Below-$10 Paysafe Stock Is Broader Warning Against Blind SPAC Bets


Earlier this month, CNBC’s Yun Li published an article noting that the boom in special purpose acquisition companies, or SPACs, is over. From her headline, Li justified the statement, with the “majority of deals now trading under key $10 level.” That would include the much-hyped and respected Paysafe (NYSE:PSFE). At time of writing, PSFE stock closed at $8.46.

Paysafe Card Iphone Display with Keyboard Mouse and Red Pen
Source: Sulastri Sulastri /

To be fair, SPAC-based reverse mergers are not necessarily doomed for failure. One of the biggest examples of success in this arena is DraftKings (NASDAQ:DKNG). Sure, the company has had its ups and downs but as I write this, DKNG is priced over 10-times higher than its initial offering price of $10.

Further, it must also be mentioned that SPACs represent democratization in the investing realm. For instance, a typical initial public offering boxes out regular retail buyers because underwriters overwhelmingly prefer to dole out new issues — under primary market transactions — to their choicest clients.

Unless you’re a big bank or mutual fund manager, you’re probably not a choice client.

On the other hand, opportunities like PSFE stock are available to anyone. Once a SPAC initiates its own IPO, it typically has about two years to identify and merger with a viable, appropriate enterprise. At any point in the game, from pre-merger announcement to post-business combination, you could pick up shares of the SPAC.

Of course, to really benefit from this democratization, you need to get in the game early. In this manner, pre-merger SPACs are blind bets. However, prospective buyers of PSFE stock before the Paysafe business combo announcement had a name they could trust: lead sponsor Bill Foley.

Leveraging an enviable track record, Foley knows how to extract resounding success from his enterprises. Therefore, Paysafe’s volatility post-combination is rather alarming.

Could There Be a Discount in PSFE Stock?

Despite the obvious concerns for PSFE stock, there’s also reason for optimism. For one thing, Rome wasn’t built in a day. Investors may just need some patience to see the broader narrative play out. Secondly, as our own Tom Kerr expertly explained, Paysafe runs a very relevant business:

Paysafe can be considered a classic pick-and-shovel investment play in the fintech world. They provide the tools that drive online gaming and e-commerce without having to worry about producing a final product.

Paysafe can be the arms provider for such verticals as iGaming, travel, digital goods (think Fortnite), fintech services and traditional integrated payments. This provides a diverse set of revenues streams that can offset any lumpiness in various end markets. The company has a diverse global reach too, with 47% of revenues coming from North America, 39% from Europe, and 14% from everywhere else.

As Kerr put it, investors were disappointed in Paysafe’s guidance for the third quarter. As well, the company’s two major acquisitions — though forecast to be successful, value-adding enterprises — incurred a combined cost of roughly $1 billion, driving up the leverage ratio to over 5x. For some, that was too hefty of a debt exposure.

Moving forward, though, Paysafe’s expansionary business strategy will likely spark additional revenue streams. Therefore, the nearer-term challenges are just that — near term and temporary. Over the long haul, the company is well positioned to advantage growth in the broader fintech space.

Though an intriguing argument, it’s hard to overlook the bigger picture. Mainly, if the Federal Reserve decides to raise rates, it wouldn’t just make borrowing costs move higher (which would be a big problem for corporate growth in general), it might also crimp consumer sentiment, especially for purely discretionary sectors like iGaming.

Why SPAC at All?

Personally, I’m a little bit hesitant on acting on PSFE stock. If the market didn’t deem shares a viable opportunity at around $11 and change in June when I discussed the underlying company, I’m not sure if buying shares at approximately $8.50 a pop would be the reason to change my mind.

Yeah, it’s about a 25% discount between the above publication date till the time of writing, but still — there’s usually a reason why an stock sheds 25% over the course of a few months.

And that brings me to the question: Why did Paysafe choose the SPAC route in the first place? Was it really to give value to the shareholder or did the team behind the SPAC see an easy money-making venture?

One thing’s for sure — with SPACs, you must absolutely perform your due diligence. And even then, it might not be enough.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

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.

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