Lengthy regulatory reviews, macroeconomic pressures drag down deals

It’s been more than a year since crypto platform eToro agreed to go public with FinTech Acquisition V [NASDAQ:FTCV], and the deal is still languishing. Since the agreement, eToro dropped 15% in value and received pushback from the Securities and Exchange Commission.

In a regulatory filing in December 2021, the SPAC backed by banking veteran Betsy Cohen postponed the deal a second time — it was originally slated to close in 3Q21 — citing eToro’s inability to meet SEC conditions required of foreign issuers. FinTech extended the deal deadline to 30 June and slashed the online stockbroker’s post-money valuation to USD 8.8bn from USD 10.4bn.

“If you look at the average amount of time for deals between the announcement and getting to a vote stage for SPACs, it’s pretty much double that for crypto companies,” one sector specialist said. “These deals have double the scrutiny because they are both a SPAC and have a crypto-focused business, which are two areas the SEC has stated they are looking into.”

In a virtual speech earlier this month, SEC Chair Gary Gensler vowed to better protect investors in the USD 2tn cryptocurrency market through increased regulations. The speech echoed similar remarks he has made about SPACs over the course of the last 12 months.

A review of deal data shows at least nine mergers between crypto businesses and SPACs have been announced to date with six of the transactions — including eToro’s — still pending.

“It’s not a massive number of transactions, so it would be premature to call it a pattern or trend,” said Moe Vela, an attorney at Stein Mitchell Beato & Missner, who served in the White House under Presidents Obama and Clinton and is now launching a crypto project called Unicoin.

“But it is something that those of us in the space are keeping an eye on,” Vela said.

The ability to make forward-looking financial projections has propelled some businesses in speculative industries, like crypto and space exploration, to go public through SPAC mergers rather than traditional initial public offerings, which don’t allow the practice, dealmakers noted.

Going public through a SPAC merger is also typically faster than a traditional IPO, they add.

Bitcoin miner Prime Blockchain’s agreement to merge with 10X Capital Venture Acquisition II [NASDAQ:VCXA] on 1 April not only marked the first SPAC merger of 2Q22, but it showed that the speculative assets can still mix even when both face market and regulatory pressures.

More tie-ups between SPACs and crypto companies are likely going forward, Vela said, but the macroeconomic challenges currently weighing on the markets are likely to keep activity muted.

“I’ve been involved in some discussions in the last few months, and SPACs are not as hot as they were a year ago,” he said. “I don’t know if we’ll see a ton more of cryptos using SPACs.”

In other SPAC news:

• Filevine, a provider of legal software, expects to choose between an IPO and a merger with a SPAC when it is ready to go public, CFO Ian Charles said. Market dynamics will dictate which path it chooses, he said. The Salt Lake City-based company does not plan to go public in the next 12 months, but it could sometime after that, co-founder and CEO Ryan Anderson said. Earlier this month, Filevine raised USD 108m in Series D capital that the executives said should provide sufficient runway to get Filevine to cashflow breakeven in about two years.
• ECARX, a Chinese automobile intelligence technology solution provider, is exploring a potential listing in Hong Kong, either through a conventional IPO or a SPAC merger, according to two sources familiar with the situation. ECARX had sought to go public in the US via a merger with a SPAC in March but shelved the plan eventually due to uncertainties confronting Chinese companies looking to tap US capital markets, both sources said. In the meantime, the company is in talks with institutional investors on a potential USD 200m-USD 300m private round.
• Safari Asia, a Hong Kong-based asset management and securities firm, will consider exiting portfolio companies by way of a merger with Hong Kong or US-listed SPAC, according to Chairman Timothy Shen. Safari Asia is currently looking to raise up to USD 100m for its Meta Eco Fund to make minority investments in metaverse-related companies in the fields of blockchain, NFT, Gamefi, AI and VR across the globe, he said.