February 9, 2021 Online, Merger Aquisition



Since DraftKings entered a Special Purpose Acquisition Company (SPAC) agreement to purchase SBTech through Diamond Eagle Acquisition Corp last December to go public, SPAC deals have been all the rage in the US gaming market. Iqbal Johal caught up with gaming industry analysts and SpringOwl Asset Management CEO Jason Ader to discuss the rising popularity of SPAC deals and the benefits behind them.

There have been several SPAC deals recently in the gaming industry. What are their biggest advantages and why have we seen many of these deals take place within a similar timeframe?

SPACs have been around a long time. Believe it or not, they were popular 15 years ago too. They got really popular in the gaming industry because DraftKings became public through a SPAC last year and it’s really been one of the biggest success stories of it.

After DraftKings, GNOG and Rush Street also became public through the SPAC structure, and both have performed well and have traded above their IPO price. The reason for this is two-fold. It’s faster to become public through a SPAC than a traditional IPO process, so from the prospective of an issuer, that’s a good thing. Secondly, is less obvious but an important structural advantage. When you go public, you file under the US registration S1. It’s very standard and straining in terms of what you can say about the prospects of a business’ future. When you choose to merge as part of the public process, as GNOG, Rush Street and DraftKings did, you no longer file an S1, you file an S4. This is a document that, in a very constructive way, SPAC sponsors have figured out how to make much more transparent to the issuer and to investors.

So a company like DraftKings can give business projections and talk about what they think the next three to five years could look like, which is something you can’t do with an S1. Then of course, the S4 document is ultimately voted on by the shareholders, who vote based on more complete information. Basically, it’s faster and it allows for investors to get more information about the company they’re investing in.

We’ve seen DraftKings, GNOG and Rush Street all go public recently. How do you rate each of the deals, and which of those companies will see the biggest benefits?

The DraftKings deal was groundbreaking because it was a SPAC by two companies, DraftKings and SBtech, which is very uncommon. The second thing that was groundbreaking with GNOG was that the SPAC, Landcadia II, that bought GNOG was in fact controlled by the same management team that owns GNOG. Nobody thought this could be possible, but because it was subject to a shareholder vote, everything was disclosed and it became possible. Tilman Fertitta raised the SPAC and then he used his SPAC to spin off GNOG, but he used his SPAC to take GNOG public. This opens up an unlimited amount of possibilities for private equity firms now who can do their own SPACs and then sell their portfolio companies into the SPACs and continue to be involved in the business. 

Are such deals crucial to gaining a bigger market share in the US online market? Has COVID perhaps accelerated the amount of deals we’ve seen?

In the pandemic, nobody is travelling and people are staying at home, so there’s a bigger online economy in general, including in gaming. Five years ago if you wanted to take a company public and you travelled all over the country and spend three weeks on the road, it could be highly inefficient. SPACs are doing well, not only in gaming but across all industries, because you can raise a SPAC on Zoom in a few days, then use the travel constraints because of the pandemic as a way to take the company public with better information than would’ve been the case in the traditional IPO route.

The pandemic has accelerated the SPAC industry because it’s a way to raise capital, which then allows companies to go public in a way that’s faster and lets them get better information about the company.

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