At age 79, after a rich, five decade-long career in law, business, and banking, Betsy Z. Cohen feels no real need to justify herself or persuade anyone. In recent years, Cohen has become one of the leading sponsors on Wall Street of Special Purpose Acquisition Companies (SPACs). Together with son Daniel Cohen, she has already taken 13 blank check companies public in the US, nine of which have merged or are in the process of merging with fintech and insurtech companies, including two leading Israeli start-ups - trading app eToro and payments platform Payoneer.
Cohen isn't moved by criticism about the SPAC model, in which the IPO process can be completed in a short time. Investors like Warren Buffett's longtime partner Charlie Munger have argued that the rising popularity of SPACs "must end badly".
"There's always a chance that they're right, and there's a chance that they're wrong," Cohen answers calmly. She gives an equally amusing answer when I ask whether the US capital market is in a bubble that is fueling the proliferation of SPAC IPOs. "Oh, I don't think I'm smart enough to answer that," she replies with an easy smile.
In fact, serious banker Cohen often answers with a surprising sense of humor. Do you feel responsible for the long-term performance of the companies that go public with the support of your SPAC initiatives, I ask. "It's really like being the parent of a child. During the first years, of course I have a responsibility towards the companies' performance but, after that, they can already stand on their own," Cohen retorts.
"I rejected a lot of companies"
SPACs - Special Purpose Acquisition Companies - are companies with no commercial operations, founded by sponsors able to take the companies public on the basis of their reputation. Armed with the capital raised by the sponsors, the SPACs then seek out a private company for the purposes of a merger, which must usually be executed within 24 months, otherwise the money is returned to the investors.
The SPAC model had been steadily gaining popularity in recent years, and took off last year. In 2020, the number of SPAC IPOs in the US jumped to 248, compared with only 59 the year before. Anyone who thought that last year was the high point for SPAC issues was wrong; since the beginning of 2021, 291 SPAC IPOs have taken place.
Given the numbers, one can understand billionaire investor Bill Ackman's statement, "Every friend is launching a SPAC". Still, to Cohen's credit, she was in there before SPACs became so popular. Cohen launched her first SPAC in 2015, when there were a total of 20 SPAC issues in the US.
Cohen's entry into the SPAC space was somewhat unplanned. At the end of 2014, she resigned as CEO of The Bancorp, Inc. (TBBK), the second bank she established after Jefferson Bank, which she sold in 1999 for $337 million. She wasn't sure what she wanted to do, but the answer came very quickly.
"My retirement lasted a total of eight days until my son Daniel told me that this arrangement wouldn't work, and we needed to find something amazing to do," Cohen laughs. "We knew the world of emerging financial technology companies very well, because Bancorp was the first to support fintech companies. Between 2000 and 2014, I'd gotten to know 1,500-1,600 fintech companies, observe their growth, and identify what worked and what didn't. So, we looked for a structure that would enable us to continue working with these sorts of companies, and SPACs seemed like a good idea. That's how we got started."
Because the format was unfamiliar, Cohen had to "educate the market." "When we met with someone in 2015, we first had to explain how to spell SPAC. Even by 2017, we'd spend 45 minutes out of every hour-long meeting just explaining what a SPAC was. But gradually, it became a familiar concept," she recalls.
According to Cohen, the SPAC model is not suitable for all companies, but can certainly help many to go public. "The IPO process looks back and the company discloses its activities to date. Therefore, an IPO is right for a company with past achievements," says Cohen. "By contrast, a SPAC looks to the future and suits companies that can look ahead and tell investors what they'll be doing in another two or three years.
"A company with wide audience appeal like Airbnb or Lemonade can also use the IPO for branding. Regular IPO buyers are retail and non-institutional investors, and purchasers are also potential customers. A SPAC isn't the right choice for these companies, but it is for many others. "
Were there companies you refused to take public?
"Of course. I rejected many companies because I didn't think their financial situation was good enough for going public. Sometimes, I don't see the company's executives being able to lead in difficult times, for example. I look at the company's leadership, the numbers, areas of activity, and check if it has growth potential. "
The eToro model isn't like Robinhood
Betsy Cohen (neé Zubrow) was born in 1942 in West Philadelphia, the daughter of a Jewish doctor who served in the US Army during World War II. In 1966, she was one of only six women to complete law school at the University of Pennsylvania, out of a total of 200 graduates that year.
A year later, she became the second female law professor on the East Coast (after Ruth Bader Ginsburg), when she began teaching at Rutgers University.
After not being hired by law firms because she was a woman, Cohen simply opened her own firm with partners and her husband Edward. She later set a series of businesses, including public companies, and, as mentioned, two banks. "All my life, I've loved creating something from nothing, and I keep on doing that," she says.
