The $1.3 Billion Trading Card Company

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Friends,

Seeing what they believed to be an undervalued asset, former Disney chairman and CEO Michael Eisner’s Tornante Co. and private equity firm Madison Dearborn Partners acquired baseball-card maker Topps in 2007 through a $385 million buyout bid.

Now, they are going public.

Topps Co. announced yesterday they plan to go public via a special purpose acquisition company (SPAC) merger with Mudrick Capital Acquisition Corporation II.

Here are the details:

• The deal values Topps at $1.3B.

• Shares will trade as “TOPP” on the Nasdaq.

• Mudrick Capital and funds managed by Gamco Investors & Wells Capital Management are expected to invest an additional $250M in the SPAC.

Furthermore, it’s expected that Michael Eisner will stay on as Topps’ chairman.

Founded in 1938, Topps has become one of the most iconic brands in sports history. They sell a combination of physical and digital products, including trading cards, interactive apps, gift cards, candy, and more.

Despite being in business for more than 80 years, the company best known for its baseball cards and Bazooka candy line has continued to grow. Topps says it posted sales of $567 million in 2020, up 23% from the prior year.

2020 Revenue Breakdown

• Physical products: $311 million (55%)

• Confections: $198 million (35%)

• Digital products: $34 million (6%)

• Gift Cards: $22 million (4%)

Interesting Fact — Despite it being a smaller part of their business, candy items like Baby Bottle Pop, Push Pop, and Juicy Drop Pop still represent 3 out of the top 4 non-chocolate candy items sold at retail.

With a diverse portfolio of product offerings built upon long-term strategic licensing partnerships with global iconic brands — think MLB, NHL, Disney, Star Wars, and more — Topps believes they are well-positioned to continue to capitalize on the recent trading card boom.

Topps Annual Revenue

• 2019: $460 million

• 2020: $567 million (+23%)

• 2021E: $692 million (+22%)

• 2022E: $777 million (+12%)

Topps expects low single-digit growth from their candy business, with higher 40%-plus upside from gift cards and digital products.

While it’s fun to talk about Topps’ long history in the candy business or their potential upside through digital gift cards with strong clients like Netflix and Uber, that’s not what potential investors are excited about.

What am I talking about?

Nonfungible tokens (NFTs).

Topps has been investing in and marketing its collection of digital applications since 2012, enabling them to quickly expand into NFTs earlier this year. Through a broader “Garbage Pail Kids” partnership, Topps dropped an NFT card pack last week — generating more than $500,000 in revenue within hours (Source).

As NFTs continue to take the internet by storm, Topps believes the ability to uniquely combine physical and digital assets — think NFT’s with a physical collectible component — will serve as a “significant growth driver” moving into the future.

With NBA Top Shot still in beta and doing more than $2 billion in projected annual volume, compared to Topps’ $567 million last year, the upside by expanding the total addressable market is obvious. Now, it’s all about executing the plan.

As we continue to see a free market for intellectual property develop in front of our eyes, the ability to collect a royalty stream on all secondary market transactions shouldn’t be understated — especially for a business that gets 100% of its revenue from primary sales currently.

Ultimately, everyone has their own opinion, some will be proven right while others are proven wrong, but only time will tell if the NFT market is here to stay.

My guess?

Don’t bet against innovation and intellectual capital.

Have a great day, and we’ll talk tomorrow.

Today’s charts were pulled from Topps’ investor presentation yesterday. You can view the entire deck here.

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