Israeli trading platform eToro will not complete its SPAC merger by the end of 2021. According to the current agreement, if the merger, which was already due to be completed in the third quarter but postponed, is not completed by December 31, then this could cause its cancellation.
At the same time, the private investment public equity (PIPE) investors can cancel their participation in the deal, or demand a change in the pricing. Despite all this, sources familiar with the deal believe that while the merger has again been delayed, it will eventually go ahead at the original valuation of $10.4 billion, reflecting an enterprise value of $9.6 billion for eToro, and with the original PIPE investment of $650 million. eToro is expected to sign with the investors on extension agreements.
eToro was founded in 2007 by brothers Yoni and Ronen Assia and David Ring. Yoni Assia serves as CEO. The company's platform allows users to invest in a range of stocks, commodities, indices and cryptocurrencies.
eToro said the company, "is in a process of transition into a public company by merging with the SPAC FinTech V and we are working with all the relevant bodies in order to complete the process as soon as possible."
A special purpose acquisition company (SPAC) is a blank check company, which raises money on the stock exchange in order to merge with an existing company within a pre-defined amount of time. SPAC agreed to merge with Fintech Acquisition Corp. V, which is led by chairman Betsy Cohen.
The eToro SPAC deal was reported back in March, when such mergers were all the rage. Since then there have been changes in the market and the US Securities and Exchange Commission (SEC) has cooled the market by introducing more burdensome regulation, while investors who experienced disappointment in those companies that did begin trading after SPAC mergers are more skeptical about this financial instrument. As a result, there have been delays in existing SPAC agreements and deals already completed have seen a fall in company valuations.
In the case of eToro, the delays probably stem from procedures with the SEC, which are long in any case, and which the company expected from the start. After filing registration documents with the SEC, eToro was handed a questionnaire to complete, which it has submitted several times, after updating information several times, and is still waiting for final SEC approval. Without approval, the SPAC cannot summon a shareholders meeting to approve the deal and complete the merger.
Because the deal won't be completed by the end of the year, eToro has stayed in close contact with the PIPE investors to discuss extending the loan agreements. The investors include ION Investment Group, SoftBank, Third Point, Fidelity, and Wellington.
Sources familiar with the deal believe that due to the financial results published by eToro, and despite the difficulties in the SPAC market, the investors will sign an extension and won't cancel the investment or require the valuation to be cut.
Expected to beat 2021 guidance
In the first nine months of 2021, eToro's revenue amounted to $931 million, $736 million net, and it is reasonable to assume that the company will exceed annual revenue of $1.02 billion ($807 million net) that it forecast when signing the SPAC agreement last March.
In addition to the $650 million that eToro is due to receive from the PIPE investment, it will also receive $250 million from the SPAC investors, who have the possibility of receiving their investment money back and not participating in the deal. In the past few months, due to the weakness in the market, the level of investors taking their money back in SPAC deals has reached 80% and even 90% in some cases.
Another factor weighing on the eToro deal is the fall in valuation of Robinhood, which has similar operations to the Israeli company. Robinhood's share price has fallen 47% since it began trading on Wall Street at the end of July. However, over that period Fintech Acquisition Corp. V, into which eToro is merging, has seen its share price fall by only 4.5%.
Published by Globes, Israel business news - en.globes.co.il - on December 12, 2021.
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