In this week’s installment of Industry Focus: Financials, Fool.com contributor and SPAC investor Matt Frankel interviews Scott Galit, CEO of Payoneer, a fintech disruptor that recently agreed to go public by way of a merger with FTAC Acquisition (NASDAQ:FTOC). Then, Frankel and host Jason Moser discuss two other special purpose acquisition companies (SPACs) investors might want to put on their radar — one value-seeking SPAC that just agreed to take a data center operator public and one SPAC sponsored by a retail heavyweight that just launched.
This video was recorded on March 1, 2021.
Jason Moser: It’s Monday, March 1st. I’m your host, Jason Moser, and this week begins our four part series for Industry Focus on SPACs. That’s right, every Monday on our Financial show, for the next four weeks we’re going to dig into the whats and the whys, the puts and the takes, we’ll dig into several SPACs, either on the market or getting ready to hit the market, and we’ll even have a few interviews along the way as well. Speaking of interviews, this week we’re kicking off with an interview. Payoneer is a fintech company that delivers a suite of services including cross-border payments, working capital, tax solutions, and risk management for its customers worldwide. The company boosts customers including Amazon and Airbnb among others. This week, our own Matt Frankel got to chat with the CEO of Payoneer, Scott Galit, about the company and its journey to the public markets. We hope you enjoy their conversation.
Scott Galit: Yeah, thanks so much for having me. Great to be here.
Matt Frankel: We talked about Payoneer on the show a few weeks ago when you first announced that you’re going public, but for those who aren’t really familiar with your business, Payoneer’s mostly known for its cross-border services. Can you guys give us a brief overview of what Payoneer does in the fintech space?
Galit: Yeah, sure. The basics of it are really that when you think about how technology is really changing, how all of us engage in commerce, what we see is that it’s actually making it, so businesses in the digital world have all kinds of new opportunities and all kinds of new challenges. Payoneer is built as a global financial platform that really focuses on providing services to make it possible for any business of any size, from the biggest Silicon Valley tech company all the way through the small business owner in emerging markets to build and grow their digital business, and we provide them with cross-border payments. Matt, as you said, we provide them with working capital. We provide them with all kinds of services to actually make it easier for them to build and grow and manage their businesses. That’s what we do. Really, we empower any business of any size to build and grow their digital business in our global digital world.
Frankel: When we heard the latest results from Mastercard and Visa a couple of weeks ago, I saw that the weakest part of their report by far was cross-border payments. International travel is just not a thing right now. How has COVID impacted your business being that that’s one of your big focus areas?
Galit: Yeah. It’s a great question, and I think you actually really highlighted it, and I think if you go back and look at Visa and Mastercard as well, I think they’ll talk about this. That there’s actually an important difference between cross-border payments related to travel and cross-border payments related to digital commerce. Actually, what they have reported is significant growth in cross-border e-commerce activity which hasn’t grown fast enough to offset how big their business was around travel and cross-border. For us, we’re actually the opposite. The vast majority of our business related to cross-border is with people and businesses that aren’t traveling. They’re operating where they operate, and they’re doing business with partners and customers around the world. We’ve seen that actually accelerate. We’ve had a part of our business that actually did relate to travel and that part has suffered a little bit along with some of those other companies like you mentioned, Visa and Mastercard, where travel has been hit. But we’ve really seen an acceleration of digital commerce trends around cross-border, and we think that’s really a permanent shift in how the business world is working.
Frankel: How big of an opportunity do you see in cross-border payments specifically before I get to the bigger picture of your business?
Galit: I mean, it’s absolutely gigantic. I mean, it’s tens of trillions of dollars a year that are moving around the world between and among trading partners. In practice, the way that money moves hasn’t changed in more than a generation in any meaningful way. It still largely is moving around the world as wires, and really what we’ve looked to do is modernize the way businesses are able to transact with each other in much the way technology is modernizing, the way we have the interfaces, and the way we actually are communicating and interacting. Go ahead. I went a little bit further than I meant to on the market size, but it’s gigantic. It’s one of the biggest markets in the world.
Frankel: Though that actually really leads into the next question really nicely. I read in the press release announcing your deal that you guys processed about $44 billion of payments last year.
