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Selling a Spac dream: auto start-ups angle for Tesla shine

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Two things to start: Canadian convenience store group Couche-Tard has approached France’s Carrefour about a takeover in a deal that would combine two retail groups jointly worth more than $50bn. More here.

Visa has called off its deal to buy fintech start-up Plaid for $5.3bn after the US Department of Justice sued to block the transaction on antitrust grounds.

© AP

Welcome to the Due Diligence briefing from the Financial Times. Not a subscriber to DD? Sign up here. Drop us a line and join the conversation: Due.Diligence@ft.com

Spacs: full throttle

We’ve talked a lot in DD about special purpose acquisition companies and how the boom in blank-cheque listings is upending the traditional initial public offering process. 

Private companies usually slog for years preparing for the moment they have the chance to win over investors through a carefully prepared roadshow before taking their shares public through an IPO in which the price is determined by supply and demand. 

But Spacs have completely disrupted that routine, particularly for early-stage companies. In some cases, businesses with no revenue (or even functioning products) are finding that all they need to become a publicly traded company is to find a Spac willing to merge with them.

Scatter plot showing most Spac deals that closed in 2020 are currently trading above $10 per share, the standard IPO price

And unlike traditional IPOs, where executives are forced to lay low for fear of getting on the wrong side of regulators, Spacs allow these companies to use what some bankers are calling “regulatory arbitrage”. 

The trend has been most apparent in the auto tech sector, where institutional and retail investors eager to find the next Tesla have ploughed in cash. Executives are keen to tap that enthusiasm and ascribe their own companies’ valuations to Tesla’s success. Cue the hype. 

An analysis by DD’s Ortenca Aliaj, Sujeet Indap and Miles Kruppa found that the nine auto tech groups that listed via a Spac last year have a combined market value approaching $60bn. Between them, they expect just $139m in revenues for 2020 — a fraction of the valuations. 

That success is partially due to the fact that they can woo investors with future projections that to some may seem like a pipe dream. Among the auto tech companies that have gone public this year, few have sold a single product. Some are still in the process of developing a product and inevitably yet to find out whether it’s successful or not.

Bubble timeline charts showing auto tech companies listed through Spacs boast significant market caps even with little current revenues

For example, the nine companies Ortenca, Sujeet and Miles looked at are projecting $26bn in revenue by 2024. That’s a big jump from 2020’s revenues ($139m as stated above). 

The ability for a company to tell its own story makes a big difference. 

Fisker, an electric car company that went public via an Apollo-backed Spac and has a $4bn valuation, currently has no revenue. But its presentation shows that the start-up expects to go from zero to $10bn in annual revenue in the next three years. That’s with its Fisker Ocean vehicle still two years away from production. 

By comparison, Tesla made about $2bn in annual revenue in the three years after it went public in 2010. Though if Elon Musk could’ve disclosed projections for future earnings, DD has a feeling he might’ve had bigger numbers in mind. 

Casino mogul Sheldon Adelson’s dealmaking legacy

Sheldon Adelson, the high-rolling billionaire behind the world’s largest casino empire, has died from complications due to non-Hodgkin’s lymphoma.

While his name precedes him in the US as the founder of the Las Vegas Sands, prolific Republican party donor and close confidant of Donald Trump (who in 2017 relocated the US embassy in Israel from Tel Aviv to Jerusalem — a move Adelson had long advocated for), his largest legacy lives on in Asia.

Sheldon Adelson © Bloomberg

A gaming trailblazer, Adelson was the first westerner to bring the glitz and glamour of Sin City to the former Portuguese colony of Macau, a successful wager that placed him directly at the centre of what would become the world’s largest gambling market.

It all began with a little Japanese company DD readers may have heard of before — SoftBank — which purchased Adelson’s annual computer trade show, Comdex, for about $800m in 1995.

