Paysafe Merger Makes Foley Trasimene Acquisition Attractive

The number of special purpose acquisition company (SPAC) listings has surged recently, with January 2021 showing a record number of SPAC listings.

A notable example of the recent SPAC frenzy can be seen with Churchill Capital (CCIV), whose shares have surged over 300% year-to-date on its merger with Lucid Motors.

However, with the S&P 500 index trading at a P/E of 39.8, it has become increasingly important to be selective when considering fresh exposure to any stock.

That being said, exciting opportunities do exist within the SPAC space and Foley Trasimene Acquisition (BFT) looks like an attractive option for the medium to long-term. BFT stock has already surged 41% since the announcement of a merger agreement with Paysafe, and once Paysafe lists publicly, further upside is likely.

As an overview, Paysafe is a global payments provider with a focus on digital commerce and iGaming. The company has high e-commerce exposure, with 75% of its revenue coming from online and integrated services.

A Proven Business Model

A significant number of SPAC business combinations have been companies that have yet to generate any revenue. However, Paysafe has a well-established business model that can deliver strong cash flows on a sustained basis.

For FY2020, Paysafe provided a revenue estimate of $1.4 billion. The adjusted EBITDA projection for the same period is $420 million, which implies an EBITDA margin of 30%. It’s worth noting that the company has an asset-light business model, and as payment processing volumes increase, EBITDA margin expansion is very likely.

The company believes that revenue can increase from $1.4 billion in FY2020 to $1.9 billion in FY2023. For the same period, the EBITDA margin is expected to expand by 600 basis points to 36%.

With these estimates and an already healthy EBITDA margin, Paysafe seems like an attractive long-term bet.

iGaming Can Be A Game Changer

Paysafe recognizes itself as one of the leading players in the global iGaming payments market. Currently, the company derives 34% of its revenue from iGaming payments.

Focusing on this segment specifically is important as an increasing number of states in the U.S. are likely to legalize iGaming and online gambling.

According to Paysafe, the U.S. iGaming market is projected to grow at a compound annual growth rate (CAGR) of 42% from FY2019 to FY2025. During the same period, growth in the global iGaming market is forecasted to land at 12%.

Furthermore, if the legalization of online gaming and betting across the U.S. happens faster than expected, it’s likely that Paysafe will revise its guidance for growth upwards.

Paysafe could therefore be considered a good proxy-play for exposure to the iGaming and online betting markets.

The Inorganic Growth Opportunity

It should be noted that the SPAC’s cash-in-trust is worth $1.5 billion and Paysafe has $2 billion in fully committed PIPE investments. Once the business combination between Foley Trasimene and Paysafe is completed, the listed entity will have a strong cash buffer.

In its presentations to investors, Paysafe has highlighted mergers and acquisitions as being a potential growth strategy, noting that the digital wallet segment is likely to see consolidation. Currently, there are more than 300 targets with large synergy potential.

It’s very likely that Paysafe will go on a shopping spree once the business combination is completed. This will help the company increase its geographical presence in addition to boosting its exposure to the eCash segment. Therefore, inorganic growth is another factor that could trigger better-than-guided growth over the next few years. (See Foley Trasimene Acquisition stock analysis on TipRanks)

Final Views On BFT Stock

Paysafe has an asset-light business model with minimal capital expenditure requirements. With the potential cash injection from the business combination with Foley Trasimene, the company is well positioned to pursue aggressive inorganic growth.

Furthermore, as EBITDA margins expand in the coming years, Paysafe will have ample cash flows for dividends and share repurchases.

BFT shares have been consolidating in recent weeks but once the business combination has been completed, the next leg upwards seems likely.

Disclosure: On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.