eToro unlikely to complete SPAC merger
The SPAC market is dead and Israeli brokerage firm eToro is paying the price.
The securities trading platform eToro, which has been involved in a long process of work on the prospectus and regulatory issues, failed its $10.3 billion IPO. According to the report, eToro is in advanced talks to complete a major $800 million to $1 billion private funding round. However, the value of the projected funding will be only $5-6 billion, which means that significant sums will be invested, but at considerably lower value levels than in recent years. If completed, it will be the largest private funding ever awarded to an Israeli tech company.
eToro Private Funding
Under the original merger agreement with SPAC, $300 million of the funding was to go to shareholders in the secondary market and not reach corporate coffers. In addition, in the current cycle, there will be a secondary component of several hundred million dollars. The apparent pullback from the IPO comes after eToro already missed a deadline at the end of 2021 and received a six-month postponement from investors until the end of June 2022, which reduced by $650 million to more than 32% fundraising from PIPE investors. $443 million. It quickly became clear that most of the money from Betsy Cohen-backed FinTech Acquisition Corp V’s $250 million funding will be repaid. At this point, eToro better abandon its IPO dream, as private funding will allow it to meet almost double the amount remaining in SPAC, albeit at a higher dilution price per share.
Cost of SPAC merger attempt
Meanwhile, the merger process with SPAC resulted in costs not only in management resources, but also significant costs of $75 million in 2021 alone. These include the costs of lawyers, accountants and investment bankers. Unlike SPAC investors, who can vote for the merger while withdrawing the money they invested, PIPE investors cannot redeem the investment. However, after the deadline for completing the move expires, institutions that have made PIPE investments can now cancel their commitments and exit the IPO without penalty. Institutions include investment fund Softbank Vision 2, major US fund managers Wellington and Fidelity, Daniel Loeb’s Third Point hedge fund and European investment management giant ION.
However, the main problem is of course the value of the company which has already fallen to 8 billion dollars during the expansion. After the recent crash in tech stocks, this value has also become unrealistic as today it is the market capitalization of Robinhood, eToro’s competitor that controls the US stock trading apps market, valued in 2021 at 32 billions of dollars. eToro and Robinhood operate in the same market, but until 2021 eToro did not operate in the United States. 70% of eToro’s revenue comes from Europe, where it is considered a very popular app. Although it does not accept Israeli residents as customers, eToro, founded in 2007 by brothers Ronen and Yoni Assia, employs 1,100 of its 1,700 employees in the country.
eToro is growing fastbut much of its business is centered around cryptocurrencies which are also experiencing upheaval. The number of its active customers in 2021 more than doubled to 2.4 million; net trading revenue increased 50% in the fourth quarter to $237 million; and ultimately lost $84 million, some due to SPAC merger costs, but managed to end 2021 with $14 million from EBIDTA.