With Bill Gates in tow as a regular keynote speaker, the technology event exploded in popularity in the 1980s. Adelson pumped the SoftBank cash into casinos, building an empire sustained by the lucrative conference circuit he himself helped ignite and securing his throne as the richest man in Vegas.

© Bloomberg

But not even Adelson’s luck could shield his businesses from the impact of the coronavirus. The Las Vegas Sands said in October it would consider offloading its Vegas properties if the price was right, Bloomberg reported.

Adelson’s career was also marked by his a controversial side gig as a media magnate — his Israeli newspaper has been criticised as being a mouthpiece for the country’s prime minister Benjamin Netanyahu, and his close ties to Republicans spurred a protest by Las Vegas Review-Journal staff when he emerged as the local paper’s mysterious buyer in 2015.

Though he himself helped spark China’s casino boom, the gambling pioneer’s casinos were notably absent from the industry’s biggest windfall in recent history: sports betting

Adelson was vehemently opposed to online gambling, spending millions lobbying in Washington against the practice, as sports betting platforms threaten the longevity of more established brick-and-mortar operators. (See: DraftKings’ hugely successful Spac debut.)

Column chart of  Addressable market by gross win revenues ($bn) showing Big opportunity: US regulated sports betting forecast

That could always change as new leadership takes shape at the casino group. DD will be placing bets accordingly.

Private capital goes to bat for in-person sports recovery

Sixth Street Partners has been known to buy the dip: the private capital group helped to raise $1bn in debt and equity for the short-term rental platform Airbnb at the very height of the pandemic shutdown in April, after all. 

But this month Sixth Street is quite literally buying the dip: nacho queso, guacamole and a host of other snacks, retail and entertainment at some of the world’s pre-eminent sports stadiums.

The San Francisco-based investment group has agreed to take a majority stake in Legends Hospitality, the global concessions and in-venue experience company co-owned by two of the wealthiest franchises in US sport: the New York Yankees and the Dallas Cowboys.

Masahiro Tanaka pitched for the New York Yankees last season © AP

The deal values Legends at $1.3bn, according to people familiar with the matter, who add that the clubs — owned by Hal Steinbrenner and Jerry Jones, respectively — will still remain involved.

It’s a bullish bet on an industry hard-hit by the pandemic, with worldwide lockdowns effectively putting a stop to stadium attendance at football matches, baseball games and packed concerts. If vaccine rollouts accelerate a return to normalcy this year, it could turn out to be a very smart move for Sixth Street.

But the deal may also be a strong indicator for a K-shaped recovery in sports: the Yankees and Cowboys are the most valuable franchises in Major League Baseball and the National Football League, according to rankings by Forbes. Their strong fan bases consistently sell out stadiums, which can also be said for Legends clients including Real Madrid and the University of Notre Dame.

Smaller franchises already hurt by lost gate receipts in 2020 may not be able to afford concession upgrades and other pandemic-era stadium adjustments without fresh capital of their own. For now, the rich are getting richer.

Pro tip: if you haven’t subscribed to Scoreboard, the FT’s weekly briefing on the business of sport, do so here.

Job moves

  • Blackstone Alternative Asset Management has hired Joe Dowling, the former chief executive of Brown University’s investment office, as its new global co-head alongside John McCormick.

  • Rothschild & Co has appointed Charles Martin, a veteran lawyer at the UK law firm Macfarlanes, as a senior adviser in London. Separately, Rothschild appointed Andrei Brougham as a managing director of its global advisory business in London. He was previously on the secondaries team at PTJ Parkhill.

  • Quintet Private Bank, a Luxembourg-headquartered bank owned by the Al-Thani family of Qatar, has recruited Eli Leenaars as chief operating officer effective June 1. He was formerly a managing director and vice-chairman of global wealth management at UBS.

  • Ali Mehdi has joined BNP Paribas as a managing director of leveraged finance in New York after spending 27 years at Credit Suisse, most recently as the Swiss lender’s head of leveraged finance origination.

