Not all blank-check companies are built for the same exact purpose. Sure, they’re around to raise money for some private company they will fund and “reverse merge” into at some point. And sure, a huge honking share of these special purpose acquisition companies (SPACs) dominated the electric vehicle (EV) sector in 2020. But in the case of Foley Trasimene Acquisition II Corp. (NYSE:BFT) and its BFT stock, it’s not at all about the car — though it could well involve how people pay for it.
The target of this SPAC is Paysafe Group Ltd., a company that offers online and in-store payment processing. In case you haven’t noticed, this space glows hot like coals at a cookout held in a volcano.
After a year when consumers had to learn how to do everything via the internet, Paysafe processes online payments for businesses. It also handles point-of-sale transactions for everyday brick-and-mortar merchants.
And yet, one question cannot be avoided: Is this whole SPAC phenomenon beginning to reek of financial fad? Or are SPACs, as one commentator notes, just plain bad? There’s been much talk lately of SPAC overload. The big price gains that many investors and SPAC creators once saw as automatic have hit turbulence as the first quarter of 2021 closes. A mix of market saturation and investor skepticism explains it. After all, who makes out in the end? The investors? Or the founders? Or, in the case of BFT stock, perhaps both?
BFT Stock and the New SPAC Smackdown
Since early December, BFT stock is up close to 50%. That’s good news but tinged with a touch of bad. And that bad is twofold. First, share prices have remained flat since Christmas. That doesn’t exactly presage the investor enthusiasm you want to see headed into a reverse merger. And second, the SPAC bubble — and yeah, I’d call it a bubble — looks primed to burst with the vigor of a tomato winged via slingshot at the head of Chamath Palihapitiya. Call it SPAC-lash, if you will. The truth is, it’s well deserved.
Palihapitiya, as you may know, is considered one of the founding fathers of SPACs. And by his own admission, he’s just suffered a “super tough week.” This came after regulatory filings showed that on the week of Mar. 1, he sold his entire personal stake in Virgin Galactic Holdings Inc. (NYSE:SPCE): more than six million shares. When the news hit, SPCE shares dropped 10%. Holy mothership.
What does this have to do with BFT stock? Two things: Everything and everything.
Super tough weeks, Mr. P., are your own freaking fault when you’re revealed to have essentially abandoned the company you helped to fund. To the question I posed earlier, it presents prima facie evidence that the founders make out like bandits, whatever the fate of shareholders might be. For his own part, Palihapitiya said in a Tweet that he had sold “some shares,” with a sad-face emoji, no less. But The New York Times reports in its Mar. 8 DealBook newsletter that he sold all of them. Insert whatever laughing-all-the-way-to-the-intergalactic-bank emoji you want here.
A Reality Check Is in Order
So here, I’m going to take a contrarian view to a few of my InvestorPlace colleagues, who think the Paysafe deal is an opportunity to capitalize on a well-priced stock. No. It’s an imperative to stand by. Aside from that fact that BFT stock and its SPAC are stalled, we need a reality check, folks. Anything that reeks of easy money on Wall Street sooner or later must face close scrutiny. And let’s remember, SPACs are relatively new. The shell-game sort of dynamics the Virgin Galactic sale revealed aren’t illegal. But they sure deserve the hairy eyeball, as in enough hair to make a silver-backed gorilla envious.
And the fact is, SPACs have zero correlation price-wise to the companies they will fund. That’s right. None. A SPAC raises money. Period. What you get in the end is a private company, now gone public, that must realize its promise. Heretofore sealed financials will come to light. The walled garden of nurture the company enjoys as funds amass turns into a kicked-out-of-the-nest situation once the opening bell rings.
And having been an expert observer in the banking space for some years — I invite you to check out my podcast, Bankadelic — I can tell you there is no such thing in the payments world as a slam dunk. Many are vying to get a piece of it and must deal with the dominant likes of PayPal Holdings Inc. (NASDAQ:PYPL).
Sorting Out the U.S. Payments Puzzle
What’s more, the payments rails in the U.S. are tangled. The Federal Reserve’s Faster Payments Task Force (FPTF) revealed that, if anything, our system is a mess compared to Europe, where huge amounts of money clear and post in seconds. The goal of the FPTF was to produce “secure, ubiquitous, faster payments by 2020.” We’re still waiting.
True, Paysafe is multinational as it’s based on the Isle of Man. It can claim more than 20 years experience servicing more than 200,000 small and medium businesses. The problem is, payments technology is changing almost at the speed it took you to read this sentence. As machine learning, artificial intelligence and cryptocurrency reach critical mass, two decades of experience could mean nothing. Or everything. Do you know? Of course you don’t, and neither do I.
Novel payments solutions, such as privately held Branch, have figured out how to give employees instant payment access to money they’ve accrued at work, but before the paycheck. (Check out my podcast with Branch’s Ahmed Siddiqui here.) Upstarts like Branch that transcend the nuts and bolts of traditional payments architecture could eat Paysafe for lunch. Or not. Do you know? Of course you don’t, and neither do I.
Of Paysafe and Playing It Safe
Here’s what I do know: This whole SPAC thing is beginning to reek of a board game for billionaires. Do we add billionaire Bill Foley, the guy behind this one, to the list? Consider that some legendary billionaires, such as Warren Buffett, aren’t touching SPACs with a Benjamin-coated ten-foot pole. Though Chamath Palihapitiya bragged just a few weeks ago that he wants to be the next Warren Buffett. I should say. Sounds like he had a plan, eh?
Regular investors betting on BFT stock may make out. But as I’ve established, of recent they definitely haven’t. Granted, once this SPAC takes Paysafe public, the company may prove far more viable than I’m intimating here. I definitely hope so.
But here’s a word to both the wise and the foolish: Wait. Whatever the double-speak on Virgin Galactic is, the fact that a SPAC legend essentially took the money and ran gives me no reassurance whatsoever. That’s not to paint Foley and his namesake SPAC with a broad brush.
But yours truly, of the metaphorical tin can and string as punditry goes, can hardly phone this one in. I don’t know about you. For the time being, consider me SPAC’d out.
On the date of publication, Lou Carlozo did not have (either directly or indirectly) any positions in the securities mentioned in this article.