As I’ve written before, I’m not generally a fan of SPACs (special purpose acquisition companies). But I am a fan of Foley Trasimene Acquisition Corp. II (NYSE:BFT) stock.
After FTAC II, a SPAC, announced its plan to merge with Paysafe, that bullishness stemmed largely from the successful track record of Bill Foley, who heads up FTAC II. Foley has made literally tens of billions of dollars for his shareholders over the past three-plus decades.
Fidelity National Information Services (NYSE:FIS) has been Foley’s big winner, but the likes of Black Knight (NYSE:BKI) and Cannae Holdings (NYSE:CNNE) have also created value. As I argued earlier this year, an investor at basically any point since the mid-1980s could have entrusted her capital to the Foley “empire” and almost certainly have beaten the broad market in the process.
Of course, as the industry disclaimer goes, past performance does not guarantee future returns. Even Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A,NYSE:BRK.B) has lagged in the post-2009 bull market. And investing alongside Foley in a SPAC is different than investing alongside him in Fidelity National Information Services or another real company.
In other words, history isn’t enough. But the good news for BFT stock is that Paysafe looks like a winner. And with FTAC II little changed versus its December highs, its valuation looks reasonable enough to take a chance on.
How Paysafe Can Win
What makes Paysafe attractive is its diversification. The company offers payment processing to small- and medium-sized businesses in the U.S., eCash solutions for iGaming providers and other online operators worldwide, as well as a digital wallet that has 3.5 million users at the moment. All three of the company’s offerings have room for growth.
With Paysafe’s management presenting at a conference earlier this month, we obtained a better handle on the mechanics of that growth.
In terms of small- and medium-sized businesses, Paysafe has spent time and money improving its onboarding process, according to the presentation. And the company is toying with additional offerings, such as expanding its wallet to the B2B world, allowing for instant access to funds via, say, a credit card issued to the firms that are its customers.
The iGaming opportunity is almost self-evident at this point, given the rapid rollout of online sports betting in the U.S. Paysafe is the “exclusive debit and credit card processor” for DraftKings (NASDAQ:DKNG) in the U.K. and has relationships with most of the current U.S. sports-betting operators.
The lack of federal legalization creates speed bumps for consumers looking to fund their bets using debit or credit cards on the Visa (NYSE:V) and Mastercard (NYSE:MA) networks. That, in turn, provides built-in customer bases for many APMs (alternative payment methods).
For Paysafe’s wallet, meanwhile, there’s another positive catalyst: cryptocurrencies. Paysafe supports trading in Bitcoin (CCC:BTC-USD) and 26 other cryptocurrencies, as well as foreign currencies and even some stocks.
And so, it’s not hard to imagine users, especially younger consumers, gambling on online slots, betting on sports, buying GameStop (NYSE:GME) stock, and sending money to friends — all from Paysafe’s Skrill or Neteller wallet.
The Risk and Reward of BFT Stock
The question is, what can go wrong for Foley Trasimene?
It faces some risks. Valuation is one. The current BFT stock price suggests a pro forma valuation of roughly $14 billion, including debt. (This deal is unusual because the merger is providing capital for a private equity exit, rather than being used solely to drive growth.)
That’s about 28 times its Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) guidance for 2021. That isn’t a huge multiple for the payments’ sector, but it’s not cheap, either.
Competition is another concern. In U.S. iGaming, for instance, PayPal (NASDAQ:PYPL) seems to have an edge. And while Paysafe is talking up its size, it’s measuring that size in terms of total customers.
Yet the customers cited in this month’s presentation, outside of DraftKings, include mostly tiny operators like BetWildwood and PlayUp. As a proportion of total U.S. online sports betting and iGaming volume, Paysafe’s U.S. presence is relatively small.
Outside of gaming, meanwhile, the likes of privately held Stripe, PayPal, Adyen (OTCMKTS:ADYEY), and many others are targeting similar vertical markets and similar customers.
Against the backdrop of those risks, Foley Trasimene is a story that requires some faith in its management and execution. The good news is that the track record of both Paysafe and Bill Foley suggest that faith is warranted. So BFT stock still seems like a bet worth making.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.