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The Weekend Pitch |
August 16, 2020 
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Special-purpose acquisition companies are all the rage these days. One of the most intriguing SPACs to emerge from the ongoing craze is RedBall Acquisition Corp., an entity led by private equity firm RedBird Capital Partners and famed baseball executive Billy Beane that aims to acquire a professional sports team. RedBall priced its IPO on Wednesday, raising $500 million and opening a two-year window during which it will scour the globe for potential targets.
I spoke with a pair of experts about the blank-check company and what it might mean for two trends that have peppered financial headlines in recent months: The rise of SPACs as an alternative to IPOs, and private equity's growing interest in pro sports. Among the takeaways: RedBall could have a unique attraction for retail investors. And don't expect PE firms to stop hunting for sports deals any time soon.
Welcome to The Weekend Pitch. I'm Kevin Dowd, and you can reach me at weekend@pitchbook.com. SPACs are booming. Sports deals are booming. And when the two trends converge, it's one of 10 things you need to know from the past week: |
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| Lionel Messi (right) and Barcelona are among European soccer's biggest names. (David Ramos/Getty Images) |
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1. SPACs meet sports
Jeeho Lee is a partner at O'Melveny & Myers who specializes in the capital markets, working with issuers and underwriters on the nitty gritty of IPOs and other deals. She's also a sports fan. Viewed through the latter lens, the appeal of RedBall's SPAC offering seems obvious.
"Can you imagine being able to own a slice of your favorite team?" she said. "Can you imagine how excited people would be?"
The SPAC sparked similar ideas for Chuck Baker, co-chair of the sports industry group at O'Melveny. Baker represented hedge fund manager David Tepper in his recent acquisition of the NFL's Carolina Panthers, and he has worked with buyers and sellers in just about every major pro league. He said that, for a team, the main attractions of merging with RedBall would be the liquidity of the public markets and the ability to foster much broader bases of shareholders and fans.
"For purposes of building brand equity, think of a Manchester United or a Barcelona, a Dallas Cowboys—one of these teams that has such tremendous brand value," Baker said. "The ability to be international in terms of your shareholder body I think would be pretty spectacular."
Those first two names Baker mentions might be more appropriate examples. Because of league ownership rules, it will be difficult (if not impossible) for RedBall to purchase a team in the NFL, NBA, MLB or NHL. Much more likely, Baker said, is a target in European soccer. And that would tie into the background of the SPAC's managers: RedBird Capital agreed last month to acquire French soccer club Toulouse FC, and Beane owns a stake in English club Barnsley.
The SPAC expects to have about $2 billion in buying power, according to Axios, which should allow it to target names in Europe's upper echelon. Forbes estimates that only eight European soccer teams have valuations exceeding that figure.
Another potential appeal of the SPAC is the chance to work with Beane, who revolutionized professional baseball in the 2000s with his analytics-based approach. In recent years, he has increasingly turned his attention toward European soccer. In addition to his stake in Barnsley, Beane has worked as an adviser at Dutch club AZ Alkmaar since 2015.
"When you're investing in a SPAC, you're investing in a blind pool. You're relying to a great extent on the competence, experience and track record of the managers," Baker said. "When they're targeting a sports-type investment, having somebody so well steeped in analytics as a Billy Beane I think will be impactful."
RedBall is the latest in a line of unique sports investment vehicles to make headlines this year. Dyal Capital Partners is reportedly raising up to $2 billion for a first-of-its-kind fund that would acquire minority stakes in NBA teams. A new firm called Arctos Sports Partners is said to be seeking up to $1.5 billion for a fund that will buy stakes across multiple leagues.
Baker said there are two main reasons for the surge. One is a loosening of ownership restrictions on the part of leagues such as MLB and the NBA, making it easier for investment groups to buy minority (but not control) stakes in sports teams. Broadening the pool of potential investors aims to both keep the franchises' values high and improve liquidity options for existing owners. The other reason is perhaps simpler: Many team valuations have skyrocketed over the past two decades, creating the prospect of outstanding returns.
Arctos and Dyal's new funds may be only the tip of the iceberg.
"I do think you are going to see more private equity funds raised specifically for that purpose," Baker said.
