Playboy Could Be The King of SPACS – Here Are Three Picks

Playboy Enterprises may well end up being king of these three SPACs due to its vintage brand value and other offerings like gaming. And with its new motto “Pleasure for All,” it is by far the best known example of so-called “‘blank check” companies.

Since SPACs (or special purpose acquisition companies) are all the rage,  The Edge (the global leader for activist ideas, special situations and Spinoffs) believes Draftkings, Inc. and Chargepoint, Inc. are good bets alongside Playboy amidst a backdrop of brands leading the way for the future US economy.

John Coleman, portfolio manager at New York’s Alpine Global Management, has been studying the SPAC market since its inception. He talked to The Edge about the strategy he uses, saying: “In regards to SPACs, I employ a much different strategy than most other investors.”

“I can tell you that I look closely at the technical setups of each SPAC, juxtaposed against the fundamentals of the announced business combination and the valuation you’re paying for it. It’s also important to have a feel for the overall market atmosphere when performing this process.” There’s more tips from John later, if you scroll down.

A little bit of history gives clarity to the multi-million dollar Playboy brand’s financials. It was started by Hugh Hefner, who kicked off his career as a 26 year-old copywriter at Esquire magazine in 1952 and quit because they would not agree to a $5 pay raise.

He ultimately became America’s most famous concubinage curator with the house of Hefner, as well as Editor-in-Chief and Chief Creative Officer of his own jet-set soft porn print magazine Playboy.

The adult entertainment business first went public on the New York Stock Exchange (NYSE) circa 1971 at $23.50 a share and peaked in 1999 at $33.44 due to the dot.com mania.

In March 2011, founder Hefner (along with private equity firm Rizvi Traverse partner Ben Kohn) succeeded in a bid to take Playboy private. After four decades as a publicly traded company, the price was $6.15 a share.

Hefner’s daughter Christine, now 76, ran the private business until leaving in 2009 to pursue charity work, with Scott Flanders taking the helm as CEO in July of that year. He resigned in March 2016 after he oversaw the removal of nudity in the magazine.

Christine’s half-brother Cooper, now age 29, stayed on in the business as Chief Creative Officer before he quit in January 2019, after Hugh’s pick of CEO for Playboy Enterprises Ben Kohn, (his earlier partner from Rizvi Traverse), encouraged Cooper to leave the business and start up his millennial-focused HefPost alone.

In December 2019, after 11 months on the HefPost project, Cooper instead enlisted in the United States Air Force. In July 2020, he announced he was running as a Democrat for the California Senate in the state’s 30th District.

In March 2020, CEO Kohn threatened to shut down magazine printing. He also shuttered the Chicago HQ in 2012, along with Hugh, leaving some of the 165 workers with a choice of moving to LA.

Now seemingly out of the hands of late founder Hugh Hefner and his dynasty, the previously famed men’s magazine publisher is completely under the control of CEO Kohn, and the world-famous brand is going to public markets once again after nine years.

Instead of a traditional IPO, Playboy is re-entering the stock market by merging with a blank check company (popularly known as SPACs, or Special Purpose Acquisition Companies) named Mountain Crest Acquisition Corp (MCAC), currently led by Dr. Suying Liu as its Chairman and CEO.

Once the merger between Mountain Crest and Playboy is completed, Ben Kohn will be the CEO of the combined firm, which will trade as Playboy Enterprises, Inc. (PLBY) – pending the approval nod from the SEC (expected in the next few months). He currently has no investments in Mountain Crest Acquisition Corp, as per The Edge’s research and findings.

As per the deal, Playboy shareholders will get around 23.9m shares of this already Nasdaq-listed SPAC valued at $10 a share, and Mountain Crest will assume outstanding debt of approximately $142m, taking the total purchase price to $381m. Playboy’s current owners will hold 66% of the combined company, following the completion of the deal (expected around Q1 2021).

A drop in magazine advertising revenue around the 2008 financial crisis along with a dramatic overhaul in the print publishing business (with adult material being readily available online) prompted Playboy to change its business model to digital and pushed toward monetizing brand equity by leveraging on popularity.

