This week in SPACs — 12/3. Rocky week as SPACs opened with sharp…
By: Ricky Chhabra
Tags: Fintech, Investing, Venture Capital, Finance, Funding

Rocky week as SPACs opened with sharp declines as investors cashed in on last week’s rally and ended the week with a typical speculative run-up. SPAC investors had the collective realization that investing in a SPAC near its enterprise value, typically ~$10/share, is safer — on a risk-adjusted basis — than holding cash. If news of a potential merger rallies the stock, investors will participate in the upside and conversely, the value of the SPAC should not materially fall below $10/ share, in theory.

Stripe of the UK

PaySafe Group nearing a deal to SPAC-out under the BFT ticker— investors will trade $2B for ~22% of the company. As Bitcoin hovers at $19K per token, the battle for digital payments intensifies due to the reflexive nature of digital transactions. In 2016, PaySafe reported revenues of $1B with $142M in net income, or a 14% net income margin. In comparison, Visa reported $10.8B in net income on $21.8B of topline revenue, or a 50% net income margin, in 2020. Headquartered in the UK, PaySafe offers a variety of payment solutions: digital wallet, money transfer, prepaid cards, digital lay-away plan, and mobile ordering.

Bull Case: “Your margin is my opportunity.” — Jeff Bezos. Visa’s dominant position as the locus point for online purchases where it collects a toll (interchange fee) has caught the attention of the Department of Justice.

Earlier this year, the DoJ sued to block Visa’s acquisition of Plaid for $5.3B as the “acquisition would eliminate nascent competitor- Plaid- and prevent disruption of Visa’s monopoly in online debit.”

Effectively, the DoJ has opened up the field and invited down-funnel competitors to mount attacks while Visa scrambles to protect its empire. Payment solution oriented companies like PaySafe stand to benefit as they serve as the interface between customers and banks. Digital payments are expected to grow at a 13.5% CAGR between 2020- 2025 and a growing TAM could partially hedge any execution risk. Investors can add to their basket of fintech darlings outside of Paypal, Square, and Visa while waiting for Stripe’s +$100B public market debut.

Bear Case: PaySafe lacks a clear Peer-to-Peer (P2P)component under its product umbrella. As evidenced by PayPal/Venmo and Square/ Cash App’s stock appreciation (97% and 226% YTD, respectively), investors are betting the next frontier in payments is P2P.

Insurance as a Service (IaaS)

Metromile will SPAC-out under the INAQ ticker — investors will trade $220M for ~18% of the combined company. Metromile is an automobile insurance carrier with a pay-as you-go pricing model where policy holders pay a base rate + a flat $ per mile driven — effectively disrupting the prevailing fixed-cost status-quo. With offices and classrooms closed due to COVID-19, policy holders have dramatically reduced their miles driven. Evidence: On similar insurance coverage and driven miles, I could have paid 50% less if I had switched to Metromile at the beginning of California’s lockdowns in March 2020.

Bull Case: The pitch for digitally native insurance companies ($LMND included) is on-demand price quotes, policy transparency, and cost savings driven from its efficient technology stack. Metromile may end up acquiring tech-savy, younger drivers as they roll off their parent’s policies. As policy holders mature, Metromile can enter into adjacent insurance products to capture incremental revenue and additional policy holders. Additionally, the proliferation of autonomous driving may lead to a lower premiums as data collected may suggest a lower accident rate as compared to human driving.