The SPAC market is dead and Israeli brokerage firm eToro is paying the price.
The securities trading platform eToro, which was embroiled in a lengthy process of working on the prospectus and regulatory issues, failed to complete its IPO at a value of $10.3 billion. According to the report, eToro is in advanced talks to complete a large $800 million to $1 billion round of private funding. However, the value of the anticipated financing will be only $5-6 billion, which means large sums will be invested but at dramatically lower levels of value than in recent years. If it is completed, it will be the largest ever private funding of an Israeli tech firm.
eToro Private Funding
Under the original merger agreement with the SPAC, $300 million from the funding was to go to shareholders in the secondary market and not reach the company’s coffers. Also, in the current round there will be a secondary component of several hundred million dollars. The apparent fold from the IPO comes after eToro had already missed one deadline at the end of 2021 and received a six-month postponement from investors until the end of June 2022, which cut more than 32% of fundraising from PIPE investors from $650 million to $443 million. It soon became clear that most of the money from the $250 million funding from the Betsy Cohen-backed FinTech Acquisition Corp V will be redeemed. At this point, eToro is better off giving up on the IPO dream, as the private funding will allow it to meet with almost double the amount left in the SPAC, even if at a more significant dilution price per share.
Cost of Attempted SPAC Merger
Meanwhile, the merger process with the SPAC has racked up costs not only in management resources, but also significant costs of $75 million in 2021 alone. These include expenses for attorneys, accountants, and investment bankers. Unlike investors in a SPAC, who can vote for the merger and still withdraw the money they have invested, PIPE investors cannot redeem the investment. However, following the expiration of the deadline to complete the move, the institutions that did make PIPE investments can now cancel their commitments and abandon the IPO without penalty. The institutions include the Softbank Vision 2 investment fund, major US fund managers Wellington and Fidelity, Daniel Loeb’s hedge fund Third Point and European investment management giant ION.
However, the main issue is of course the corporate value that already fell to $8 billion during the extension. After the recent collapse in technology stocks, this value also became unrealistic as today that is currently the market cap of Robinhood, eToro’s competitor that controls the American stock trading app market, valued in 2021 at $32 billion. eToro and Robinhood operate in the same market, but until 2021 eToro did not operate in the US. 70% of eToro’s revenue comes from Europe, where it is considered a very popular app. Although it does not accept Israeli residents as clients, eToro, founded in 2007 by brothers Ronen and Yoni Assia, employs 1,100 of its 1,700 employees within the country.
Final Thoughts
eToro is growing fast, but much of its activity is focused on cryptocurrencies that are also experiencing upheaval. The number of its active customers in 2021 more than doubled to 2.4 million; net trading revenue rose 50% in the fourth quarter to $237 million; and the bottom line is it lost $84 million, some due to merger costs with the SPAC, but managed to end 2021 with $14 million in EBIDTA.
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