According to Pitchbook, the number of SPACs that have merged with non-U.S. companies has risen six quarters running. In Q2 2021, nearly one in five completed SPAC transactions (17 out of 91) was with a foreign business (up from 13% in Q1).
That trend has not taken hold within the sports and entertainment sector, though. Just two SPACs formed within the last year combined with an international company: Sports Entertainment Acquisition Corp merged with Super Group and dMY Technology Group II merged with Genius Sports. But conversations with a trio of SPAC sponsors—including Acies Acquisition Corp. and Acies Acquisition II co-CEO Dan Fetters—indicated that could change over the next 12 months. “People will go further afield from their core knitting as the shot clock winds down,” he said. Remember, SPACs typically have two years to consummate a deal before they need to return the money raised to investors.
Our Take: The SPAC craze began in earnest last summer, which means those still without a deal have about 12 months left. Considering the crowded market dynamics stateside and the fact that SPAC mergers take roughly six months to complete, it makes sense that we have seen a steady uptick in international deals over the last two quarters.
But if excess competition for SPAC-able companies (i.e. those mature enough for the public markets) in the U.S. is the reason for the rise in mergers with foreign firms, it is logical to wonder why there haven’t been more completed business combinations within the sports and entertainment sector. It is not as if the category is any less competitive. The relatively small data set makes it hard to say (remember, we are only talking about 29 SPAC mergers with foreign companies in all of H1). However, generally speaking, private investment in sports has historically been less prevalent internationally (meaning the pool of SPAC-able companies may be smaller).
Edward King (co-CEO, Acies Acquisition Corp. and Acies Acquisition II) pointed out that the Super Group and Genius Sports—the two foreign companies that successfully merged with SPACs this year—plan to maintain a significant presence in the United States. “From a U.S. investor attraction standpoint, institutional investors think those two companies should be listed in the U.S. because [the U.S. market] is going to be the predominant form of future revenue and future valuations,” he said.
It is likely some fundamentally strong, sports-centric, foreign companies have been passed over by—or chose not to dance with—U.S. SPACs, because their businesses lack the rationale (think: customers, domicile revenue, operations) to be listed in the States and attract the institutional backing needed to achieve long-term success. But all three of the SPAC sponsors we spoke to believe there is no shortage of viable targets abroad—particularly across the subsets of sports tech, sports betting and iGaming, media and rights ownership. “There are a number of European opportunities, in particular, which could belong in a U.S.-listed company,” King said.
While we’ve seen a pair of SPAC mergers with sports-centric companies, we have yet to see a transaction involving a foreign sports league or franchise (RedBall did explore a business combination with Fenway Sports Group, which includes Liverpool FC, but the deal fell apart). That is likely not for a lack of sponsor interest—one has to think many would love to buy into a team or league—but between league rules and the cash flow profile of many international clubs, it’s difficult to get a deal done. King noted that international teams may also be hesitant to list on a U.S. exchange given the “more onerous financial disclosures and quarterly reporting requirements” (relative to Europe).
Time is quickly running out on SPAC sponsors who were early out of the gate and are still without a deal. As the panic begins to set in, we should see more international deals within the sports and entertainment sector. “SPAC management teams will go to what they know and the available set first. But as time marches on, and they don’t get a deal done, they will look broader,” King said. That certainly could mean abroad.
But there are several reasons U.S. SPACs could choose to pursue relatively immature domestic companies or take a “worse” deal for a mature company stateside rather than go overseas. It is more expensive to search abroad; many sponsors lack the market knowledge needed to prospect overseas; and the deals take longer to close (because of a host of jurisdictional, tax and accounting-related issues).
Deals for international companies can also bring about some additional challenges. A SPAC can find a high-flying company overseas, but if U.S. investors are unfamiliar with the company, it’s not going to thrive on a U.S. exchange—particularly if the company is being combined with a SPAC backed by lesser-known sponsors. For what it’s worth, a lack of name brand recognition can be overcome with an investment in marketing.