Frankel: Your customer list includes some pretty impressive names. I think Amazon, Airbnb are some of your customers, for example, if I’m quoting those correctly. It sounds like it’s been a pretty impressive story so far. We know the market size is huge, but Payoneer specifically, how does it grow from here, and how big of an opportunity do you see for you?
Galit: Yeah. That’s what we’re so excited about. You mentioned a few of the bigger household names that we work with but actually, in addition to some of those great companies that everybody’s really aware of, digital leaders around the world, and we work with nine of the top 20 most highly valued companies in the world by market cap to give a sense of some of the big ones. But actually, what gets us most excited is the small businesses around the world that we work with. There are literally hundreds of millions of small businesses around the world that if you think about it now as the world is digitizing, have opportunities to participate in digital commerce in ways that they didn’t before, and have opportunities to participate in cross-border digital commerce that they didn’t before. We’re just scratching the surface. We’re now up to over five million small businesses, enterprises, and marketplaces that we’ve worked with in our history. But we see literally hundreds of millions of small businesses and billions of people that are now actually connected to opportunities in a digital world, and we’ve really become an on-ramp for folks in many parts of the world to actually access and take advantage of these new opportunities that the digital world is creating.
Frankel: The whole theme of today’s show, the whole hour is the SPAC show, which is one of the reasons we’re excited you’re here. Obviously, you went public in part at least to raise some capital because growth costs money.
Frankel: Why did you choose a SPAC as opposed to the traditional route?
Galit: Yeah. Great question, and again, thrilled to have the chance to be part of your show about SPACs. For us, it was a few things. I mean, when I use the tech companies public for a living, I was an investment banker many years ago, and we have folks on our board who, for example on the board of Spotify, which shows a direct listing as opposed to a traditional IPO. As we had thought about the path to the public markets, we went into it pretty open-minded, having in mind some of the positives and negatives of each of the different paths available. When we thought about SPAC, there were a few things. One, as we were coming out of COVID, we realized that actually we had a bit of noise in our numbers last year, and that the ability to share projections as part of the process was actually going to be a really important tool for us to use to actually make sure the investment community really understood our story. The positive growth trends coming as a result of some of the digital trends from COVID and also some of the trade-offs and challenges that we felt last year.
Another was pricing certainty. The ability to pull that part of the process forward and make sure that we actually had the deal that we felt was fair and that it was actually validated by public market investors through the pipe before we went through the whole rest of the process, was something that we thought was an important step for us to take. Access to a large pool of capital, which you already touched on, I mean, this was a large SPAC. I don’t know that we would have seriously considered one that was small, and so for us that was important to get a lot of capital because of what we see as such so many growth opportunities. Then the partner. I don’t know how much time you spend with Betsy Cohen and folks on her team. She’s terrific. It really was a great opportunity to partner with someone that I respect, I have known for many years on a really important next step for us.
Frankel: One of the questions that I’m asked a lot because I talk about SPACs pretty often on the show. When the SPAC merger is completed, the existing management team usually stays in place. I assume you’re still going to be CEO after the merger.
Galit: I’ll still command, yeah.
Frankel: What role does the SPAC play? Betsy Cohen said a banking heavyweight. What role does the SPAC sponsor play after the deal is completed?
Galit: They really are there as advisors and important shareholders, basically, going forward. Our interests are aligned around creating value for customers and value for our shareholders but they’re not involved in actively managing the business, if there were needs, if there were a reason for us to look to supplement talents or things like that, they can be helpful. But for the most part, they’re bringing their expertise and advice around the management at the board level and as an important investor with interests very much aligned.
Frankel: Why did it take you until 2020 to go public? I guess, 2021 now, I saw that you had originally planned to go public in 2020 but then COVID, but the growth numbers were impressive before that. Why wait so long?