Smart reads

The million-dollar question Bitcoin’s volatile eight-month run has reaped riches for many of the shadowy currency’s investors. The only problem: some of these newly minted millionaires have forgotten the passwords to their digital wallets. (New York Times)

Squashing the Ant The Chinese Communist party’s unprecedented regulatory crackdown on Alibaba and Ant Group, and the disappearance of the ecommerce empire’s founder Jack Ma from public view, has far-reaching consequences for private enterprise in the country. (FT)

Bulls on the beach Low taxes and lush golf courses beckon the Wall Street set as they flock to Florida, with big groups including Elliott Management, Colony Capital, Blackstone and Citadel planting new flags in the sunshine state. (Bloomberg)

News round-up

Biden to name Gary Gensler as US SEC chair (Reuters) 

Commerzbank warned BaFin about Wirecard in early 2020 (FT)

SoftBank accuses ex-employee of leaking 5G trade secrets to rival (FT)

UK business secretary pledges to target Big Four reform (FT) 

Australia cites national security to block China buying local builder (FT)

Steris to buy Cantel Medical in $3.6bn deal (Wall Street Journal) 

German carmakers outpace Tesla with electrified vehicle surge (FT)

Silver Lake in talks to invest in New Zealand Rugby (FT + Lex

Walmart/US fintech: all-American Ant (Lex)



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IPOs / FFOs

Deliveroo: taste test

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Much depends for the London-based company on whether enthusiasm for home deliveries formed during the pandemic wanes



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Instacart valued at $39bn in funding round ahead of IPO

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Grocery delivery app Instacart has raised $265m from its existing investors, doubling the company’s valuation following the pandemic boom in demand.

Instacart, the US market leader in the grocery app sector, said the round valued the company at $39bn, up from $17.8bn at the time of its previous fundraise, which closed in November last year.

The company said it intended to use the money to increase its corporate headcount by about 50 per cent this year, a hiring spree that would be spread across the business.

The cash injection comes as the company lays the groundwork for a long-anticipated initial public offering. In January, it announced it had hired Goldman Sachs banker Nick Giovanni as its new chief financial officer. Giovanni had previously been involved in IPOs from Airbnb and Twitter.

“This past year ushered in a new normal, changing the way people shop for groceries and goods,” Giovanni said in a statement announcing the latest round.

“While grocery is the world’s largest retail category, with annual spend of $1.3tn in North America alone, it’s still in the early stages of its digital transformation.”

The company declined to comment on its timetable for going public.

Last week, Instacart added its first independent board members — Facebook executive Fidji Simo, and Barry McCarthy, a former finance chief of streaming platforms Spotify and Netflix.

Notably, McCarthy was the architect of Spotify’s 2018 direct listing, a process by which a company goes public without creating any new shares.

Over the past year, Instacart has been a key beneficiary of lockdown conditions, with many physical retailers restricting walk-in access to stores.

To accommodate the demand, Instacart’s gig workforce has swollen to more than 500,000 across the country. Over the course of 2020, the company said it added more than 200 retailers and 15,000 additional locations to its app.

However, the company faces growing competition from other delivery apps — such as Uber — and other online grocery offerings from retailers such as Walmart and Amazon.

And, as pandemic conditions subside, interest in online grocery shopping may tail off, suggested Neil Saunders, a GlobalData analyst. He also warned that Instacart is at risk of being forced out by grocery stores once they have their own ecommerce strategies more firmly in place.

“Paradoxically, the drive online has actually made retailers a lot more interested in investing in their own systems,” Saunders said. “If retailers decide to go it alone, it leaves Instacart out in the cold.”

The company said it would use the latest funding to increase its investment in its fledgling advertising business, as well as Instacart Enterprise, its “white label” service for companies that want to use Instacart’s logistics with their own branding.

The round was led by Andreessen Horowitz, Sequoia Capital, D1 Capital, Fidelity, and T Rowe Price.



