SPACs

SPACs battle bear market with $16 billion to spend

When Bull Horn Acquisition Corp. raised $75 million in an initial public offering in November 2020, the special-purpose acquisition company expected its deep experience in the world of sports to help it acquire a major league sports franchise or a technology or media company closely related to sports. . Fast forward two years, and Bull Horn has successfully struck a deal with a company using chimeric antigen receptors to kill cancer cells.

As far as sports SPACs go, consider Bull Horn one of the lucky ones. According Jock The data.

“Our ultimate goal was to create shareholder value and create a merger with a company that creates value,” Bull Horn co-founder Rob Striar said in a phone call. Three weeks ago, Bull Horn completed a merger with Coeptis Therapeutics, a development-stage biopharmaceutical company focused on cell therapies for cancer patients.

“We are really pleased with the agreement, the merger and their management team,” said Striar. “I don’t think that changes our belief that sports as an asset class would continue to grow and overtake many other assets and investments and that institutional money would flow into it.”

Bull Horn was early in the rise of SPACs, which are companies that raise money in an IPO with the goal of finding a going concern to go public. Striar, whose M Style Marketing has worked with the NHL and CONCACAF, joined other veterans of the sport, including NBA player Baron Davis, Italian soccer team owner Michael Gandler and the former head of global sports at Nielsen, Stephen Master.

Generally, SPACs cannot guarantee to find a deal in any sector, although most indicate a preferred type of business, as Bull Horn did. Boosted by the stock market success of DraftKings’ SPAC merger in early 2020, 168 other sports-related SPACs – either with a sporting preference or involving an athlete or industry executive – formed in less than 24 months, according to data compiled by Jock. They were part of a wave of 931 SAVs that held their IPOs over the past three years.

At the height of the frenzy, teams from at least four top leagues – MLB, NBA, English Premier League and Serie A – considered going public by SPAC, according to various market participants. That never happened, of course, because the stock market turned bearish, inflation undermined the multiples investors are willing to pay for stocks, and regulators cracked down on SPACs, including warning investors about dangers of investing just because an athlete or celebrity is involved. Doing any deal, like Bull Horn and last week’s proposed merger with a French mobile payments company by Goal Acquisitions, is now the exception rather than the rule.

The results, to date, of the 168 sports SPACs trained since 2020, with notable examples:

Based on that tally so far, sports SPACs have a winning percentage of just 23%.

“There was, in retrospect, a bubble where investors in late 2020, early 2021, were far too enthusiastic about the ability of SPACs to find operating companies to merge with,” said Jay Ritter, business professor at the University of Florida. phone call. “The SPAC market spike was around the same time that there was a spike in meme stocks like GameStop and AMC, as well as crypto…where prices rose to levels that weren’t based on the fundamentals.

Further adding to the pressure on SPACs, a tax on share buybacks is expected to come into force in early 2023. The tax, a 1% levy on the value of a transaction, was introduced with the passage of the federal law on reducing inflation this summer. . Given the specific structure of SPACs – they return IPO capital to shareholders, either upon demand in a merger vote or upon dissolution of the SPAC – it appears that SPACs will be subject to this. . This has led some blank check operators to seek to close up shop by the end of the year to cut their losses. These include Athlon Acquisition, led by Celtics co-owner Mark Wan; Argus Capital, focused on media and sports; and sports betting-focused Atlas Crest II from billionaire banker Ken Moelis.

Despite the difficulties, many sporting SPACs are keeping the faith: the 62 active SPACs still have $15.9 billion in IPO capital to use. Notable names still working on phones include Arctos NorthStar, Slam Corp. by Alex Rodriguez and Disruptive Acquisition I, with the participation of Patrick Mahomes, Robert Lewandowski and Naomi Osaka, among others.

The problem is that 40 of those active sports SPACs have deadlines to complete mergers that fall in the first six months of 2023, according to Jock The data. It takes about four months to guide an announced deal through to closing. SPACs can get shareholders to approve an extension, as Bull Horn did, but that’s not guaranteed because shareholders can request the return of IPO capital in such a vote, and many often do.

Regardless of the success of these SPACs in the short term, participants remain optimistic about the role of these vehicles in the future. However, Ritter said they would likely take a less profitable form for the SPAC sponsors, who earn very cheap warrant income to buy stock in the resulting company. “If a deal is to be made, the sponsor has to make concessions [and] invest the extra money to keep the deal from collapsing,” Ritter said. “It’s market forces – the sponsor is giving away a piece of their pie, because their piece of the pie has been too big.”

Still, the absence of successful sports SPAC mergers should not be taken as a sign of a lack of market interest in sports companies, Striar added. “The really interesting part for me was the amount of deal flow and the creativity of the deal flow,” he said. “It’s allowed us to talk to other investment groups who want to join us and partner. It’s allowed us to talk to other SPACs now that this deal is done…. The institutional money continues to arrive.

It’s just much less likely to come via SPAC.


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