SPACInsider contributor Eric Weidemann this week compiled his three favorite potential SPAC targets among targets producing software used by influencers. We look at why they are compelling and why each could be a fit for a blank-check merger.
As the SPAC market cools and certain sectors get crowded with hungry SPACs, some teams may need to zag into a less competitive sector while the rest of the field zigs. One sector that traditionally trades well in the public markets, but has largely slipped by SPACs’ gaze is consumer software.
Of the 103 SPACs that announced a deal but have not yet closed, only one struck a deal with consumer software company. This deal between Apex Technology (NASDAQ:APXT) and Avepoint, which develops software tools for the Microsoft Office ecosystem, initially traded well and hit $16.63 on February 3 before being pulled down by the broader market conditions afflicting all SPACs.
No deal is necessarily guaranteed to break through the current funk, but consumer software might be the right place to look to capture retail energy while avoiding sectors the market is fatigued with or that have been picked over already.
More specifically, in an age of meme stocks and clout-chasing, SPACs could do much worse than combine with the platforms that are fueling independent creatives.
Music has been moving up the charts as an area of interest for SPACs with Vistas Media’s (NASDAQ:VMAC) deal this week for Middle eastern music streamer Anghami. Soundcloud has over 250 million songs from 30 million creators for other SPACs to jam to. By comparison, this is several times the size of Spotify’s (NYSE:SPOT) 70 million-song library.
But, SoundCloud is a platform that attracts plenty of hobby creators so it is not a complete apples-to-apples comp. Nonetheless, the last time Soundcloud tipped its hand on its financials, it showed it had achieved a run-rate of $200 million in the fourth quarter of 2019, which is a little under a tenth of Spotify’s 2020 revenue. Spotify has a market cap of $54 billion, so, there is value there.
SoundCloud may well have done better once the pandemic shut everyone in with their streaming services as their primary sources of entertainment. Another trend moving in Soundcloud’s favor is independent musicians finding routes to fame and monetization completely removed from the record label model.
The company has leaned into this with a monetization model for indie artists that rewards them more for listeners who become sustained fans with repeat listens. As live venues have shuttered over due to lockdowns, smaller acts have been migrating to whichever streaming service gave them the best deal.
Former Spotify exec Troy Carter joined SoundCloud’s Board last month further boost its monetization efforts. This has come as a part of a wider management shake-up that saw SoundCloud’s co-founders step away in 2019.
The opportunity from a SPAC standpoint is catch SoundCloud potentially on the upswing after years of management uncertainty and bring additional industry expertise. This could potentially come in the form of The Music Acquisition Corporation, (NYSE:TMAC.U) which has $230 million in trust and is led by former Universal Records executive Neil Jacobson.
Part of being independently creative is the need to dress up your work professionally. Adobe has long held the mantle on visual tools, but the value of its suite has always been in the depth it offered for professional designers above its approachability for amateurs.
Canva takes the opposite approach with an expansive free version while also charging $12.99 per month to those who want access to more templates, stock media and tools to pop one design into a full brand kit.
The company has about 50 million active users and has not been content with a slow grow despite being profitable since 2017. Instead, it has used M&A to buy up specific features that give it a leg-up on Adobe. This year, it bought Kaleido for its AI tools to instantly remove backgrounds from photos and videos and Smartmockups which added speed to moving from a draft visuals to merchandise design.
This came on top of four other acquisitions that brought in stock media libraries and other functions. These have been fueled by a fiery fundraising effort that has seen it raise over $300 million, most recently a $60 million round in June of last year at a valuation of $6 billion.
The company has not shared many financials publicly, but noted last year that it has grown its paid subscriber base to 1.5 million, which would be worth $233.8 million annually at $12.99 per month.
Eleven SPACs currently searching for targets have named software or consumer tech as their areas of focus while 10 more have filed to IPO. Part of the impetus behind the company’s last capital raise was to fund the Australia-based company’s move to the US, as it builds out Texas as a major hub and a SPAC deal would further cement its position in North America.
SPACs have played a major role in listing a wave of millennial-focused companies, but it’s not too early to look at Gen Z.
Caffeine is a part of a new generation of media platforms specifically looking to cut in on the last wave led by YouTube, Instagram and Twitch. Caffeine is most like the latter, giving users the ability to stream themselves doing just about anything for free while interacting with the audience. Much of this activity is made up by gaming, but the company has put a focus on hosting and inspiring live rap battles.
It has partnered with Drake and his Ultimate Rap League (URL) to broadcast events that have reached over 8.7 million viewers.
These efforts have also sucked in a fair amount of capital, as Caffeine has raised $259 million to fuel growth. Its past two funding rounds – including a $113 million Series D in July – included strategic investors from the broadcasting and space Fox (NASDAQ:FOX), 21st Century Fox and Cox Communications. This last round valued the company at north of $600 million.
The video space for these new age players looks set to remain hotly contested with Vimeo set to go public this year and the fight for onboarding key influencers has become a key battleground.
Caffeine could still use investment in its platform as well. It actually offers a quicker route to streaming than competitors as users do not have to download any software and can register and stream in a small number of clicks. But, the company does not yet have mobile streaming offerings, and could use SPAC capital to build this out and attract more influencer clout to the platform.
The potential that Caffeine presents to scale up as a full-spectrum media channel also makes it a fit with a greater number of SPAC teams, many of which have deep media experience and are searching in this domain.
Fourteen SPACs are searching for TMT targets, with another six specifying media and entertainment as their hunting grounds. Among the interesting potential fits there are Group Nine (NASDAQ:GNACU), whose CEO leads the group of the same name that holds media properties including Thrillist, The Dodo and NowThis.
Progress Acquisition Corp. (NASDAQ:PGRWU) could also bring interesting experience as it is led by from Warren Schlichting, former president of Sling TV with earlier stops as an exec at DISH Network (NASDAQ:DISH) and Comcast (NASDAQ:CMCSA).