Galit: Yeah, it’s a great question. Frankly, me, to be very candid, we started to have some discussions at the board and investor level several years ago and we’ve certainly had bankers for years talk to us about our ability to be a good public company and the path to get there. As I touched on before, for me being public isn’t the end. It’s a new beginning. It’s the next chapter. Every step we take like that, there are positives and negatives to it. For me, for quite some time, I always like to focus on our customers. I like to focus on long term strategies. I like to focus on long term value creation. I like to focus on making sure that we’re able to create the right environment for our employees and being public certainly can have an impact on changing your decision-making criteria, changing your time horizons that you’re using to make decisions. Those were things earlier on, I didn’t think was the right trade off for us. I felt that we were in a better position to manage our business with a long-term view as a private company. What changed, we made an acquisition earlier last year and so we saw the opportunity to make more acquisitions going forward which is easier as a public company. We saw the acceleration in changes in digital commerce happening with COVID and we thought that this was actually the time. I mean, our team has done such a good job in building this platform, this global team, this global business. That this was the right time for us to put the foot on the gas and really get more resources and make it a bigger bolder play going forward and that the access to a large pool of capital and the resources of the public market pathway would open up for us was the right path. It really was me more than anybody who was the obstacle for a while to try to make sure we did it for the right reasons at the right time.
Frankel: You just mentioned acquisitions as a way to grow going forward. I’m curious as to whether you see Payoneer growing its existing business lines like cross-border payments, all the stuff you mentioned earlier, or adding new products and services and growing a financial ecosystem, I guess you’d say.
Galit: Yeah, a bit more of the latter. I think the acquisition we made last year is a pretty good illustration of how we think about this. We have lots of customers that are selling across different channels that were asking us to help them with their web stores and the way they manage their online stores that consumers are buying from. We hadn’t been able to provide that for them. For a few years we had thought that this was an area for us to focus on and we decided that it would be best to acquire a really sophisticated technology platform that we could build around and deliver more for our customers. That’s how we did it. We bought a company named Optile based in Munich, Germany last year, literally closed February right before COVID. That has been the catalyst for us to launch our merchant services for our customers. We started with our large customers and we’re going to roll out some services later this year for small customers. I think that’s more the way we’ll think about it going forward. Again, there’s a lot of different opportunities that’s part of what’s so fun about being a global platform with so many great customers around the world. They have a lot of opportunities and a lot of challenges. We really think of ourselves as being their best partners. That means we are helping them across an increasingly broad range of their opportunities and needs.
Frankel: You just mentioned the challenges of your customers. What do you see as your biggest challenges going forward? The Fintech space has become, let’s say a lot more competitive over the past few years in particular. Even with the SPAC boom we’re seeing a ton of Fintechs going public and everyone has the solution. What do you see as your biggest challenges in maintaining your leadership and what you do?
Galit: First, what I’d say, it’s really us focusing and executing. It’s making sure that because there are so many different opportunities and we’ve many customers in many different places, it’s making sure that we continue to be thoughtful and strategic, make the right decisions, focus on the customers, and then execute well on delivering what our customers and new potential customers need. I think going back to your comment about lots of fintech companies coming out with a solution, I think about it along the lines of all of commerce is being changed and all commerce in general involves money and all people in businesses have a wide range of financial needs. When I think about fintech, I think about it as being among the biggest categories in the entire world from a business perspective. I think there’s tons of room in cross-border payments. Multiply that by a factor of 100 when you get into just fintech overall, in how big the universe of opportunity is. Just how much the world is changing. I’ve read estimates that there will be trillions of dollars of new market value created by fintech companies and I don’t know whether that’s true or not but what you can see happening is that in an increasingly digital world consumers and businesses are looking for increasingly digital ways to buy, to manage their money, and to engage in really all of their activities. It’s not surprising that we’re seeing the financial infrastructure be remade and that fintech companies are actually among the folks that are actually looking to do that for consumers and businesses. I think there’s a long way to go for fintech, and I think you’ve seen it in the private markets with investment and I think we’ll see it in the public markets as well, but there’s still lots and lots of room for growth and opportunity.
Frankel: Since you are going public, before I forget, you don’t just look at Payoneer if someone wants to invest in you, now they have to go through the SPAC at this point. The SPAC you’re going public through is called FTAC Olympus Acquisition. I believe I have that correct.
Galit: You have that correct, yes.
Frankel: Ticker symbol is FTOC. When do you anticipate the deal being done? When do you anticipate Payoneer being a stand-alone public company?
