What is a SPAC? eToro rides the wave of shell listings, democratizing finance or fueling a bubble?

After the epidemic, the expansion of credit has allowed a continuous influx of hot money into the financial market. Many companies are seizing the opportunity to go public in the near term, sharing the benefits of credit expansion and the subsequent economic recovery. Crypto exchange giant Coinbase, in order to expedite its listing process, has abandoned the traditional Initial Public Offering (IPO) in favor of a Direct Listing; while investment platform eToro also announced yesterday (16th) that it will go public through a Special Purpose Acquisition Company (SPAC).

eToro (eToro Group Ltd) announced yesterday that it has reached a merger agreement with FinTech Acquisition Corp. V, which is already listed on Nasdaq. After the merger, the new company will continue to operate under the name "eToro Group Ltd." The post-merger valuation of eToro is $10.4 billion, with $9.6 billion coming from eToro's implied enterprise value, Fintech V's cash trust of $250 million, and a private placement of $650 million.

eToro is a global multi-asset trading platform that not only provides trading services but also allows investors to share strategies with each other. Currently, eToro has over 20 million registered users worldwide. In 2020, the platform added over 5 million registered users, with annual revenue of $605 million, a 147% increase from 2019. The average monthly registered users reached 44,000, which is 2.3 times that of 2019.

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Furthermore, in 2019, eToro launched cryptocurrency trading and in April of the same year introduced a professional platform for cryptocurrency trading: eToroX. The platform offers a variety of cryptocurrency trading options, including BTC, ETH, UNI, and notably, eToroX also offers various stablecoins such as USD and JPYX.

Merger News Drives FTCV Up 42%

Following the news, Fintech Acquisition Corp. V (FTCV) surged, with a post-market increase of 40% yesterday, reaching as high as $14.36. Today, FTCV continued its upward trend from $12.72 at the opening to a peak of $15.7 during trading hours, closing at $15.29, marking a 42.7% increase for the day.

According to a statement, eToro conducted a private placement with strategic and institutional investors at $10 per share, raising a total of $650 million, including investments from SoftBank Vision Fund, hedge fund Third Point, Fidelity Management & Research (FMR), Wellington Management, and financial software provider ION Investment Group.

What is SPAC? Financial Democratization or Bubble?

FinTech Acquisition Corp. V is a Special Purpose Acquisition Company (SPAC). SPACs do not have operational business; their sole purpose is to raise funds through IPOs to acquire promising "unlisted companies."

The process involves: Establishing SPAC → Fundraising through IPO for operational funds → Seeking promising unlisted companies → Acquiring the target company for listing → Converting original SPAC company stocks into new stocks → Stock price increase.

Opinions on SPACs have been polarized. Risk investor Chamath Palihapitiya views SPACs as a form of financial democratization, as traditional IPOs were only accessible to institutional investors before public trading.

SPACs essentially allow retail investors to entrust their funds to professional companies to seek promising unlisted companies. The raised funds are dedicated for mergers; if a merger is not completed within two years, after deducting costs, funds are returned to investors, usually in full.

On the other hand, economists like Dr. Nouriel Roubini consider SPACs as bubbles. While merging with a SPAC can expedite the listing process, some promising companies may choose traditional IPOs or even direct listings like Coinbase, potentially leading to higher company valuations.

After a SPAC goes public, if the company's fundamentals are weak, it could pose a ticking time bomb in the public trading market.