Late Friday, Experience Investment Corp. filed for a $250 million travel and leisure focused SPAC, tee-ing up a mid-September IPO. And “tee-ing” seems appropriate given that Experience will be led by Eric Affeldt, who was evidently “rated the most powerful person in golf by Golf Inc., in 2010, 2015 and 2017. Mr. Affeldt, who is the Chairman and CEO of Experience, will be joined by Charlie Martin and Michael Mohapp, as Chief Financial Officer and Chief Investment Officer, respectively.
However, diving a little deeper into this team’s backgrounds, all have worked or are currently working at KSL Capital Partners (plus, one Director – Martin Newburger). For those unfamiliar with KSL, which is also the sponsor of Experience, it is a private equity fund dedicated to making investments in travel and leisure businesses and has raised a combined $11 billion in equity capital since 2005. Furthermore, “KSL Capital Partners focuses on markets with high barriers to entry and businesses that target mass affluent consumers and for whom such businesses are an important part of their daily lifestyle.” Basically it’s skiing, resorts, golf … rich people stuff.
Most recently, Mr. Affeldt was the President and Chief Executive Officer of ClubCorp, a privately held owner and operator of golf, dining and fitness clubs that was taken private by Apollo Global Management LLC in 2017 for approximately $1.1 billion in cash. However, this came about after the company’s stock price took a dip and they received a letter the year prior from activist investor FrontFour Capital urging that it consider “any and all strategic alternatives” including a sale of the company.
Nonetheless, per the prospectus, this team is focusing on travel and leisure and believe “the favorable macro demographic trends and a strengthening economy will make the travel and leisure industry even more attractive in the coming years.” Undoubtedly, there are favorable demographic trends, but the jury is still out on where the economy is headed. Plus, we have that pesky inverted yield curve that has predicted the last five recessions. This team has 24 months to find an acquisition–will we still be in a “strengthening economy” when Experience announces their acquisition? Let’s all hope so.
Additionally, this is a first time SPAC team and looking at the structure they are asking for 1/3 warrant, 24 months time, and they’ve also included the warrant call for shares term. This additional warrant redemption feature allows Experience to call the warrants for shares at a threshold price of $10.00 in addition to being able to call them for cash or cashless exercise at $18.00. However, calling the warrants for shares is the more realistic avenue. As for how they can call the warrants at $10.00, well, they’re going to pay warrant holders in shares at a fair value based on where the share is currently trading and how much time is left until the warrants expire (based on a black scholes calculation). You can review the fair market values in the “Description of Securities” section of the prospectus (page 143).
So, again, this is a first time SPAC team and they want all the bells and whistles that are usually given to an experienced SPAC team that has already proven themselves successful with their first deal. Additionally, the last few SPAC IPOs have not traded well day-one, despite being good teams and with much more sell-able terms. The winds of change are starting to pick up and terms they are a tightening, so Experience is going to be a tough sell. Having said that, this SPAC has three big underwriters on the cover – Deutsche Bank, Citigroup and JP Morgan – so a $250 million IPO might be doable without traditional SPAC investors given the depth of the respective underwriters’ sales teams.
Speaking of JP Morgan, this is their first SPAC since 2017, having last participated in the underwriting groups of TPG Pace Holdings Corp., Capital Investment Corp. IV, Mosaic Acquisition Corp. and Regalwood Global Energy, in that year. So it’s good to see another underwriter get back in the game and provide a little competition to keep things interesting.
In summary, there should be pushback on the 1/3 warrant, but it might be fruitless. This underwriting group, and Deutsche Bank in particular, does not like to change terms. Ever. And with three big banks selling this deal, they probably won’t have to if their sales-forces can deliver. If anything, they’ll round up an Anchor Investor.
Look for this one to price mid-September.
Summary of terms below: