privately held fintech company operating in the real estate market, should be positioned to explore strategic options next year, said founder and CEO Julien Bonneville. The New York City-based company, which is forecasting a revenue run rate of USD 100m in eight to 14 months, has been approached by SPACs. A sale, a Series D capital raise or a public listing are all options it could consider, Bonneville said.
  • Fosun International [HKG:0656] is exploring options for France-based Club Med, a holiday resorts operator majority-owned by Fosun’s leisure arm Fosun Tourism Group [HKG:1992], according to four sources familiar with the matter. A SPAC merger is among the options being considered, three of the sources said, though a Fosun Tourism spokesperson denied having any plans related to a SPAC merger.
  • Voltz Motors, a Brazilian manufacturer of electric motorcycles, plans to launch a new funding round of between USD 120m and USD 150m within the next three weeks, CEO Renato Villar told this news service. If it is unable to raise a new round of capital, the Recife-based company could consider using cashflow and bank debt to fund growth or merging with a SPAC, Villar said, pointing to Citigroup’s [NYSE:C], its financial advisor, expertise in the area.
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