In addition to Payoneer and eToro, Cohen was involved in the process of taking a third Israeli company public: REE Automotive, which is developing a modular electric vehicles platform. REE will list on Nasdaq at a $3.1 billion valuation through a merger agreement with 10X Capital Venture Acquisition Corp (NASDAQ: VCVC) ("10X SPAC").
"In addition to our own SPAC, we help those who want to organize a SPAC, which is how our relationship with REE came about. Electric vehicles ae not our area of expertise, so we connected them with someone we thought was the right sponsor. I try to stick with technologies I know, and feel comfortable valuing them."
Cohen strongly rejects my pre-supposition that her involvement with Israeli companies is related to her being Jewish. "We would be just as happy to work with companies from Singapore if they were doing the same things," she says. "I don't have to tell you that Israel is a center for technology and innovation. It has to do with your education system and the army. I believe Israelis think outside the box because your box isn't very big. We're always excited about working with Israeli technology companies."
Is there a chance you'll be taking more Israeli companies public?
"Definitely. We look at a lot of Israeli companies, but of course I can't tell you names."
How did your relationship with Payoneer and eToro come about?
"At Payoneer, I've known the CEO, Scott Galit, for 10 years, ever since he replaced the founder, Yuval Tal. I have great respect for Scott, and he's done an amazing job in growing a very complex company. I'd known him professionally and after I started taking companies public, I'd call him occasionally to ask if his company was willing to make that transition.
"At eToro, I met Yoni and Ronen Assia two or two and a half years ago. We met and agreed there were many things the company could do in terms of growth, revenue diversity, the geographies where it operated and the way it was presented, things that would make it more attractive. We stayed in contact until the time was right to launch it on the market."
eToro competes with Robinhood, which is being heavily criticized for turning stock market trading into a kind of addictive game.
"I'm aware of this criticism. I think eToro is very committed to teaching people how to invest and giving them tools. Everything they do with their social platform is aimed at educating young investors, which is very different from Robinhood's approach."
"The history of SPAC returns is short"
Criticism of the SPAC model is based, among other things, on the historical results of companies entering the market in this way. Returns on SPAC shares have been tens of percentage points lower than market returns. The sponsors are one reason: the SPAC model incentivizes them to prefer a bad merger over repaying investors at the end of the period. Sponsors are greatly motivated to do so, given their pre-merger 20% stake in the SPAC, and their benefit from the increase in value afterwards.
"The history of SPACs is short compared in relation to the history of companies going public, and it may be that more mature companies preferred to take the IPO route in the past. When more mature companies take the SPAC route, the statistics will change," Cohen says. "Remember that, in the 1990s, the SPAC model was used to take problem companies public. We think that we take good companies with good management, and that the investors benefit."
Another criticism concerns the high valuations companies receive through SPAC flotations. According to the critics, competition between various SPAC sponsors over private companies causes values to exceed considerably what would be received in a normal IPO.
Payoneer is expected to start being traded at a value of $3.3 billion and eToro at $10.4 billion. Cohen rejects the criticism and offers eToro as an example.
"I think we have a lot more points of comparison in today's market than there were one, two or three years ago. Take for example [cryptocurrency exchange] Coinbase, which is valued at $68 billion before its offering. Its revenue and number of customers are only twice those of eToro and it operates only in the US.
"Robinhood also only operates in the US, unlike eToro, which is worldwide. Despite this, we hear that Robinhood's valuation is four to five times that of eToro. I'm not the underwriter for the offerings, so I don’t know what would have happened there, but I'm explaining to you how we approached the matter. I've no reason to believe that anyone else in the investment world would have looked at it any differently. "
Is the SPAC model here to stay or is it a passing trend?
"The number of public companies has dropped in the last 10 years, so there is apparently room to refill. In addition, over the last 10-15 years, many new companies have emerged to support private equity and venture capital, and there's great potential. If companies stop growing and retail investors stop buying, then the number of SPAC offerings will stop growing, but if these trends continue, you'll have more companies entering the market through SPACs. I do think there's a chance that the number of SPAC sponsors will decrease because some won't succeed. That's a characteristic of a market that sorts the good from the bad."
Cohen, as mentioned, already has SPACs seeking mergers, such as FTAC Hera Acquisition, which raised $800 million just this month. How long does she intend to continue in this field? "We intend to continue with this structure as long as it makes sense," she declares. "If it looks as though there aren't any more companies we feel comfortable with, but rather the kind of companies that are pushing the envelope and that have no real reason to go public, we'll move on to doing something else."
Published by Globes, Israel business news - en.globes.co.il - on April 6, 2021
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