Bill Foley was supposed to be the financial services guru who would take Foley Trasimene Acquisition II to $25 in short order. The notion was that after its merger with Paysafe (NYSE:PSFE), a company specializing in payments processing and iGaming and that is extremely profitable, PSFE stock could top $25.
InvestorPlace’s Mark Hake made the argument in early February. He said that BFT stock was worth $25.42 a share given its pending merger.
According to Hake’s calculation, PSFE stock could be worth as much as 35 times its 2023 adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $744 million on revenue of $1.89 billion. That’s a 40% EBITDA margin.
My high school math tells me that my colleague valued Paysafe at a market capitalization of $18.9 billion [$744 million EBITDA multiplied by 35x]. Based on 777.6 million shares outstanding as of March 31 (warrants included), that equals $24.30 per share. That’s pretty close to Hake’s $25.42 estimation.
So, why is PSFE stock at $14? That’s something I’ll try to answer.
Bill Foley’s Track Record and PSFE Stock
The veteran financier has stakes in three companies he had a hand in building. Foley owns 3.2% of Fidelity National Financial (NYSE:FNF), 2.8% of Black Knight (NYSE:BKI), and 4.6% of Cannae Holdings (NYSE:CNNE).
Now, through a series of special-purpose acquisition companies (SPACs), Foley, at the ripe old age of 76, is building some more.
Foley’s first SPAC was CF Corp. in May 2016. It raised $600 million, merging with HRG Group and Fidelity & Guaranty Life in November 2017 to form FGL Holdings. Fidelity National Financial then acquired it for $2.7 billion in February 2020.
Trebia Acquisition raised $450 million in June 2020. It also has yet to find a target. The fourth was Foley Trasimene Acquisition Corp. II. It raised $1.3 billion in August 2020 and then merged with Paysafe at the end of March.
His two latest, Austerlitz Acquisition I (NYSE:AUS.UN) and Austerlitz Acquisition II (NYSE:ASZ.UN), raised $600 million and $1.2 billion on the same day in late February. Neither has found a combination.
It’s coming up on the fifth anniversary of Foley’s first SPAC. Since then, he’s done five more, raising a total of $5.05 billion or an average of $1 billion per year. If you take out his first, we’re really talking about Foley raising almost $4.5 billion in one year.
That’s an amazing amount of money. Yet it’s only about the same amount as Bill Ackman raised for his first SPAC. While Ackman has to find one or more targets, Foley has to find five or more possible combinations.
The odds of a few duds rise exponentially with the number of deals done.
SPACs Losing Their Buzz
SPACs jumped out strong in 2021, raising more money in the first three months of the year than was raised in all of 2020. That should be the first sign that SPACs are hitting a top.
On March 27, Reuters pointed out that 93% of the SPACs that went public that week were trading below the customary $10 unit price. Also, the news service highlighted that the best first-day return of a SPAC in March was 3.5%, significantly less than in February or January.
Another sign SPACs are cooling: the SPAC ETFs lost ground in March and were down for the year. That’s not a sign of a hot market.
Lastly, the monied crowd is starting to raise concerns about the IPO vehicle, and that’s got regular investors concerned the best has been gotten.
In the case of Foley’s SPACs, the oldest of the five from 2020 is not even up to the one-year mark. Before the surge at the end of 2020, when combinations were happening at a much faster rate than the one-year average search time, it was normal to take more than half the 24 months to find an appropriate target.
Therefore, I would not be surprised if the remaining Foley SPACs don’t make announcements until the summer or fall. So, if you believe in Foley, you’ll likely have to be patient.
The Bottom Line on PSFE Stock
I think many investors are waiting for Paysafe to report its first quarterly results as a public company. When that happens, I could see PFSE stock moving higher, perhaps even into the $20s where my colleague valued BFT stock before completing the merger.
Here’s what I said about Foley in January, before the bloom fell off the SPAC rose:
“In January 2020, I picked Foley’s Cannae Holdings as one of seven stocks that could double for a second consecutive year. While it didn’t pull off the feat — it had a 2020 total return of 19.0% — Bill Foley remains among the better capital allocators in America,” I wrote. “If anyone can deliver value for BFT shareholders, I’m sure he’s the one to do it.”
I continue to see good things ahead for PSFE stock You have to be patient.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.