Top 3 SPAC Targets – Discretionary Spending

SPACInsider contributors Anthony Sozzi and Sam Beattie this week compiled their three favorite potential SPAC targets among companies gaining a boost from post-pandemic leisure spending. We look at why they are compelling and why each could be a fit for a blank-check merger.

Trading in the market has clearly been driven by fear of rates and inflation to start off 2022. But despite recent headlines, there is still appetite for “fun” after having spent the last two years enduring a pandemic.

US consumer spending on services jumped up 1.1% in March and 1.2% on goods in March. Marriott (NASDAQ:MAR) meanwhile recorded its best quarter on record for direct bookings as it shifts to reclaim commerce from third party sites. But, it’s not like those sites are hurting either.

Booking.com itself experienced the best quarter in gross travel bookings in its history to start the year. With the pandemic waning, consumers are launching their delayed travel plans and gorging on apparel and experiences, inflation be damned.

There are concerns as to where this all leads, with much of this spending being put on credit cards. But, for now, it represents an opportunity for SPACs. As discussed on a recent episode of the SPACInsider Podcast covering ITHAX’s (NASDAQ:ITHX) pending combination with travel software company Mondee. The travel and leisure sectors are still “buy low” opportunities despite the fact the sectors’ recoveries are already in progress.

United Rugby Championship

With people going back to events, why not de-SPAC an entire sport? United Rugby Championship doesn’t quite encompass the entirety of professional rugby, but it is growing in a way that is reminiscent of rising sports like Endeavor (NYSE:EDR) subsidiary UFC by steadily absorbing more leagues and squads.

Back in 2020, CVC Capital Partners bought a 28% stake in the business in exchange for a £120 million ($146 million) investment and the league has since expanded from 12 teams in Ireland, Great Britain and Italy to absorb four South African teams as well as the Dubai Lions.

There are many more pro rugby teams that could be brought into the fold with additional capital and flexibility from a SPAC deal, but more importantly, a combination could also make for a play for US expansion.

CVC Capital was previously a part of the ownership group behind Formula One (F1) racing, but sold it to Liberty Media for $4.4 billion in 2016 as a part of a strategy to Americanize the popular European racing competition. That strategy has paid off, with F1 fixtures now regularly drawing about 1 million viewers on ESPN, culminating in this past weekend’s Miami Grand Prix, which drew 85,000 spectators.

Rugby is similarly a rising sport with nearly 1 billion viewers tuning into the 2019 Rugby World Cup in Japan, a 26% increase from the previous international tournament. So, CVC has made the pivot once before and it may be easier to make the market entry alongside a US listing.

Arctos NorthStar (NYSE:ANAC) jumps off the page as a fit for more deeply engraining rugby in the US. It has an attractive IPO structure with about $316 million in trust with units bearing a ¼ warrant and it has until February 2023 to complete a deal.

Its team would also be well-aligned with a transaction. It is led by CEO Theo Epstein – a long time MLB general manager – and Chairman David O’Conner, a managing partner at Arctos Sports Partners, a sports-focused private equity firm focused on providing liquidity options to ownership groups.

RainFocus

Business travel is coming back as well, but few of the companies facilitating those trips are fully set up for the new hybrid working environment.

Lehi, Utah-based RainFocus is focused on maintaining marketing connections between event attendees and hosts with software tools to maintain high levels of engagement. But, this same platform is applicable for companies running in-person and virtual leisure events as well.

Its software was used to hold together wine clubs through tasting series’ that went virtual and expanded to new vendors and influencers. Those same experience organizers hope to maintain that same velocity for in-person events now and have engagement tools and analytics from their pandemic work to help back them up.

RainFocus also handles the payments for organizers including taking responsibility for local tax compliance and VAT across international locations. Some teams may already be familiar with the software as RainFocus clients have put it to work on roadshows and private equity bakeoffs.

The company has raised $103 million in outside funding up to this point and its $60 million Series C last September was led by KKR with a focus on building out its R&D for expanding the suite. At the time, it already had plenty of velocity in its commercialization with 430% growth in hosted events over the previous 12 months with about 5 million business users and 9 million session engagements across 167 countries.

Puma

As discussed before, consumer staples are going to stick around no matter what the economy does. But, what appears to be happening in early 2022 is not simply consumers buying what they need but rather splurging and upgrading the wardrobe and summer plans for the pandemic’s end.

And with that, Puma (DE:PUM) may be looking to upgrade its digs as well. While plenty of sportswear and athleisure brands are listed in Europe, their US-listed counterparts tend to be better appreciated by the market. Puma currently trades at about 16x current EBITDA, while fellow Euro footwear peer Adidas (DE:ADS) trades at 11.4x.

Meanwhile, their US-listed competitors Nike (NYSE:NKE) and Lululemon (NASDAQ:LULU) trade at 21.7x and 25x, respectively. At least some of this is down to company performance, of course, but the dynamics are legitimately different on the Deutsche Boerse as compared to the Nasdaq, which handles 17-times its trading volume, and the NYSE, which hosts 15.1x as much.

Puma’s business is increasingly going West already, with sales in the Americas exceeding those in the EMEA region by about 15%. It grew faster to start 2022 on this side of the pond as well, with 44.1% sales growth here in Q1 as compared with 25.5% growth in EMEA and a -17% contraction in the Asia/Pacific region.

There could be incentive at Puma to bring more liquidity as well. About 67% of Puma’s shares are currently free-floating, with the remainder made up by a roughly 9.8% stake held by French luxury group Kering (PA:KER) and the rest held by Kering’s own largest shareholder Groupe Artemis.

Kering already sold a 5.9% stake in Puma in a private placement in May 2021 and could likely be persuaded to let go of more equity. Puma already trades hotter at 16.6x EBITDA than the wider Kering group at 9.7x, and should it receive a premium valuation and partial cash-out with a SPAC deal, this could be a value play for the company.

While not quite shooting to the moon, Italian fashion group Ermenegildo Zegna (NYSE:ZGN) made the move to the US markets via SPAC in December 2021 and has been notably resilient to the current market winds, which tend to blow harder against de-SPACs. It closed Thursday at $9.71.