The firm is now moving away from its image of the “Gentleman’s Magazine” and shifting its focus towards a new lifestyle brand to target broader market segments. Even though it still continues to publish articles and pictorials online, the company is now primarily billed as a consumer products company. Under the new motto of “Pleasure for All,” the company today operates through four business segments:

  1. Style & Apparel; 
  1. Gaming & Lifestyle; 
  1. Sexual Wellness
  1. Beauty & Grooming  

With a vibrant predominantly luxury lifestyle business, the public listing via a quicker SPAC merger deal (rather than a traditional IPO) presents Playboy with additional liquidity to push its global plans. The cash raised provides the financial assistance to allow the firm to further dig into the more lucrative gaming environment under Kohn.

The company CEO says he envisions “casino-style digital gaming products with Scientific Games
SGMS
and Microgaming continue to see substantial global growth,” which can expand to further gaming areas, like the now popular and sought after sportsbook business — especially in the USA, where there is positive change afoot for gamblers and cannabis related organizations.

ChargePoint, Inc. – SPAC Merger

Switchback Energy Acquisition Corp. (SBE) listed as a SPAC in July 2019 targeting the Energy sector, led by Chief Executive Officer Scott McNeill. The company completed a merger deal with ChargePoint, Inc., an electric vehicle charging network, for a total value of $2.4bn on September 24, 2020, and is now +27.5 percent since the merger news went public compared to the S&P 500 Index return of +8.1 percent in the same period.

The Edge believes SBE is gaining traction as ChargePoint has the largest charging network in the US and Europe. They offer the largest market share (73 percent) in L2 charging (approximately 7x its closest competitor, SemaConnect, which has a 10 percent market share).

ChargePoint highlighted they have an “Open Network” that works with any station and any system. For example, a Tesla
TSLA
 owner can charge their car just as easily as any other car brand. The network will operate like traditional gas stations, and offer refills for all electric vehicles on the road.

ChargePoint’s revenue grew 60 percent to $147 million in FY19 and is expected to continue its growth momentum of 60 percent through 2026 as the company aims to operate 2.5 million charging points by 2025. After the merger, ChargePoint will have approximately $683 million in cash on its balance sheet. Additionally, ChargePoint President and CEO Pasquale Romano and the existing leadership team will lead the combined company.

Draftkings, Inc. – SPAC Merger

Draftkings, Inc. (DKNG) was looking to go public and also wanted to acquire SBTech, an online gaming platform that provided technology to sports books. However, it was in a dilemma and had to decide whether to go for an IPO then acquire SBTech or the reverse. Either way forward impacted the price they could quote for their public listing or the stock price post-listing.

Enter scene Diamond Eagle Acquisition Corp (DEAC). On December 23, 2019, DKNG announced it had entered into a definitive business combination agreement with DEAC and SBTech, skipping the standard IPO procedure. This particular transaction allowed DKNG to perform both steps of acquiring SBTech and going public in one go.

DKNG completed the reverse merger transaction on April 23, 2020, after receiving shareholder approval and since the merger the stock has given a return of +159 percent as of October 13, 2020, compared to the +23.8 percent return by the S&P 500 Index for the same period. DKNG seems to have benefitted from the optimistic opinion and outlook of investors who are betting on the long-term change in consumer behavior when it comes to betting in the US and also the increasing number of US states legalizing sports betting.

Q&A With John Coleman, Portfolio Manager at New York’s Alpine Global

What has been your favorite SPAC?

For me, it would have to be VectoIQ (VTIQ), which is now Nikola (NKLA). Not because of what they do, or because the stock went to $80 per share, but because this deal was really the inflection point in the SPAC market. Yes, you had IPOA/Virgin Galactic, which closed in late 2019 and the DEAC/Draft Kings deal, which had been announced in December, but it was the Nikola deal announcement in early March that provided the final “ah-ha moment.”

Coming out of the COVID sell-off, later that month it was clear that investors had an appetite for “unicorn” type businesses (over the more established) and that SPACs were now a very acceptable way to bring them public. It’s unfortunate that the legitimacy of this company and the credibility of its founder, Trevor Milton, have been called into question. I have no view on those claims, I am merely suggesting that this deal represented an inflection point in the SPAC market, and for that reason it has been my favorite.

What SPACs are setting your mind on fire with their potential?

