Ten months ago, Israeli hospitality company Selina Hospitality PLC (Nasdaq SLNA), which operates internationally, completed its merger with a SPAC, and began to be traded on Nasdaq at a post-money valuation of $1.2 billion. Selina went public in this way after the SPAC trend had already waned considerably, and without reducing its valuation, despite the changes on the markets during the time that elapsed between the announcement of the merger and its completion.
All the same, on its first day of trading, as sometimes happens in the case of companies merged with a SPAC that have few floating shares, the share price shot up, to give the company a market cap of over $4 billion. That peak did not last, and Selina has lost almost 99% of its value. At the end of last week, after falling by 41% on Friday, the share price closed at an all-time low of $0.43, giving a market cap of just $46 million.
The precipitous fall on Friday followed the filing of a revised prospectus by Selina, and the unblocking of 52% of the company’s shares, two months before the previously scheduled date. The prospectus relates to up to 8.6 million shares that existing shareholders will be able to sell, subject to exercising options.
In flotations and mergers, it is common for a period of a few months to be set during which existing shareholders cannot trade in their shares. The aim is to stabilize the share price, and prevent the market from being flooded with large shareholdings being sold all at once, which is liable to make the company’s share price fall rapidly.
In the case of Selina, the block concerned shares of shareholders holding more than 5%, which, in accordance with the SPAC agreement, were blocked and could not be traded. The block was removed on Friday, instead of October 27 (a year after the merger). The company believed that removing the block would provide greater liquidity in the stock and would simplify its capital structure.
Founders remain blocked
The companies through which Selina’s founders, Rafael Museri and Daniel Rudasevski, hold their shares in the company, are among the entities whose holdings are unblocked, but they have announced that they will maintain the block voluntarily.
The announcement of the removal of the block states that any sale of the company’s shares held by the largest shareholders will be liable to lead to a sharp fall in the share price, and thus damage the company’s ability to raise further equity capital. The company pointed out that some of the large shareholders could obtain positive returns on their investments, because they had invested at lower prices, before the company was floated, and therefore the removal of the block could be an incentive for them to realize their investments. The decline in the share price to its current low, however, means that, as things stand, even the longest-standing shareholders are showing a loss on paper.
Among the investors in Selina down the years have been Sir Ronald Cohen, Len Blavatnik, Gigi Levy, and Adam Neumann, founder of shared workspace company WeWork, who has an 8.4% stake in Selina. There are several similarities between Selina and WeWork. Both companies are in the sharing economy, both manage spaces (hosting and vacation spaces or work spaces), and both appeal to young people as their target markets.
Both companies expanded rapidly in their site numbers, but have not been profitable. Both were merged into SPACs, and wiped out almost all of the money invested in them since they went public. WeWork, which as a privately-held company attained a valuation of $47 billion, recently appended a going concern warning to its financials, and currently has a market cap of just $111 million.
Another company connected to Selina is real estate group Hagag (TASE: HGG). In 2021, Hagag signed an agreement with Selina under which it would buy assets and finance their adaptation as hotels, and then lease them to Selina. At the end of May this year, Hagag had invested NIS 91.6 million in the collaboration, and had committed to invest a further NIS 44 million.
Layoffs and site closures
Even before the prospectus and the fall in the share price that it caused, Selina’s position looked less splendid than in the optimistic forecasts that accompanied its SPAC merger. The company estimated then that its revenue would, on average, rise by 90% annually until 2025. The revenue forecast for 2023 was $506 million. That seems a long way off. In the first quarter of this year, revenue was $54.2 million, and the company posted a net loss of $30.3 million and EBITDA of $0.4 million.
Two months ago, Selina announced 350 layoffs out of the 2,800 workforce that it employs at over 100 hospitality sites around the world, and, for the first time in its history, it closed loss-making sites, five in number. These moves were intended to improve the bottom line instead of growing at any price, in accordance with the change in investor taste since Selina was floated. At the same time, Selina announced investment in it by GUS, a European company that aims at the same target market as does Selina: students and young people. The investment amounts to $50 million, and comprises $10 million in convertible debt, to which will be added further sums subject to capital being raised and other conditions.
Selina obtained the approval of a majority of its shareholders for the deal, but the SPAC founders, who hold 10% of the shares, had the option of cancelling their consent if the block on their shares was not removed. The deal was approved by a shareholders’ meeting on Friday.
Seina stated in response: "For the purposes of completing the financing that Selina reported in June, a meeting took place at which the deal was approved by a majority of 84% of the shareholders, who expressed confidence in the company’s new strategy. Of the financing, amounting to NIS 185 million, NIS 60 million have already been transferred to Selina in the past two months. Selina’s management continues to work in accordance with the company’s strategy, with the aim of completing the financing and improving the results for its investors."
Published by Globes, Israel business news - en.globes.co.il - on August 21, 2023.
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