Galit: Our target is directionally around mid year. Hopefully late in the second quarter. We do have some regulatory approvals that we need to get through, and so that’s part of the process and among the steps on the journey but that’s the directional time on.
Frankel: Excellent. I know I have to let you go in a little while, so I wanted to give you an opportunity if you have any last words, anything you want people to know about your opportunity in fintech, and anything we haven’t covered yet.
Galit: This has been terrific, so thank you. I really appreciate it. I think for me, first and foremost, when we think about how technology is just changing, how all business is getting done, and even the corner store that didn’t used to need to think about technology so much, now has to think about how to market differently, how to actually deal with payments differently, how to actually communicate and engage customers differently. I just think we’re still very early days in the way digital trends are reshaping commerce and we’re really excited. We just cover the whole world. We’ve got emerging markets focus and small business focus and marketplace focus. I think there’s just much need and much opportunity. We’re just really excited to be able to help so many customers capitalize on these opportunities they have. Thanks so much. I really enjoyed the discussion and great to have a chance to be here.
Frankel: Yeah, thanks so much for being here unless Jason has any random questions to ask you before we let you go?
Moser: No, none for me. I just enjoyed listening. Scott, thanks so much for taking the time today.
Galit: Yeah, Jason, Thank you. Really great to spend time with you both. So thanks.
Galit: All right. Be well.
Moser: Now, joining me as always, after that awesome interview, it’s Certified Financial Planner Matt Frankel. Matt, how’s everything going?
Frankel: Pretty good. My legs are tired because I ran my first 5K yesterday, [laughs] but other than that, I’m having a great Monday down here.
Moser: That’s good, man. Congratulations on that. Listen, running is hard and the older you get, it doesn’t get any easier. I tell you, it’s one of those things you’ve got to do it a lot or else it wears on you.
Frankel: I’m running with an extra 30, 35 pounds right now, [laughs] so I’m hoping as that goes away, it will get a little easier.
Moser: Hopefully, that’s just more lockdown related, the fact that we’re not able to get out.
Frankel: I can’t blame COVID forever so I got to get out and get it done. [laughs]
Moser: Well, Matt, I really enjoyed that interview with Scott. I really enjoyed hearing what Scott had to say, not only about Payoneer, but also about their journey to becoming a publicly traded company. I thought you asked a lot of great questions, and it was neat just to get that overall landscape in regard to the finance space, and how fintech is changing the world, how money is just moving around in all sorts of different ways. Now, it seems like that’s going to continue to evolve for some time to come. Thanks for that interview, I know our listeners really enjoyed it. We want to go ahead and kick off this SPAC series. We’re doing a four part SPAC series and what we wanted to do first and foremost in kicking this off is just dive into, for a few minutes here, talk about the basics here, the mechanics, what SPACs actually are, what are the advantages, what are the risks? From the very start here, let’s just remind our listeners what the acronym SPAC actually stands for.
Frankel: Sure. SPAC stands for special purpose acquisition company. It’s essentially a company that goes public with no business operations, and the reason it goes public is to raise money in order to acquire a private business and take it to the public markets. To really make a long story short, a SPAC is a way for a company, like Payoneer, who we just heard from their CEO, to go public without having to go through the traditional IPO process of submitting growth projections and recent earnings and stuff to prospective investors, doing an IPO roadshow. Going public the traditional way is a process, so a SPAC lets a company go public by merging with a company that already exists and is just sitting on a mountain of cash to combine with the new business.
Moser: I thought it was interesting, Scott, I know he mentioned Spotify in the interview and mentioned that as an example of a company that utilized a direct listing, which is a bit different than a SPAC, but similar in the sense that you’re trying to figure out a way to do this less traditionally. We’re going in the direction of trying new things and not this traditional way of getting a company to the public markets and you’re right, a company going public, that’s a big song and dance. There are a lot of costs, a lot of time that goes into that, prepping the roadshow, getting investors on board, going around and explaining your business, pitching the business more or less to investors, then there are costs in actually going public. Then it’s a matter of what they’re going to do with the money. It fascinates me, this whole SPAC movement. It’s something that really has taken off here recently. I found an interesting statistic here. Since the start of last year, investors have poured more than $130 billion into SPACs. This is something that has really taken off in short order. It gets a lot of press, understandably, with the enthusiasm. I do get those advantages. Nothing comes without its share of risks though. What do you feel are some of the risks involved with going the SPAC route?
