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A-Rod's New $500 Million SPAC
Alex Rodriguez has filed to raise $500M for a sports-focused SPAC, but what does he intend to target?
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Friends,
Last spring, mobile sports betting operator DraftKings went public via SPAC, a blank check company that raises money in an IPO intending to acquire an operating business.
The result?
With the stock up ~500% since the merger, it’s been a massive success.
Given the success, everyone wants in on the party.
There are currently more than 40 sports-related SPACs in the market, including investment vehicles led by sports executives and athletes like Oakland A’s executive Billy Beane, Chicago Cubs owner Tom Ricketts, NBA legend Shaquille O’Neal, and many more.
Now, Alex Rodriguez is getting involved.
Rodriguez filed for a $500 million IPO through a special purpose acquisition company named Slam Corp. yesterday. They intend to focus on “businesses in the sports, media, entertainment, health and wellness and consumer technology sectors.”
The interesting part?
Despite losing out on the $2.4 billion bidding war to Steve Cohen for the New York Mets, Alex Rodriguez says he won’t be targeting professional sports franchises.
For those that aren’t aware of the SPAC structure, here’s a quick breakdown I did a few months back.
SPACs are commonly referred to as blank check companies because they raise a blind pool of capital through an equity offering.
Investors commit a specified amount of capital for up to two years, during which the SPAC sponsor will identify, vet, and finalize a transaction with a target acquisition. If the deal is finalized and approved by all shareholders, the acquired company is now a publicly-traded firm without having to pursue the traditional IPO process.
There is a catch though.
Investors have the right to veto any proposed transaction and they can take back their money if they don't like the acquisition target once it is identified. With the IPO market experiencing COVID-19 related volatility, SPAC’s have become more popular as a backdoor way for target firms to become publicly listed.
From a popularity perspective, SPACs have exploded. As markets continue to experience volatility and companies look for backdoor ways to become public, SPACs have reached record issuance.
In total, SPACS accounted for a mind-blowing ~50% of all US IPOs in 2020.
In addition to Alex Rodriguez, many high-profile celebrities and investors appear to be joining him on the venture.
Slam Corp. Executive List Includes (Source):
Kelly Laferriere — Kelly spent time at ESPN and has worked with Alex Rodriguez through his personal business A-Rod Corp.
Jagdeep Singh — Jagdeep founded the publicly-traded battery maker QuantumScape.
Himanshu Gulati — Himanshu is the founder of Antara Capital, a hedge fund backed by Blackstone.
Reggie Hudlin — Reggie wrote the Black Panther comic and has been involved in numerous Hollywood projects, including Django Unchained and others.
Even more interesting?
Entrepreneur, billionaire, and former CEO of Walmart’s eCommerce division Marc Lore has joined the venture as a special advisor.
This interests me for a few reasons:
Lore was part of the bid for the New York Mets put together by Alex Rodriguez and Jennifer Lopez last summer, which ultimately lost out to Steve Cohen.
After selling Jet.com for $3.3 billion in 2016 and building up Walmart’s eCommerce platform since, Lore has established himself as one of the greatest commerce executives in the world.
Despite Alex Rodriguez saying the SPAC wouldn’t target a professional sports team, Lore told the WSJ last month that he’s “going to probably buy a sports team” after leaving Walmart.
As for Slam Corp's structure, they will sell units for $10 each, consisting of one share and one warrant to buy an additional share at $11.50.
The deal will be marketed to Wall Street by bookrunners Goldman Sachs and BTIG.
When it comes to an acquisition target, here’s my opinion:
If I were Alex Rodriguez and the executive team, I would target the interactive home fitness space, which includes companies like Peloton, Tonal, and Hydrow.
Not only am I extremely bullish on the sector as we continue to see significant growth due to the increasing number of consumers actively inclining towards home workouts, but the experience of their executive team lines up perfectly.
Rodriguez has invested in several health and wellness companies, including Hims & Hers, which went public via a $1.6 billion SPAC deal.
Marc Lore can help scale the eCommerce side. Reggie Hudlin will provide value on the increasingly competitive content creation front, and Kelly Laferriere knows the sports media business's ins-and-outs.
From a sector economic standpoint, on top of hardware-related revenues from per-unit sales, these interactive home fitness businesses are ultimately membership communities. If history has shown us anything, communities can monetize really, really well.
With Lululemon buying home fitness startup Mirror for $500M last year and Peloton’s stock up 400% in the last year, the market seems to agree with me.
Have a great weekend, and we’ll talk Monday.
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