Analysis: How Wall Street’s Hottest Trading Trend Fizzled Out



Sept. 16 (Reuters) – Los Angeles Dodgers part-owner Todd Boehly made a lucrative offer last March that Sportradar Group AG (SRAD.O) founder and CEO Carsten Koerl couldn’t pass up.

He proposed a merger with his Special Purpose Acquisition Company (SPAC) Horizon Acquisition Corp II that would have valued Sportradar at $ 10 billion. That was 110 times the adjusted cash flow of the Swiss sports gambling data firm in 2020 of 76.9 million euros ($ 90.4 million). Most of his peers were valued at less than half that multiple.

Still, Wall Street’s mood was about to deteriorate towards the PSPC deals, so its hottest trend when it comes to deals. Instead, Sportradar went public this week through a traditional Initial Public Offering (IPO) that valued the company at just $ 8 billion.

This account of the deal’s deliberations is based on interviews with four people familiar with the matter and on a Reuters analysis of Sportradar’s financial data. Spokesmen for Sportradar, CPPIB and Horizon did not respond to requests for comment.

Boehly’s SPAC deal would have made Sportradar public in New York without the need for a heavily regulated IPO, restricting the ability of companies to give high financial projections to stock investors.

Koerl and Sportradar’s other lead investor, the Canada Pension Plan Investment Board (CPPIB), believed that Boehly could meet Sportradar’s foamy valuation expectations, as investors were fascinated by SPACs at the time. ‘era. Some 91 companies had gone public in the United States through SPACs in January, compared with 27 companies through IPOs, according to Dealogic.

Investors invited to participate in a private investment in public capital (PIPE) transaction supporting the transaction were hesitant about the price sought and how it compares to other successful SPAC transactions such as that of the sports betting platform DraftKings.

While Sportradar boasted of rapid revenue growth, it also made aggressive assumptions about the legalization of gambling by some US states. The company lowered its valuation forecast to $ 9 billion, but still failed to attract many investors.

Sportradar decided in June to abandon the SPAC deal and signed up for an IPO in July. It debuted on the Nasdaq this week.

The PSPC market deteriorated rapidly over the summer, according to Reuters interviews with more than a dozen capital markets professionals and a review of market data. Now, the PSPC agreements that are signed often do so by proposing softened conditions on their PIPE. PSPC managers also accepted less generous compensation.

Other companies that have ditched SPAC deals for IPOs in recent weeks include digital advertising platform Outbrain Inc and F45 Training Holdings Inc, a fitness channel backed by Hollywood actor Mark Wahlberg, according to people familiar with it. with the plans. The two companies did not respond to requests for comment.


Investors have been frightened by the poor financial performance of many SPACs and by the regulatory crackdown by the United States Securities and Exchange Commission over their disclosures. Only 32 companies went public in the United States through SPACs in July, up from 57 IPOs.

In January, SPAC shares had gained 28% on average on their first day of listing. But in July, PSPC shares rose less than 1% on average on the day the deal was announced, far less than the 30% rise on the first day of trading after an IPO, according to Dealogic.

Many PSPC investors sell their shares on the open market or exercise their right to repurchase them once a trade is announced. PSPC managers have had to invest more of their own money in transactions, forgo lucrative compensation, or abandon merger attempts altogether.

“As an industry, we have raised too much money too quickly. The party is over for now. There aren’t enough investors who understand SPAC and want to invest in it, ”said Douglas Ellenoff, SPAC lawyer at Ellenoff Grossman & Schole LLP. .

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The stakes are high. Some 438 PSPCs that have raised more than $ 130 billion in total for mergers have yet to strike a deal and will be forced to return that money to investors if they do not sign a merger within two years of their initiation. in stock exchange. Even if they accept a deal, there is no certainty that they can execute it.

“What you’re seeing now is a market adjustment, and it’s incredibly difficult,” said Jocelyn Arel, partner at the law firm Goodwin Procter LLP.

The PSPC market windfall has allowed some companies to list that would have been snubbed by IPO investors. Rather, companies were supported by hedge funds and private investors keen to place speculative bets.

This manna fizzled out. Some 94 of the 131 PSPCs that have announced mergers since October 2020 are trading below their IPO price of $ 10, according to data compiled by IPO expert Jay Ritter, professor at the University of Florida. This indicates that investors have little expectation of success or completion at all.

According to SPAC Research, the average repayment rate for deals concluded in July-August was 50%, compared to 24% on average for the 40 mergers concluded in April-June.

“It is now common for a PSPC IPO that raised $ 200 million to have only $ 40 million left in trust after most of the shareholders were bought out before the merger was completed,” Ritter said. .

When telecommunications services company Syniverse Technologies LLC agreed to merge with SPAC M3-Brigade Acquisition II Corp last month, it had to offer the bulk of its $ 265 million PIPE in the form of convertible preferred stock which pay a 7.5% dividend, rather than common stock.

PSPC managers agreed to restrictions on the sale of their shares for up to one year and made the acquisition of 30% of their shares conditional on them being traded 25% above the deal price for 20 days per month .

Synverse declined to comment. M3-Brigade did not respond to a request for comment.

“We have clearly reached an inflection point and it was probably only a matter of time before the market slows down,” said Christopher Barlow, partner at the law firm Skadden, Arps, Slate, Meagher & Flom LLP.

Reporting by Anirban Sen in Bengaluru and Krystal Hu in New York; additional reporting by Echo Wang in New York Editing by Greg Roumeliotis and David Gregorio

Our Standards: The Thomson Reuters Trust Principles.


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