There are 206 SPACs outstanding at the moment; 158 are seeking their initial business combination while 48 have announced their targets. It is now a HUGE universe and it’s very difficult to know what the group of 158 will find for their initial business combination, or when. However, of the 48 announced deals there are several I like. Two in particular are extremely under-appreciated by the market at the moment.

The first is the B.Riley Principal Merger II (BMRG) and the acquisition of EOS Energy Storage. “Founded in 2008, Eos is focused on accelerating the growth of clean energy in the United States by deploying large scale stationary energy storage solutions that deliver reliable and cost-competitive power in a safe and environmentally sustainable way.”

“Eos’s flagship product, the Eos Znyth® DC battery system, is designed to meet the requirements of the grid-scale energy storage market, is commercially available and scalable, and is manufactured in the United States. Znyth® technology requires just five core commodity materials that are derived from non-rare earth and non-conflict minerals, in addition to being fully recyclable.”

“EOS’s battery is non-flammable and does not require any moving parts or pumps, which allows for simple upkeep and market-leading low-cost operations. The Eos Aurora® system integrates Eos’s aqueous Znyth® to provide a safe, scalable, and sustainable alternative to lithium-ion.”

Simply put, many of Joe Biden’s core platform goals are focused on renewable energy. Specifically, he has stated that he would like the US power grid to be carbon free by the year 2035, which cannot be done without a HUGE ramp in battery installation.  

While Lithium-ion battery technology is good for the Electric Vehicle market, it’s much less desirable for use in industrial-scale power generation applications due to the need for cooling and maintenance. It’s relatively costly to scale due to the presence of rare earths as inputs.

But EOS’s Zynth solution solves both those problems with little loss in efficiency. The management and board of EOS is a who’s-who of ex-GE executives. The technology has been well tested, but even though it is in the very early stages of establishing an installed base, the potential is promising.

The second deal I really liked was just announced late last week so I don’t think the market has had a chance to digest it yet. CC Neuberger Principal Holdings (PCPL) announced it will acquire E2open which “provides a fully cloud-based software platform to orchestrate complex global supply chains.”

The company’s end-to-end SaaS solutions drive compelling value and ROI for its diverse and sophisticated blue-chip customers. Additionally, E2open benefits from attractive secular tailwinds as companies endeavor to accelerate growth, reduce costs, increase visibility, and drive improved resiliency across their supply chains in an increasingly complex global economy.

The company’s software combines networks, data and applications to provide a deeply embedded, mission-critical platform that allows customers to optimize their supply chain from channel shaping and business planning to logistics and global trade to manufacturing and supply management.”

The “CC” in this deal is former Blackstone partner Chinh Chu, who recently closed the very successful deal which took UTZ public. In similar fashion to that deal, PCPL is acquiring E2open at a significant discount to its public comps. The four public comps cited, as well as the broader “Information Technology” space, are red-hot; the broad index (S5INET) is up more than 80 percent from March 2020 lows, while the direct comps are up much more.

E2open boasts gross margins of more than 70 percent and EBITDA margins of more than 30 percent (better than most peers) and projects 10 percent revenue growth annually for the next several years. This will end up being a must-own for software and IOT investors as the TAM is $45 billion and growing 12 percent per year. Shares closed Friday at $10.44, but if one were to use the median multiple of the 4 comps, it would imply a price higher than $16.50.

To get more insight into these names and more in the Spinoff and value catalyst space, reach out to Jim and The Edge.

Speak Your Mind

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Get in Touch

350FansLike
100FollowersFollow
281FollowersFollow
150FollowersFollow

Recommend for You

Oh hi there 👋
It’s nice to meet you.

Subscribe and receive our weekly newsletter packed with awesome articles that really matters to you!

We don’t spam! Read our privacy policy for more info.

You might also like

3 Strategic Mindsets For Your Business (One Is Deadly)

Why do companies that dominate huge markets go out of business? You'd think that all that...

Council Post: Three Ways IoT Can Help Companies Fight...

As VP of Operations at BairesDev, Damián is responsible for the entire customer relations life-cycle,...

Square and PayPal may be the new whales in...

The PayPal application can be seen on a mobile phone.Felix Kästle | picture alliance...

Kurt Rappaport Has Big MLB Rule Hurdle To Overcome...

Kurt Rappaport is seen on September 10, 2019 at...