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eToro SPAC

One of Israel's potentially largest IPOs is in the works. eToro announced a merger with a $10.3 billion SPAC back in March, but the company will not be able to complete its plans by the end of the year, putting the deal in jeopardy. The move is expected to inject $250 million in SPAC funding into eToro, as well as an additional $650 million from institutional investors raised through PIPE (private investment in public capital) funding.

The company had already pushed back the deadline for the deal from the third quarter of this year to the fourth, but now, with two weeks left in the quarter and no shareholder meeting yet, it's clear the merger won't be completed in 2021.

eToro SPAC Explained

What eToro is currently threatening is not just the withdrawal of SPAC funds, which has become a market trend, but the $650 million it will receive from PIPE investors. Unlike SPAC investors who can vote for a merger but still choose to withdraw their investment, PIPE investors cannot withdraw from their commitments unless the deadline has passed. As eToro's deadline looms, institutional investors such as SoftBank's Vision Fund 2, Third Point LLC, Fidelity Management & Research Company LLC and Wellington Management can all opt out and exit the offering without penalty.

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While eToro still has a chance to persuade investors to renew the deal for next year, estimates are either to make up the scale or to be valued well below $10 billion and will have to come down significantly. Betsy Cohen's fintech SPAC stock Acquisition V fell last week to The original price of $10, which reflects an estimate that the SPAC will soon provide capital to investors.

It cannot be ruled out that most institutional investors who have committed to participate in the PIPE phase will agree to renew their contracts with eToro. While some are willing to give it another quarter to complete the move on original terms, others, especially smaller companies, will require it to either top-up or lower its valuation to closer to $5 billion or so, similar to what the company did in the The past of traditional IPOs.

eToro’s most recent funding round was in 2020, raising $50 million at a $2.5 billion valuation. The round includes only secondary transactions, with senior shareholders and employees selling partial stakes. The SPAC merger also includes a significant $300 million secondary component that could well be the first to "pay a price" if conditions change and a new deal is signed.

In this case, eToro is faced with the dilemma of whether to proceed with the new terms or abandon the plan altogether and raise a round in the private market. Since signing the deal with the SPAC in March, eToro has already taken on high costs, which could help eToro close the deal. These costs have already exceeded $70 million and are expected to reach $75 million by 2021, largely due to fees paid to accountants, lawyers, bankers, and more. This is a significant expense that will impact the company's profitability this year and this includes factors that led it to post a loss in the third quarter.

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SPACs fall

The public offering market in general, and the SPAC market in particular, has been in turmoil since eToro signed a deal with Betsy Cohen in March 2021. Shares of companies that began public trading through SPAC mergers have fallen by double digits. Most public offerings completed in recent months have been affected by the massive withdrawal of SPAC funds. The most common change has been institutional investors withdrawing from participation in SPAC mergers due to Maturity concluded that these deals reflected an exorbitant level of value for the company.

To clarify: Even Betsy Cohen, who was already considered an expert in the SPAC space before the hype of the past two years, has not escaped the recent downturn. The most well-known example is US insurtech Metromile, which was issued by Cohen's SPAC at a $1.3 billion valuation before the fall and was acquired by Israel's Lemonade for $500 million in November. Israel's Payoneer, which also merged with the Cohen SPAC at a $3.3 billion valuation, has since fallen 33% to $2.2 billion.

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