If that's the case, sports-focused private equity funds will have a long way to go to catch up to SPACs in popularity. These vehicles have already raised $26.5 billion across 67 differing listings so far this year, according to the website SPAC Research, nearly double the amount of capital raised in all of 2019.
Some have chalked the change up to SPAC listings being easier to conduct during the coronavirus crisis, when travel restrictions and other strange new realities have turned the traditional IPO roadshow into an impossible feat. Lee, however, said the rise in SPACs is more about broader market factors than increased efficiency.
"There's still a view that the markets are volatile, even though there's been overall growth," she said. "So if a target's goal is to raise capital and become a public company, one thing that the SPAC route does versus the traditional IPO is it creates a little bit more price certainty."
Lee was quick to note that the frequency of SPACs has been on the rise for several years now—this year's frenzy isn't out of left field. In the years to come, they may very well become a staple of Wall Street's repertoire.
"The seeds have been planted for a while," Lee said. "When SPACs first came into play, there was an impression, unfair or not, that the mainstream market didn't want to be associated with that. That's clearly not the case anymore."
2. TikTok meets Jio?
TikTok and Jio Platforms may very well be the two hottest names in tech during 2020. Might they also soon share a backer? TechCrunch reported Thursday that Reliance Industries, the Indian owner of Jio, is in talks to back TikTok's business in India, potentially valuing the unit at more than $3 billion. The news comes about a month and a half after India blocked TikTok and a host of other Chinese apps from operating within its borders over cybersecurity concerns.
3. Unicorn updates
Airbnb's Q2 revenue fell 67% year over year, Bloomberg reported this week, a sharp decline caused by evaporating demand during the coronavirus crisis. But the company is still planning for an IPO, with a confidential SEC filing expected sometime this month, according to CNBC. Another longtime unicorn is also inching toward the public market: Palantir Technologies is planning a direct listing for late September, according to Bloomberg.
4. SoftBank's shift
As an ostensible telecom company that also manages an investment portfolio worth tens of billions, SoftBank has long walked an unusual line. The Japanese giant revealed its latest asset management play this week as part of its Q2 earnings report, announcing a new division for investing in public stocks. Founder and CEO Masayoshi Son said the unit will begin with about $555 million in capital, and that it already has taken stakes in names such as Apple, Amazon and Facebook.
5. Suit up
Founded in 1818, Brooks Brothers has spent more than 200 years crafting suits for America's business and political elite. Last month, it became the latest retailer to file for bankruptcy protection amid the coronavirus crisis. It didn't take long to find a buyer: The company agreed this week to sell itself for $325 million to Authentic Brands Group (which owns the rights to brands including Barney's New York and Sports Illustrated) and mall operator Simon Property Group. |
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| The pandemic has proven unkind to Brooks Brothers and many other retailers. (Scott Olson/Getty Images) |
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6. Walmart maneuvers
The Arkansas-based retail colossus continues to increase its commitment to delivery, confirming reports this week that it has launched a new pilot program with Instacart that will make same-day deliveries in four US cities. Instacart already offers similar services through Walmart Canada and Sam's Club. In India, Walmart ecommerce subsidiary Flipkart announced a new accelerator program for early-stage startups in the country, with plans to dole out $25,000 equity-free grants.
7. Policies & premiums
One company in the insurance software space, Vertafore, was in the news this week because of an exit: Bain Capital and Vista Equity Partners agreed to sell the business to software powerhouse Roper Technologies for $5.35 billion. Another, Waterdrop, made headlines for bringing in $200 million at a reported $2 billion valuation. Perhaps best known for its healthcare crowdfunding platform, the Chinese company was caught up in a scandal last year that involved exaggerating the stories of patients to draw additional donations.
8. Collapsing deals
After failing to win the required shareholder approval, Thermo Fisher Scientific is walking away from its offer to acquire fellow laboratory equipment manufacturer Qiagen at a reported valuation of €11.3 billion (about $13.4 billion today), a little less than a month after submitting its latest offer. Another previously collapsed deal resurfaced this week in a new form: Last year, Sunrise Communications was forced to abandon a bid to buy fellow telecom power Liberty Global's Swiss unit for some $6.4 billion. Now, Liberty is set to turn the tables and buy Sunrise in a $7.5 billion deal.