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UK listing rules set for overhaul in dash to catch Spacs wave

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A Treasury-backed review of the City has called for an overhaul of company listing rules so London can better compete against rivals in New York and Europe and grab a share of the booming market for special purchase acquisition vehicles.

The review, to be published on Wednesday, also proposes allowing dual-class shares to give founders greater control of their businesses and attract a wave of tech companies to the London market.

The City’s attractiveness has stumbled in recent years as the US and Hong Kong have swept up the majority of in-demand tech listings. New York’s markets have been further swelled this year by a surge of so-called Spacs, which raise money from investors and list on a stock market, then look for an acquisition target to take public. Britain’s edge also has been eroded by a loss of trading businesses to European rivals since Brexit.

Rishi Sunak, chancellor, who commissioned the independent report, said the government was determined to enhance the UK’s reputation after leaving the EU, “making sure we continue to lead the world in providing open, dynamic capital markets for existing and innovative companies alike”.

The review, which was carried out by Lord Jonathan Hill, former EU financial services commissioner, has recommended a wide range of reforms to loosen rules that have tightly governed listings in the UK.

Lord Hill has recommended lowering the limit on the free float of shares in public hands to 15 per cent — meaning founders need to sell fewer shares to list — and wants to “empower retail investors” by helping them participate in capital raisings. 

He has also proposed a “complete rethink” of company prospectuses to cut regulation and encourage capital raising, and suggested rebranding the LSE’s standard listing segment to increase its appeal. The chancellor should also produce an annual “State of the City” report.

The government said it would examine the recommendations — many of which require consultations by the Financial Conduct Authority.

Lord Hill also recommended that the FCA be charged with maintaining the UK’s attractiveness as a place to do business as a regulatory objective. 

The FCA said it aimed to publish a consultation paper by the summer, with new rules expected by late 2021. 

Lord Hill said the proposals were designed to “encourage investment in UK businesses [and] support the development of innovative growth sectors such as tech and life sciences”.

He said the UK should use its post-Brexit ability to set its own rules “to move faster, more flexibly and in a more targeted way”, in particular for growth sectors such as fintech and green finance.

However, the recommendations will cause concern among some institutional investors which have argued that loosening rules around dual-class shares, for example, will risk lowering corporate governance standards. 

The review said London needed to maintain high standards of governance, with various ways recommended to mitigate risk. On dual shares, for example, it recommended safeguards such as a five-year limit.

Amid fears that the government could go too far with a drive for deregulation, Lord Hill said his proposals were “not about opening a gap between us and other global centres by proposing radical new departures to try to seize a competitive advantage . . . they are about closing a gap which has already opened up”.

Other recommendations include making it easier for companies to provide forward-looking guidance when raising capital by amending the liability regime, and improving the efficiency of the listing process. 

The inclusion of a recommendation to help Spacs list in London by no longer suspending shares after a target is picked will be welcomed by many investors.

However, the rapid growth of such vehicles loaded with billions of dollars in speculative cash has also raised concerns about a bubble forming in the market.

Lord Hill said there was a risk that the UK was losing out on “homegrown and strategically significant companies coming to market in London” from overseas Spacs.

The UK has lagged behind New York and Hong Kong in attracting the types of companies from sectors, such as technology and life sciences, that dominate modern economies and attract investors seeking growth stocks. 

London accounted for only 5 per cent of IPOs globally over the past five years, while the number of listed companies in the UK has fallen by about 40 per cent since 2008. The review also pointed out the most significant companies listed in London were either financial or representative of the “old economy” rather than the “companies of the future”. 

Lord Hill referred to the flow of post-Brexit business to Amsterdam to make the point that the UK faced “stiff competition as a financial centre not just from the US and Asia, but from elsewhere in Europe”.

The steps represent a win for the London Stock Exchange Group, whose chief executive David Schwimmer has called for a more competitive listing regime. He said it was possible to strike a balance between being competitive and maintaining high corporate governance standards.



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