Frankel: We forget, given the recent environment, that IPOs don’t always do well. [laughs]
Frankel: I know.
Frankel: We’re living in the age where Airbnb goes public and the next day it’s trading for three times as much. That doesn’t always happen, IPOs go down all the time. The market’s not always going to receive a newly public company well. The biggest risk is that the stock goes down after the merger is completed. There are other risks to SPACs. When a SPAC goes public, it takes investors’ money, usually it’s $10 a share is the par value, it takes some money and puts it in an account. From there, it usually has about two years to find a company to acquire. In that time, that money is just sitting there. So a big risk is your opportunity cost, what could that money be doing in the meantime, instead of just sitting in an escrow account.
Moser: Yes, I mean, you said sitting in an escrow account. It’s sitting in something where there’s not a company that’s making any money, right?
Moser: Maybe there’s an exception there, but for the most, by and large, these SPACs, these blank check companies, this is pretty revenue, it’s nothing other than the promise, right?
Frankel: In the meantime, you are essentially leaving your money in a savings account.
Moser: Yeah, yeah.
Frankel: That’s zero growth. That’s one big risk. You don’t know what you’re acquiring. You don’t know if you’re going to like the business, which I guess if you don’t like the business the SPAC ends up buying, you can always just sell your shares. It’s called a blank check company for a reason. You’re giving them a blank check to buy whatever they want. There are a few big drawbacks to this, but there are some big advantages. It really does democratize the IPO process. Look at DraftKings’ stock price now, it’s about $60, it’s a recent successful SPAC merger. Imagine if you had just gotten to the blank check form of that company at $10 a share, then they ended up taking DraftKings public. If that had gone public on the open markets, like Airbnb did, retail investors would never have been able to buy at the IPO price. It does open up the IPO process to everybody. You just have to be willing to really roll the dice and hope that they acquire a company that you like.
Moser: Yeah, that makes sense, and I guess, you can give it a little bit of time at least and try to get some idea of perhaps what company that SPAC is going to acquire. We obviously got some background there with Payoneer that FTAC Olympus Acquisition Corp, that’s going to be the SPAC that will be bringing Payoneer into the fold there. You will get shares of FTAC today, that trades as the ticker is F-T-O-C on the Nasdaq, and those are trading at $12 a share. We fast-forward to the middle of the year. They bring Payoneer into the mix there, and all of a sudden, we’ve got a fintech company that seems like it’s growing. It seems like it’s doing something right. They’ve got some pretty reputable customers there. At least we have something to go on there, and know the SPAC that is going to be bringing Payoneer into the fold there, so you could take a little bit more of a calculated risk, I guess, in that regard.
Frankel: Right. If a SPAC doesn’t find a deal within that two-year period, investors get their money back. It’s important to be clear on that. It’s not just lost money.
Frankel: You get your $10 a share back. One big risk is that a lot of SPACs don’t have deals, like IPOD and IPOF, Chamath’s two outstanding specs. They trade for big premiums for that. They’re trading for, I think in the neighborhood of $14 to $15 a share and they don’t have a target yet. If they can’t find anything, investors will get $10 back, not the $14-$15 they’re paying to buy the shares. Be wary when you’re paying a premium for these things.
Moser: You would be paying that premium based on more than anything, probably just a track record, right? I mean, Chamath has a track record of some success here, and so people are probably thinking, “Hey, it’s probably worth putting a little money down. I feel like I understand what he’s trying to do, the types of companies he wants to bring to the markets, I like his investing style.” Whatever it may be. That track record allows you to make even more of a reasonably well informed investment.
Frankel: Right. You really hit the nail on the head there. A pre-deal SPAC is a bet on management, period. There are about 300 SPACs at last count that are in the market waiting for companies to acquire right now. You know, 250 or so of them should be ignored. You want to find the managers that not only did they have a good track record, but whose interests really align with yours. Which one of the two we’re about to talk about in a minute fits in that category. But in Payoneer’s case, this SPAC is run by Betsy Cohen, who has a phenomenal track record in the banking space. She founded her own bank that’s very successful, banking heavyweight. You’re betting on management, plain and simple. That’s why people are willing to pay a premium for some of these even before they have a deal. One that I own is called DG Acquisition, which is Virgin Group’s SPAC. They recently announced they’re taking 23andMe public.
