Israel Acquisitions Corp. (NASDAQ:ISRL) has entered into a definitive agreement to combine with software firm Pomvom (TA:PMVM) at an equity value of $125 million.

The Tel Aviv-based company provides app-based tools to allow visitors to amusement parks to access media of themselves captured by the venue’s cameras.

The combined company is expected to de-list from the Tel Aviv Stock Exchange and trade exclusively on the Nasdaq once the deal is completed in the third quarter of 2024.

Transaction Overview

Israel Acquisitions has about $153 million in its current trust and if it completes the transaction by its July 17 transaction deadline, it would be the first SPAC in quite some time to get to close without having to ask for an extension to do so.

It nonetheless has not yet attached additional committed financing to the deal, although the two sides are expected to make efforts at securing a PIPE. The SPAC must maintain at least $20 million in cash available in order for the deal to close.

Pomvom officers, directors and shareholders with stakes over 10% will be subject to a one-year lock-up. After that time, one-twelfth of their shares will be unlocked monthly over the following year.

These shares are to be released early if the company trades at or above $14 for 40 of 60 trading days.

Quick Takes: In many ways, this appears to be a deal by thrill-seekers for thrill-seekers.

Not only is Pomvom’s main service geared towards roller-coaster passengers, but the company cuts the profile of one that investors will have to have some risk appetite to swallow.

It is a pre-profitability software company, which would have made it right at home zipping to the public markets in a SPAC deal in 2020 or 2021. But, heading into 2024, it has now been quite a while since the market has regularly welcomed new entrants based on revenue growth potential without cash generation in hand.

Pomvom, in fact, did first go public when the macro factors favored its business model, raising $11.5 million in its Tel Aviv IPO in March 2021 that initially valued it at $40 million.

That bumped it up from a $30 million valuation it secured in a private round the year before, but it has since followed a similar trajectory as many of its cash-burning tech peers, dropping -88% from its IPO price to about $0.80 on December 28 for a market cap around $11.3 million.

As some signs took shape that this deal would become definitive, it has since risen back up to a midday market cap today of $57 million, but that is still less than half of the implied equity value Israel Acquisitions would grant it through this transaction.

In many ways, it looks like Pomvom has sought to maintain the ever-increasing valuation trajectory of a tech company of the zero-rates era, but even Tel Aviv-based traders weren’t having it.

By resetting its valuation higher once again on a US exchange, it gets to continue that trajectory for some amount of time, but it may not be long-lived if Nasdaq traders treat it similarly to other companies that cut a similar profile.

This deal effectively values the company at 2.2x its $57.4 million in 2022 revenue or 2x its 2023 run-rate based on the $45.3 million it generated in the first nine months of the year.

It believes it has a growth plan in hand to get to positive EBITDA in 2024 that it projects will see it increase revenues by “at least 30%” after injecting $20 million from this deal. But, if it hits 30% on the nose, then by the numbers this is the equivalent of investing $20 million to generate $18 million.

A pivot into profitability could pay and make it all worth it of course, but it remains to be seen how much the market will be willing to grant the benefit of the doubt that it will achieve this.

In theory, the company’s platform should be scalable as its business is currently based on the relatively small number of about 40 client theme parks. Adding just a few more to this list would make a big difference, but if Pomvom is not profitable with 40 clients, it remains an open question what number would be the breakeven point.

There does not appear to be a clear apples-to-apples comparable for Pomvom’s services in the hospitality industry, but, among de-SPACs, Perfect Corp. (NYSE:PERF) bears some resemblance. The company, which combined with Provident in October 2022, provides software to fashion e-retailers that allows customers to digital “try on” outfits before buying.

Since completing its SPAC deal, it has traded down to a close most recently at $3.10, but this is still a premium to the valuation envisaged in this deal at about 3.3x revenue and Perfect is similarly pre-profitability.

The other risk that investors will no doubt consider is simply Pomvom’s headquarters in Israel from both a safety and political controversy standpoint as the Gaza war drags into its second year.

The transaction could be making a statement in and of itself as a show of confidence in the Israel market and notably in an industry built on hope and good times at amusement parks. As its name suggests, Pomvom’s SPAC partner Israel Acquisitions was likely always going to do a deal in the country, the question is now how much US investors will want to get on for a ride.

ADVISORS

• Pomvom Advisors:
  • Roth Capital Partners is acting as Financial Advisor
  • Greenberg Traurig, LLP, Goldfarb Gross Seligman & Co., and Barnea Jaffa Lande are acting as Legal Advisors
• SPAC Advisors:
  
  • Tiberius Capital Markets, a division of Arcadia Securities is acting as Financial Advisor
  • Reed Smith LLP, Naschitz Brandes Amir, and Stuarts Humpries are acting as Legal Advisors