Spotlight on SPACs: Fintech in focus

16 June 2021 - 10:28 am UTC

by Rachel Stone in Charlottesville, Virginia

‘Spotlight on SPACs’ is 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.

 

Fintech a popular SPAC target

 

Technology has been the most active sector for special purpose acquisition company deal-making, and fintech companies are playing their part.

 

The fintech industry is attractive because it is playing the role of disruptor, is often capital intensive, and, as such, is seeking out the lowest-cost sources of capital, said Will Braeutigam, National SPAC Execution Services Leader at Deloitte. Further, as the industry matures, companies are looking for paths to exit, Braeutigam added.

 

There have been 12 SPAC mergers in the US fintech sector, generating USD 52.63bn in deal volume so far this year, compared with nine transactions totaling USD 16.90bn in deal volume last year, according to Dealogic data. There was only one fintech SPAC transaction in both 2018 and 2019, generating USD 1.15bn and USD 553.6m in deal volume, respectively.

 

 

Success of past fintech IPOs — such as those of mobile payment company Square [NYSE:SQ] and Dutch payment company Adyen [EN:ADYEN], among many others — has given investors confidence that fintech companies can sustain high growth as public companies, said Steve McLaughlin, founder, CEO and managing partner at FT Partners. FT Partners has been active in representing fintechs on SPAC deals, including Paya [NASDAQ:PAYA] and Porch Group [NASDAQ:PRCH], and it has five more deals in the works, McLaughlin said.

 

Although the SPAC market had taken a bit of a pause in the spring, the window is reopening, according to Braeutigam. That is because institutional investor capital goes through cycles — as earlier deals close and returns are realized, PIPE investors will again have capital to invest, he said.

 

There are still 400-plus SPACs that need to execute a deal, and both Braeutigam and McLaughlin believe fintech will remain a popular target this year.

 

Some big fintechs have already announced their public debuts via a SPAC merger.

 

Personal finance company SoFi [NASDAQ:SOFI], which had been considering a traditional IPO for years, announced a merger in January at a USD 8.65bn post-money valuation. Shares of the company closed at USD 20.80 on 15 June, compared with its open price of USD 21.97 on 1 June, the company’s first day of trading. A SPAC deal allowed SoFi to spend the necessary time with investors to educate them, and it enabled the company to provide detailed financial projections, CFO Chris Lapointe previously told this news service.

 

Paya, an integrated payments platform that executed a SPAC merger last year, chose the option because it was a less disruptive process than the time-intensive traditional IPO, CEO Jeff Hack told this news service at the time.

 

Larger cryptocurrency companies like Apex ClearingBakktCipher Mining and eToro have also pursued the SPAC route. Startups stand to benefit from the connections and expertise of SPAC executives and board members, a plus for an industry like crypto that is still nascent, MoffettNathanson analyst Lisa Ellis told this news service.

 

Just last week, Dave, which is backed by billionaire Mark Cuban, agreed to a USD 4bn deal with Victory Park Capital’s VPC Impact Acquisition III [NASDAQ:VIH]. Shortly before that, savings and investing app Acorns announced it had agreed to merger with Pioneer Merger [NASDAQ:PACX] at a USD 2.2bn valuation.

 

One factor that could taper SPAC-fintech mergers is the increasing M&A activity in the strategic market for fintech, McLaughlin said. He expects activity to be relatively well distributed between strategic M&A, SPAC mergers, and traditional IPOs, though he said SPACs have proven to be more lucrative than strategic M&A.

 

Additional regulatory scrutiny, which contributed to the SPAC slowdown, could also bring more legitimacy and long-term success to the SPAC process, Braeutigam said. Banks now require financial audits before connecting with PIPE investors, a change that forces targets to look more like IPO-ready companies before negotiations begin.

 

“There were a lot of lessons learned across sectors [earlier this year],” Braeutigam said of fintech companies that came to him wanting to merge with a SPAC. “One of those lessons learned was: Be ready.”

 

Target

SPAC Bidder

Deal Value (USD m)

Announcement Date

Social Finance

Social Capital Hedosophia V

6,419

07-Jan-2021

Bakkt

VPC Impact Acquisition

2,082

11-Jan-2021

Payoneer

FTAC Olympus Acquisition

3,228

03-Feb-2021

Opportunity Financial

FG New America Acquisition

559

10-Feb-2021

MoneyLion

Fusion Acquisition

2,375

12-Feb-2021

Apex Clearing

Northern Star Investment II

4,820

22-Feb-2021

Beacon Street Group

Ascendant Digital Acquisition

2,961

02-Mar-2021

Cipher Mining Technologies

Good Works Acquisition

2,000

05-Mar-2021

eToro Group

FinTech Acquisition V

9,766

16-Mar-2021

Better Mortgage

Aurora Acquisition

6,900

11-May-2021

Acorns Grow

Pioneer Merger

1,500

27-May-2021

Dave

VPC Impact Acquisition III

3,500

07-Jun-2021

 

In other SPAC news:

  • Pure Romance, a closely held direct-sales company selling adult products including sex toys and lingerie, has been approached by four special purpose acquisition companies since the founding family reacquired a majority stake in a June 2020 recapitalization, CEO Chris Cicchinelli told this news service. Being acquired by a SPAC is “something we would be interested in,” the 46-year-old executive said. One reason to sell to a SPAC or another acquirer would be to help scale the Cincinnati, Ohio-based business internationally, Cicchinelli said. The SPACs are “trying to find their targets, and they believe the brand has legs not only in the US but in other markets, including Europe and Latin America.”
  • Ellucian, a software provider for higher education institutions backed by TPG Capital and Leonard Green Partners, has rekindled talks with interested suitors after it had halted its sale effort in early 2020 with the onset of COVID-19, sources familiar with the situation told this news service. The company, which is aiming to fetch at least USD 5bn in valuation, is holding talks with bidders that include financial sponsors and some SPACs, sources said. Ellucian generates EBITDA of USD 300m-USD 350m.
  • Denver-based Balanced Health Botanicals (BHB) launched a process this month to find a strategic acquirer or merger candidate, CEO Chase Terwilliger told this news service. The cannabidiol (CBD) products company retained two investment banks, TripleTree and Toronto-based Kronos Capital Partners, to advise on the process. Terwilliger said last week that discussions had not yet begun with any interested parties. A SPAC merger is an option, though likely not preferred as it would not include a brand with connections in retail, Terwilliger said. BHB may consider a SPAC merger later, he added.
  • Barcelona-based Wallbox announced it would list on the NYSE via a merger with Kensington Capital Acquisition II. The provider of electrical vehicle (EV) charging solutions was a prime candidate for a SPAC deal, sources told this news service ahead of the announcement. Spanish companies have yet to take advantage of the wave of blank-check companies that have listed mostly in the US since 2019, but bankers are pitching lots of SPAC deals, a source said. Others that could go the SPAC route include delivery company Glovo, ride-sharing company Cabify and real estate listing company Idealista, the sources said.
  • San Francisco-based Sauce Labs will likely explore strategic options early next year, CEO Aled Miles told this news service. The software testing platform will consider a variety of options depending on its financial needs at the time, including a sale to a financial or strategic buyer or a public listing, Miles said. If it pursues a public debut, a SPAC merger, direct listing or traditional IPO may all be considered, he added.