Moser: Oh, no kidding.
Frankel: Even before they announced that, the SPAC was trading at a pretty decent premium to the $10 a share that people put into it in the first place. The reason is because Richard Branson is the guy you want to bet on.
Moser: Yeah, he’s got a little bit of a track record there.
Frankel: Historically, it’s been a mistake to bet against Richard Branson. People were betting that he would find a company to acquire that would deliver long-term shareholder value and he did. Well, so far, we all know that it’s not completed yet. But they’ve announced the merger agreement. It’s still trading as V-G-A-C, which is Virgin Media Acquisition Corp. It’s a bet on management to find a great deal, and people who have been in management and who were right, can be really handsomely rewarded. I mentioned DraftKings already. Look at the stocks of Virgin Galactic, another one that went public by SPAC. OpenDoor when they went public, by SPAC. Penn National Gaming I think is one if I’m not mistaken. Maybe I’m misspeaking on that one, but there’ve been a bunch of really successful SPAC IPOs is the point, led by managers with great track records who did it again. That’s what you’re trying to find. That’s why Chamath is on his 5th and 6th SPAC on the public markets, and people are willing to bet that he’s going to keep the streak alive and find something good to acquire.
Moser: Well, let’s dig into a couple of these companies that we were talking about. I think that the Payoneer opportunity is really interesting on its own, but we have a couple of other ideas here to talk about, one which is getting ready to materialize, here very soon, and then one that is going to materialize a little bit further down the road, doesn’t have a target yet. But let’s start with the one that is going to be materializing very soon. That’s Starboard Value Acquisition and the ticker there is S-V-A-C. They recently just announced a merger. Talk to us about the company that they’ll be bringing into the fold there and what the market opportunity it will be focused on is.
Frankel: Yes. Starboard Value is a hedge fund. It’s managed by Jeff Smith, arguably the best activist investor of all time. He’s the head of Papa John’s board. He’d help them when they were failing. Just get that was one of his successful recent ones. They have a great track record of value investments. It’s why I bought the shares of this SPAC before they had this deal announced. They just announced the deal with Six Stellar, which is the No. 3 data center operator in the U.S. It will be the No. 3 in the public markets. It’s the biggest private data center operator. They have 61 data centers located all around the world. They’re profitable. They generated almost $700 million in revenue in 2020. The deal values them at $3.4 billion, including the $650 million in cash they’re getting as part of the deal, which as I mentioned in the Payoneer interview a minute ago, growth takes money. One of the biggest draws for companies is you can raise more growth capital in a SPAC deal than you could in a traditional IPO. Generally, companies don’t sell 30%-40% of their shares in a traditional IPO. But you can raise capital that’s equivalent to that much of your stock in a SPAC. I mentioned the $3.4 billion valuation, they’re going to have $650 million in cash to play with.
Frankel: If you’re not familiar with Cyxtera, they formed if you remember a company called CenturyLink?
Moser: I do remember CenturyLink and I also remember Digital Realty Trust, which you had mentioned because I think that’s one you’ve called out on this show here before. That’s a weed in the same space, right?
Frankel: Correct. Digital Realty and Equinix are the two big ones in this space. Cyxtera will be No. 3. Cyxtera was formed from the data set of assets of CenturyLink, which was a telecom provider. That’s where it came from, if anyone was wondering that. The data center business has a ton of growth catalysts as the AIM and Jason can tell you, there’s a lot of data heavy technologies that are exploding right now. The long-tailed roll out of 5G is going to make it easier for mass volumes of data to be transmitted from connected devices. It’s a huge in-demand market right now, and Cyxtera really wants to grow into it. They’ve been independent of CenturyLink for just a few years. They’re using this deal to really grow into it. Because it’s really a value investment. It’s not one of these big, high-profile growth investments like when they took DraftKings public. It’s not trading at a giant premium. I want to say it’s like $10.50 a share right now instead of $10 for SPAC. They acquired it because it’s a long-term value play in the data center space. Huge growth market, look at a 10-year total return chart of Digital Realty. It’s been a fantastic investment for people, you’ll get into these data center space in winning operators. It could be another alternative to the big guns in the data center space, if you will. I bought that one before they announced the merger agreement, and I am not planning on selling. I love this acquisition, and now that it didn’t really spike to a big premium, I might buy even more.