9. The Gong Show
Sales software developer Gong was one of a few startups to raise new mega-rounds this week, banking $200 million at a $2.2 billion valuation. Among the other headline-grabbing fundings: Bond-trading startup Trumid secured $200 million at a $1 billion valuation, while drug developer Atomwise brought in $123 million and Finland's HMD Global raised $230 million to continue building its Nokia-branded smartphones.
10. Carpe diem
Startups uniquely suited to this current pandemic-influenced age continue to capitalize with new venture funding. Telehealth specialist Nurx announced a $22.5 million extension to its Series C this week, taking the company's total private backing to more than $110 million. Online learning startup Skillshare closed a $66 million Series D. Those deals came not long after Brio Systems lined up $1.9 million for its very of-the-moment idea: a new COVID-19 testing platform for the workplace.
View the full list online |
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Accelerating acquisitions
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In many sectors of the private and public markets, the coronavirus crisis has caused a significant slowdown in dealmaking. That's certainly not the case for corporate and strategic acquirers in Europe.
Instead, as detailed in PitchBook's Q2 2020 European M&A Report, investors in the region completed €563.6 billion worth of mergers and acquisitions in the first half of 2020, on pace to top the €1 trillion mark for the sixth straight year. That's just one piece of data underlying the sector's surprising resilience. |
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| (Andrii Zastrozhnov/Getty Images) |
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At the start of each year, our private equity analysts pool their brainpower to come up with a list of predictions for the 12 months ahead. As you can probably imagine, in so many ways, 2020 has not unfolded quite how they expected.
But it's still worthwhile to check in on how those predictions are faring, in part to see how, where and why the pandemic is shaking up the buyout scene.
The big five publicly traded buyout firms have spent the past several months adapting their strategies to this strange new era. In his latest analyst note, Wylie Fernyhough drills down into the firms' latest earnings reports to see how they have navigated these stormy waters. |
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| Gone phishing (Westend61/Getty Images) |
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I can always appreciate a good metaphor, even if it leaves a little bit to be desired. This week, a startup developing AI-powered anti-phishing software closed an $8 million extension to its Series B, taking the round's total to $23 million. It is called Ironscales.
I think I get the idea here: Any phishing attacks will bounce right off the company's software, just like a fish with iron scales. But it seems like that idea only applies to spear fishing. Would iron scales stop a fish from biting on a lure? Or getting caught in a net? Color me skeptical. Then again, spear phishing is a particularly problematic kind of email phishing, so maybe the joke's on me. Let's just wrap this up before I twist myself into too much of a knot. |
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Recommended reads
These days, TikTok's massive popularity is matched only by the controversy it causes. In the eyes of the app's US general manager, though, its future remains bright. [Marie Claire]
Like so many other aspects of the financial world, summer internships at Wall Street's big investment banks have gone virtual in 2020. [Reuters]
In 2011, after 18 years of legal dealings, a judge in Ecuador handed down the largest human rights and environmental court judgment in history. For the lawyer who won the verdict, the drama was just beginning. [Gizmodo]
Diving deep into how Burning Man plans to go digital during the pandemic. [TechCrunch]
There are so many areas in which Amazon excels. Why are video games not one of them? [Protocol]
Concrete could fairly be described as the building block of our modern world. It also has a serious pollution problem. Now, several companies are working on new technologies to give concrete a greener future. [The New York Times]
Private equity's interest in Japan was already growing. For firms such as The Carlyle Group and KKR, the pandemic could add fuel to the fire. [Bloomberg]
Peter Hessler went to China to teach English composition at a university. He ended up with a first-row seat to watch how the nation controlled the coronavirus. [The New Yorker]
When it comes to searching for lessons from our solar system, much of our attention is focused on Mars. Are other planets and moons getting short shrift? [The Atlantic] |
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Quote of the week
"[Mukesh] Ambani made a huge bet on Jio. Now it is the world's greatest private tech company hidden in plain sight."
—Silver Lake co-CEO Egon Durban, speaking to Fortune about the budding Indian digital powerhouse that his firm backed earlier this year |
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The Weekend Pitch is produced by editor Kevin Dowd.
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