Yesterday, JOFF Fintech (NASD:JOFFU) filed an 8-K with the Securities and Exchange Commission (SEC) in regards to its initial public offering (IPO) that floated on the Nasdaq on February 9th. The SPAC indicated that it had raised $414 million, including warrants, in a hunt for a merger or acquisition of a Fintech thus joining a growing number of SPACs attempting to do the same.
In its S-1 filed with the SEC, JOFF explained its goal:
“While we may pursue an acquisition in any business industry or sector, we intend to concentrate our efforts identifying one or several businesses in the financial services industry with an enterprise value of approximately $700 million to $2 billion, with particular emphasis on businesses that are providing or changing technology for, or creating innovation in, traditional financial services (“Fintech”), businesses focusing on asset and/or wealth management, and/or finance-related activities, in addition to businesses focusing on gaming and/or eSports. We believe the creation and delivery of financial services products for consumers and businesses will continue to undergo significant change over the foreseeable future. There has been a continuing increase in the level of inter-connection between innovative technology and financial services and we expect this trend to continue to grow. Our faith in this sector is validated by recent financial markets activity, with financing activity in the Fintech space rebounding since the beginning of the COVID-19 pandemic (17% quarter-on-quarter increase to $9.3 billion in the second quarter of 2020) and Fintech mega-rounds ($100 million+) reaching a new quarterly high of 28 in the second quarter of 2020. There are numerous potential targets whose focus is the use of technology to facilitate the provision of financial services; according to CB Insights, there are currently 66 VC-backed Fintech unicorns worth a combined $248 billion. Within Fintech, we will target businesses across all sub-sectors, but in particular, we believe iGaming and eSports represent an attractive end market. According to Newzoo, the global games market will grow to over $200 billion in revenue by 2023, with a 5 year compound annual growth rate, or CAGR, of approximately 8%. Additionally, the regulated online gaming market is expected to grow at a CAGR of 11.5% from 2020-2027, reaching an estimated $127 billion in revenue by 2027. These potential targets exhibit a broad range of business models and financial characteristics that range from very high growth innovative companies to more mature businesses with established brands, revenues and cash flows.”
JOFF is one of several SPACs pursuing the Fintech sector that is booming due in part to a digital transformation in financial services that has been supercharged by the ongoing COVID-19 health crisis. While Fintech was already hot pre-pandemic, the thesis is the transformation to digital finance has been fueled by the shift to virtual offices, digital payments, and little desire to visit a bank branch. There are hundreds of early-stage ventures in the Fintech sector targeting banking, payments, open banking, online capital formation, investments, and much more. But will the SPAC Fintech frenzy drive valuations higher than they deserve? Perhaps.
In a market where billions of dollars are hunting for returns and interest rates are low, equity investing has boomed. The IPO market in 2020 was the biggest in recent history and that may continue through 2021. SPACs are helping to power this IPO market. It will be interesting to see how some of the offerings perform once interest rates increase and hot money looks for the next new shiny.
Regardless of how these SPAC IPOs perform, Fintech is here to stay – representing the future of financial services. It just may take some time for the performance of some of these Fintechs to catch up to public market valuations.