Moser: Well, there you go. To your point, looking at the chart for Digital Realty, I mean, it’s another one of those. You may not see it immediately in the near term, it’s a high yield. The longer you own it, the more sense it makes. I can absolutely see the opportunity there. I think you keyed in a lot of important trends there, and just did the roll out of 5G in general, the build out of the infrastructure and all of these different capabilities that we’re going to gain from it, and Internet of Things and artificial intelligence and the AR and VR, and just so many different capabilities that will really be enhanced by this and you’re right, it’s going to require a lot of data moving back and forth, and that really strikes me. It’s certainly a market opportunity that should be growing here in the coming years, and so that merger has been completed then, is what you’re saying. Cyxtera is now actually a part of that SPAC.
Frankel: They’ve announced the merger. This is a very good question. It needs to be approved by the Board of Directors before it is announced, but before it is completed, it needs to go through regulatory approval and it needs to be improved by the SPAC’s shareholders. That’s another kind of fail safe if you buy a SPAC pre-deal. If the shareholders just don’t like the acquisition target at all, let’s say this stock plunges to $5 or $6 after the acquisition target comes out, shareholders can vote the deal down. It doesn’t happen often, but it is subject to a few closing conditions. At some point, that ticker symbol will be CYXT when the deal is done, Cyxtera Technologies. But for now it still trades as Starboard Value Acquisition, SVAC.
Moser: Got you. Let’s talk about one that doesn’t have anything in the hopper right now, but it sounds like they are on the hunt at least. Simon Property Acquisition. The ticker there today is SPGS. I’ve heard you talking a lot about Simon before on our show here, Matt, I know that you’re a big fan of Simon Property Group. Tell us a little bit about Simon Property Acquisition, and where do you think they may be looking?
Frankel: Simon Property Group, the leading mall operator in the world, recently, completed a SPAC IPO because it’s 2021. Why not? [laughs] Why are so many of these companies like Simon issuing SPACs? The answer is, their economics are fantastic if it works out. Simon’s only real contribution to this deal is I think they paid about $5 million to buy warrants in the SPAC, that are essentially options. If the deal works out, Simon will own 20% of the SPAC shares for free essentially. Plus, it will have about five million warrants to buy more stock if it does well, for a contribution of $5 million. If a SPAC does well, if they can find a target that the market really receives well, Simon can make hundreds of millions, if not billions of dollars, for very little risks. Great economics. They recently went public, a $10 IPO price. Like most SPACs, what they’re going to acquire is very vague at this point. SPAC usually before they have a deal though, they’ll issue a registration statement, it will say what they’re targeting. They are targeting, let me get this right, a disruptive retail, hospitality, entertainment, or real estate business; that could be almost anything. [laughs] They are vague on purpose, because it gives them a lot of options. They don’t want to limit themselves to say, we’re going to acquire a fin-tech provider that focuses on the real estate industry, because that’s a very narrow scope. They give themselves options. I like this one. We don’t know what they’re buying yet. Simon has a fantastic track record when it comes to capital allocation, especially recently. If you’ve been to a Simon mall, they’re a class on their own. Simon has invested heavily in its properties in ways that are keeping them full, no matter what e-commerce is doing. You know that Simon’s base rent actually went up in 2020? Which is pretty remarkable for a mall.
Moser: It really is.
Frankel: They’re adding things like entertainment venues, hotels. They have a partnership with Marriott to put hotels in some of their malls. The mall in Baltimore has medieval times in it that attracts people there. There’s a casino attached to that mall, Maryland Live is in that mall. It’s stuff that’s going to keep people coming to malls regardless of what the e-commerce is doing. Recently, Simon has done a great job of making smart acquisitions. They bought J.C. Penney out of bankruptcy. They bought Forever 21 out of bankruptcy. Their return on Forever 21 so far has been about half of what they paid for it, in less than a year. Their share of the profits that’s generated since they brought it out of bankruptcy has been about half of their cost basis. That’s a pretty impressive investment. They bought Aeropostale a few years ago, and they say that’s been a very profitable investment.
