As the year winds down, one can be forgiven for forgetting that 2021 could have been a well-deserved candidate for the appellation “year of the SPAC”. Special purpose acquisition vehicles may have receded in prominence as an expected Securities Exchange Commission crackdown cooled launches, but the backlog of soon-to-be deployed capital makes the vehicles a potent force in M&A yet. Paysafe provides a cautionary tale for PE looking to the acquisition vehicles for an exit.
Blackstone and CVC took the payments processor private in a $3.9 billion deal just four years ago. Agreeing to exit via merger with a SPAC in late 2020 at an enterprise value of $9 billion would seem like a slam dunk, and is some ways is: BX and CVC reportedly triple their money at that multiple looks massive.
But the funds still remain invested in Paysafe, and are among its largest shareholders. That means the shares’ 62 percent decline year to date on consecutive earnings misses have cut into returns.
Lackluster performance from many SPACs raises questions not only about the viability of the structure, but of the attractiveness of the exit option for long term owners.
And this is still an issue that will persist well into the new year. First quarter listings raised $170 billion in proceeds, and 433 such vehicles were still seeking targets as of that time frame. Technology deals will be in the center of the action if the proportion of vehicles targeting the sector have their way. At 33 percent, active SPACs in this industry far outpace the 19 percent of unspecified blank check companies and 13 percent of healthcare-focused listings.
The would-be TMT deal frenzy could present a powerful lift for sector valuations. SPACs paid less for target companies in the sector in 2020 than in recent years, with a median acquisition value of 13.5x the last twelve months’ earnings. That’s relative to 18.1x paid in 2019 and 13.3x in 2018, when equity offering proceeds were only a quarter of 2020’s aggregate haul.
Time will tell whether sellers opposite SPACs are best advised to cash out completely.