Bill Foley is really quite proud of his latest acquisition. His SPAC (special purpose acquisition company) uses his initials “BF” in the listed symbol for BFT stock, Foley Transimene Acquisition Corp II (NYSE:BFT).
The presentation for the deal to combine with Paysafe, a U.K. fintech company, spends an inordinate amount of time talking about Foley’s illustrious acquisition history. Despite all this, I think BFT stock is worth 40% more than its price today.
This is not because Bill Foley has his hands all over this deal. In fact, Foley’s companies will have a huge stake in the combined company. Frankly, it looks to me like Foley’s companies are actually almost acquiring control of Paysafe, with the public owning less than 22.5%.
Nevertheless, the market seems to like the deal. Since it was announced on Dec. 7, BFT stock has risen from $10.38 at the beginning of December to $15.10 in just a month. That is a gain of 45.4%. And, of course, it represents a 51% gain from the $10 IPO price for BFT stock, whose symbol will change to PSFE after the merger.
I want to explain why I think the deal, despite BFT’s rise already, is still worth at least 40% more at $21.14.
The Paysafe Deal
The thing that is good about this combination of Foley’s SPAC with this private company is that it is not only making revenue but also very profitable.
For example, 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), bet365, William Hill and betfair.
In fact, Paysafe makes a big point that its “take rate” is very high at roughly 1.56% in 2020. This is the rate of its fees for handling payment volume.
I have written several articles about the take rates at PayPal (NASDAQ:PYPL), and other stocks. Paysafe’s rate is very high. This year alone Paysafe expects to generate revenue of $1.38 billion, according to page 28 of its presentation.
Moreover, Paysafe is also very profitable. For example, on page 29 of its presentation, Paysafe projects that it will make $420 million in adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) in 2020.
In fact, it is forecast to rise to $669 million by 2023, according to Paysafe. In addition, the company indicates that it has found an additional $60 million in cost savings and revenue opportunities as a result of the SPAC merger.
So, by all accounts, this is going to be a very profitable public company.
What Paysafe and BFT Stock is Worth
The slide presentation does not do a very good job of explaining the deal. For example, it does not show the total pro forma number of shares outstanding, as in most other SPAC deal presentations.
Nevertheless, we can use the figures shown on page 4 of the presentation to help us value BFT stock on a pro forma, post-merger basis. For example, the market capitalization of the combined company at $10 per share will be $7.195 billion.
However, BFT stock ended 2020 at $15.10, as of Dec. 31. Its market cap is now 51% higher, or $10.864 billion. In addition, we have to add in the debt that the new company will have on its balance sheet. This amounts to $1.805 billion based on page 4. Therefore, the new revised enterprise value (EV) for BFT stock is $12.6695 billion.
Now we can estimate the pro forma EV-EBITDA multiple. For example, as I mentioned earlier, Paysafe forecast it will make $669 million in adjusted EBITDA by 2023. That implies that BFT stock / PSFE stock has an implied EV-EBITDA ratio of 18.9 ($12.669 billion divided by $669 million).
Next, on pages 32 and 48, Paysafe implies that its competitors have much higher EV-to-EBITDA multiples. For example, four of its seven main comps have ratios ranging from 23x to 29x EBITDA for 2022. These are high numbers but it shows that the average is between 26x and 27x EBITDA.
Therefore, BFT stock should be between 37.5% and 42.9% higher based on these comps. This is seen by dividing the forecast 22 multiple by 18.9 (37.5%), as well as 27 divided by 18.9 (42.9%). So, on average BFT stock/PSFE stock should be 40% higher.
This implies that BFT stock should be trading around $21.14 or so once the merger goes through. That is still a great return for most investors in this SPAC despite its gains already.
On the date of publication, Mark R. Hake did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.