They have a good track record of acquiring struggling retail businesses at a great value. Now, they’re not limiting themselves to a struggling retail business, which I think is why they wanted to do this, so they can really branch out. I mean, as a mall operator, they really can’t make a great shareholder case to acquire, say, a fintech provider. But as a stand-alone SPAC, they could certainly make that case. They want to give themselves a little more options to put their great track record to work. Like I said, a SPAC is a bet on management. David Simon, the CEO of Simon Property Group, is the SPAC’s Chairman. Eli Simon, his son, is the SPAC’s CEO and when you look at SPAC, look deeper into the board members. If you’re not totally sold on the management, it includes the CFO of a company called Rent the Runway, which my wife absolutely loves.
Moser: My wife likes that one too.
Frankel: Their CFO is one of the Simon Property Acquisitions board members, as well as the founder of a company called Graduate Hotels. We have a Graduate Hotel in Colombia down here. It’s an up and coming, really trendy hotel chain. They might be targeting something on the hospitality side. The board members can usually give you some clues as to where they might be looking. I like this one. It’s still a risk, they have two years to find their target. They just recently went public within the past month, the SPAC was created. It’s still trading for pretty close to its IPO price of $10 a unit. Another important point, when a SPAC first goes public, it trades as a unit, not as a share. A unit includes one common share plus a piece of a warrant to buy another share. After 52 days on the public market, don’t ask me why it’s 52, it just is, after 52 days to common shares and the warrants will trade separately. You might need to add a UF to the ticker symbol right now if you want to take a look at it, is the point there. But last I checked, this one was trading for about $10.50 a share. It’s not a huge premium. I think Simon’s recent track record speaks for itself. I think they are going to emerge from the pandemic a stronger company than they went in. I’m excited to see what they can do with a blank check, like we’re given with this company.
Moser: Absolutely. Yeah, that’s definitely one to keep an eye on in the coming year. I think it’s all really great stuff, Matt. Listen, I think that’s going to do it for us this week. We’ve really gone through a lot of great stuff and the neat thing about this, as we mentioned, it’s going to be a four part series here over the next four Mondays for our Financial show, we’ll be digging into SPACs. We will have some more fun interviews. Along the way. We will be talking more about SPACs out there that we like, that Matt likes, the things that you need to have on your radar. But I think that’s going to wrap it up for us this week, Matt. Listen, thanks so much for taking your time to dig into this stuff. Thanks for the great interview there with Scott. Just a terrific week, I appreciate it.
Frankel: I dig into the SPAC stuff all day. From the questions I’ve seen, it looks like people want me to, so I am going to keep at it.
Moser: Well, we’re really looking forward to the series here for the next four weeks. I hope everybody enjoys it. Remember, you can always reach out to us on Twitter at @MFindustry focus, or you can drop us an email at firstname.lastname@example.org. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don’t buy or sell stocks based solely on what you hear. Thanks as always to Tim Sparks for putting the show together for us. For Matt Frankel, I’m Jason Moser. Thanks for listening, and we’ll see you next week.This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jason Moser owns shares of Amazon, Mastercard, and Visa. Matthew Frankel, CFP owns shares of Digital Realty Trust, FTAC Olympus Acquisition., Simon Property Group, Social Capital Hedosophia Holdings. IV, Social Capital Hedosophia Holdings. VI, and Starboard Value Acquisition and has the following options: long April 2021 $10 calls on Social Capital Hedosophia Holdings. VI. The Motley Fool owns shares of and recommends Amazon, Digital Realty Trust, Mastercard, Spotify Technology, and Visa. The Motley Fool owns shares of Opendoor Technologies Inc., Social Capital Hedosophia Holdings. IV, and Social Capital Hedosophia Holdings. VI. The Motley Fool recommends Airbnb, Inc. and Marriott International and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool has a disclosure policy.
Source: The Motley Fool – An Interview With Payoneer’s CEO and 2 SPACs We’re Watching