The Valuation of Foley Trasimene Acquisition II Is Reasonable
When it comes to SPAC (blank-check company) stocks, it’s been the ones merging with electric-vehicle companies that have garnered the most attention. But don’t count out those pursuing targets in other industries, such as Foley Trasimene Acquisition II (NYSE:BFT) stock.
This SPAC’s sponsor, Bill Foley, may not have the clout of the most well-known “SPAC Impresario,” Chamath Palihapitiya. But Foley is fast becoming one of the more prolific SPAC sponsors out there.
As InvestorPlace columnist David Moadel wrote in his Feb. 22 column, Trasimene Acquisition II is Foley’s fourth SPAC. The first one (CF Corp) bought Fidelity & Guaranty Life, before getting acquired by Fidelity National Financial (NYSE:FIS), a company with which Foley was already involved.
Another one, Foley Trasimene Acquisition II, has announced a merger partner: payments processor Paysafe. More important than Foley’s background is whether BFT stock can continue to climb once the Paysafe deal closes.
After examining the details, I think that the shares can rise in the years ahead. BFT stock is worth buying today, but keep the risks it carries in mind. The “SPAC bubble” may be about to pop, resulting in some near-term volatility in the shares.
BFT Stock and the Paysafe Deal
Whenever assessing a SPAC stock that’s announced a deal, your first question should be whether the deal terms make the shares worth investing in. To determine whether BFT stock is attractive, let’s examine the details of its deal.
First, let’s look at the overview of the transaction . At today’s prices, the combined entity is valued at around $11.3 billion.
Combined with the $1.8 billion of post-deal debt, the implied enterprise value of the shares is around $13.7 billion.
Paysafe is expecting sales of around $1.5 billion and EBITDA of $561 million this year. In short, today’s share price implies an EV/EBITDA ratio of around 25 times. That valuation is on par with that of similar companies, like Global Payments (NYSE:GPN).
Also, Paysafe expects its EBITDA to reach $669 million to $744 million by 2023, around 20%-30% above its 2021 target. That suggests that BFT stock can gain 20%-30% in the coming years.
The share price probably won’t double or triple like a number of other SPACS have. But it could appreciate reasonably in the coming years.
This SPAC’s Risks
On the other hand, there are several reasons why going long BFT stock today may not be profitable.
Firstly, the valuation of payment processing plays could contract. Right now, the rapid growth of the online sports gambling market in the U.S. is helping to justify the high valuations of payment processors
But if future years bring lower-than-expected growth for online sports gambling companies and iGaming operators, it may be tough for stocks like Paysafe to keep trading at their current EBITDA multiples.
Secondly, the “SPAC Bubble” may be about to burst. That could push many blank-check stocks, including ones that have already announced deals, back towards their offering prices or even lower.
While there’s little investors can do about the first risk, the second one may have a silver lining. If the market gets skittish about SPACs and sells blank check stocks across the board, you may be able to take advantage of the situation and buy BFT stock at a more favorable entry point.
The Bottom Line
I don’t see this SPAC becoming a “meme stock” anytime soon. But, because it’s reasonably priced, it may be a solid opportunity for long-term investors. Indeed, the shares could continue to climb, assuming the online gambling industry keeps expanding in the U.S.
The risks posed by the name are more general to blank-check stocks, rather than company-specific issues. All in all, consider BFT stock a buy.
On the date of publication, Thomas Niel did not (either directly or indirectly) hold any positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.