SPAC Attack: Equinox Is Worth Over $7.5 Billion

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Good Morning Friends,

As the COVID-19 pandemic caused extreme volatility throughout public markets for the majority of 2020, Special Purpose Acquisition Companies, or SPACs, became a popular way for companies with publicly traded aspirations to IPO.

In total, SPACs raised about $80 billion in 2020. That’s a 600% increase from 2019 and a figure greater than all of the SPAC money previously raised throughout history.

The only problem?

After watching everyone from Shaquille O’Neal & Alex Rodriguez to Colin Kaepernick & Ciara publicly back SPACs, regulators have recently increased scrutiny of the popular vehicle.

Now, SPAC issuance has fallen off a cliff — returning to pre-pandemic levels last month.

But with about $130 billion of previously issued SPAC capital still looking for an acquisition target, the market to source & acquire valuable companies has gotten much more competitive.

This is where Social Capital founder and Golden State Warriors minority owner Chamath Palihapitiya comes in.

To date, Chamath has issued six blank-check companies. Three of them have completed mergers — think Virgin Galactic — while the remaining three are still looking to finalize acquisitions. Now, that appears to be changing.

Bloomberg reported yesterday that Chamath’s SPAC “Social Capital Hedosophia Holdings Corp. VI” has entered negotiations to bring Equinox Holdings public.

The deal would value Equinox at more than $7.5 billion.

Founded in 1991, Equinox is a luxury sports club with more than 100 locations throughout major cities worldwide. They also own SoulCycle and Blink Fitness and recently ventured into the hospitality space — opening their first hotel in 2019 in Manhattan’s Hudson Yards neighborhood.

But after seeing almost three decades of consistent, healthy revenue growth and expanding their business beyond traditional brick-and-mortar gym locations, the COVID-19 pandemic wrecked their business model.

Forced to keep most of their locations closed for an extended period of time in 2020, Equinox reported a loss of around $350 million on about $650 million in revenue.

The interesting part?

As Peloton has watched its stock drop 50% due to safety recalls on newly released products, dragging its market cap down from $48 billion to $24 billion, Equinox has started to accelerate its digital offering. Last year, Equinox struck a deal with private equity firm Silver Lake to provide the necessary capital to build its Equinox+ digital platform.

Their end goal is simple: to take aim at Peloton.

Equinox’s digital strategy is still in its early stages, the merger hasn’t been completed yet, and only time will tell if Chamath can capitalize on Peloton’s mistakes.

Still, given his incredible track record, I certainly wouldn’t bet against him.

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

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