In 2020 — the year of the special purpose acquisition company (SPAC) — many people speculated on SPACs because of another four-letter acronym: FOMO, or fear of missing out. And of course, blank-check companies have performed very well this year. So, we should expect similar excitement toward Foley Trasimene Acquisition II (NYSE:BFT). But there’s also real substance behind BFT stock.
For starters, the firm has the backing of William Foley, a businessman with a strong track record of turning struggling companies around. With so much hype surrounding reverse mergers this year, it’s good to see that BFT offers a proven commodity.
Secondly, the underlying company, Paysafe, offers profoundly positive implications for the new normal. It specializes in integrated payment services for various corporate clients. Essentially, the service allows companies to accept credit cards and money transfers. As InvestorPlace contributor Mark Hake explains, “Paysafe handles the gaming dollar volume for the very popular online game Fortnite and also Twitch, which is owned by Amazon (NASDAQ:AMZN). It also handles online gaming revenue payments for DraftKings (NASDAQ:DKNG).”
As you probably already know, e-commerce has dominated retail purchases over the course of the pandemic. More importantly, though, multiple surveys indicate that Covid-19 will change physical cash-carrying behaviors for good. Travis Credit Union reports that 58% of Americans plan to stop using cash altogether after the pandemic. And millennials are the most hesitant to use cash — 64% say they’ll stop using it completely.
Though cynical, this dynamic offers a “two-fer” opportunity for BFT stock. Consumers will want more contactless options in the future and cash-only businesses will seek ways to accommodate that demand. Paysafe can capitalize on both of those fronts.
BFT Stock Has an Underappreciated Risk Factor
But there’s a third reason why investors may want to give BFT stock a chance, even at present levels: the deal just makes sense. According to Hake’s detailed analysis of the SPAC deal, shares of Foley Trasimene Acquisition II should trade for around $21.14 once the merger goes through.
From today’s price of $15.32, that’s an almost 38% upside — a very healthy return. And frankly, SPACs have a tendency to jump higher just because. When you combine this sentiment-based catalyst with the strong fundamentals of proven leadership and a compelling business opportunity, the stock is tempting. There’s simply no way around it.
However, when something seems like it’s a no-brainer, that’s when you should check your mirrors for blind spots. Now, I’m not suggesting that there are any factors that derail the bullish case for BFT. But I’d like to share my thoughts on what could go wrong.
Mainly, prospective buyers should give key economic metrics a once-over to gauge true consumer sentiment. For instance, the personal saving rate at the latest read of November 2020 is still incredibly elevated at 12.9%. Additionally, the velocity of M2 money stock is significantly down, rivaling where it was during the Great Depression and Great Recession. This indicates that we have a culture of deflation, a condition that might negatively impact broader retail sentiment — including e-commerce and iGaming — as we move away from the holiday season and incentives to spend.
The Pandemic and Discretionary Spending
The pandemic hasn’t been hard for just Americans — it’s been bad for the whole world. However, the combination of the health outbreak and mitigation efforts have definitely caused economic destruction here at home, sparking unrest over the last several months.
Why do I bring this up? Because social factors can have a big impact on discretionary consumer investments like BFT stock. And we are far from a state of normalcy. Recent troubles include:
- Growing desperation in society, which is not conducive to sustainable consumer sentiment
- Declining health in the labor market, which could be much worse than we thought, given the difficulties of layoffs and the precedent of increased crime during the Great Recession
- Consumers hunkering down, with spending deflated by uncertainty and creating a natural headwind for discretionary sectors.
That said, though, there is clinical evidence to suggest that discretionary costs like games of chance can be recession proof. So, it is possible that BFT stock could still rise, even in a downturn.
But it’s also important that — as a prospective investor — you monitor socioeconomic factors before making your decision. While BFT is one of the more intriguing SPACs out there right now, it’s certainly not invincible.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.