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


September 16 (Reuters) – Todd Boehly, co-owner of the Los Angeles Dodgers, made a lucrative offer last March that the founder and CEO of Sportradar Group AG (SRAD.O), Carsten Koerl, couldn’t miss.

He proposed a merger with his Special Purpose Acquisition Company (SPAC) Horizon Acquisition Corp II, which would have valued Sportradar at $ 10 billion. That was 110 times the Swiss sports betting data company’s adjusted cash flow in 2020 of € 76.9 million ($ 90.4 million). Most of its competitors were rated less than half that multiple.

But the mood on Wall Street was on the verge of getting too angry with SPAC deals, the hottest dealmaking trend back then. Instead, Sportradar went public this week through a traditional initial public offering (IPO) that valued the company at just $ 8 billion.

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

Boehly’s SPAC deal would have brought Sportradar public in New York without the need for a highly regulated IPO that limits the ability of companies to give high financial forecasts to stock market investors.

Koerl and Sportradar’s other top investor, the Canada Pension Plan Investment Board (CPPIB) believed that Boehly could meet Sportradar’s inflated valuation expectations as investors at the time were intrigued by SPACs. According to Dealogic, 91 companies in the US had gone public through SPACs in January, compared with 27 companies that went public.

Investors invited to participate in a private investment in public equity transaction (PIPE) to underpin the targeted price and its comparison with other successful SPAC deals such as that of the sports betting platform DraftKings.

Sports Radar, while boasting rapid sales growth, also made aggressive assumptions about legalizing gambling in some US states. The company slashed its valuation expectations to $ 9 billion, but it still failed to attract many investors.

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

According to Reuters interviews with more than a dozen capital markets experts and a review of market data, the SPAC market deteriorated rapidly over the summer. Now, SPAC deals that are inked often do so by offering abbreviated terms on their PIPE. SPAC managers have also accepted less generous allowances.

Other companies that have ditched SPAC deals for IPOs in the past few weeks, according to people familiar with the plans, include Outbrain Inc digital advertising platform and F45 Training Holdings Inc, a fitness chain created by Hollywood actor Mark Wahlberg is supported. Neither company responded to requests for comment.


Investors were appalled by the poor financial performance of many SPACs and an SEC-led regulatory crackdown over their disclosures. In July, only 32 companies went public through SPACs in the US, compared with 57.

In January, the SPAC share had gained an average of 28% on its first day of trading. But in July, SPAC shares rebounded an average of less than 1% on the day the deal was announced, much less than the 30% surge on the first day of trading after an IPO, according to Dealogic.

Many SPAC investors sell their shares on the open market or exercise their right of return as soon as a deal is announced. SPAC managers had to put more of their own money into the deals, forego lucrative compensation or give up the merger attempts altogether.

“We as an industry raised too much money too quickly. The party is over for now. There aren’t enough investors who understand SPACs and want to invest in them,” said Douglas Ellenoff, SPAC attorney at Ellenoff Grossman & Schole LLP.

Reuters graphic

For an interactive graphic, click here:


There is a lot at stake. About 438 SPACs, who have raised over $ 130 billion in total on mergers, have yet to find business and will be forced to return that money to investors if they fail to merge within two years of going public. Even if they agree to a deal, there is no certainty that they can get it done.

“What you are seeing now is a market adjustment and an incredible challenge,” said Jocelyn Arel, partner at the law firm Goodwin Procter LLP.

The SPAC market bonanza allowed some companies to include a list that would have been snubbed by IPO investors. Instead, the companies were supported by hedge funds and private investors who wanted to bet speculatively.

This gold mine has fizzled out. Of the 131 SPACs that have announced mergers since October 2020, 94 SPACs are trading below their IPO price of $ 10, according to data from IPO expert Jay Ritter, a professor at the University of Florida. This suggests low investor expectations that they will be successful or even complete.

According to SPAC Research, the average repayment rate for transactions completed in July-August was 50%, compared to the average of 24% for the 40 mergers that completed in April-June.

“It is now common for a SPAC IPO that raised $ 200 million to have only $ 40 million in escrow after most of the shareholders were redeemed prior to the merger closing,” said Ritter.

When telecommunications services company Syniverse Technologies LLC agreed to work with SPAC M3-Brigade Acquisition II Corp. To merge, it had to offer most of its $ 265 million PIPE in convertible preferred stock that pays a dividend of 7.5% rather than common stock.

The SPAC managers agreed to restrictions on the sale of their shares for up to a year and made the transfer of 30% of their shares conditional on trading 25% above the transaction price 20 days a month.

Syniverse declined to comment. The M3 Brigade did not respond to a request for comment.

“We have clearly reached a turning point and it was probably only a matter of time before the market slowed,” said Christopher Barlow, partner at 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.

Leave A Reply

Your email address will not be published.