Special purpose acquisition companies (SPACs) are all the rage on Wall Street. And analysts seem to be split as to whether it’s all froth or an innovative financing vehicle. For the FinTechs that are choosing to go the SPAC route, the latter mindset prevails.
To that end, last month, mobile banking and financial services FinTech MoneyLion said it reached an agreement with Fusion Acquisition Corp., a SPAC, that would take MoneyLion public at an enterprise value of about $2.4 billion when the deal closes in the first half of this year.
In an interview with PYMNTS, MoneyLion CEO and Co-founder Dee Choubey said the SPAC route gives the FinTech “more degrees of freedom” in pursuing its long-term goals of growth and innovation. As he told PYMNTS, “the SPAC was a perfect choice for us — for the evolution of MoneyLion and the journey that we have been on.”
Drilling down into the business, he said MoneyLion has always existed as a “technology-first, and a data science-first” company. The typical MoneyLion consumer, he said “oscillated between times of [financial] excess and financial need sometimes within even a month, but oftentimes within a year.”
With that insight, he said, the company has taken what he termed a “contrarian approach” to build an online platform that starts with a digital bank and spreads to a robo adviser, extending credit to advisers in times of need. The platform also is able to provide guidance, recommendations, automated investing and advice to consumers as to “what to do with that next dollar that comes in.”
The pandemic, no surprise, has given MoneyLion what Choubey said is a “step function increase in our financial performance” with 200 percent growth in year-on-year net revenue. Against that backdrop, in the process of tapping capital to help capture growth opportunities, the firm could have stayed in the private markets for additional funding rounds.
But the SPAC route, he said, allows MoneyLion to put a significant amount of cash on the balance sheet to accelerate its corporate efforts and increase brand awareness. The “quantum of capital” that can be raised in one transaction versus over several transactions means “your degrees of freedom increase. There are other benefits to being public other than just the capital. Those benefits come from a talent acquisition perspective, from a visibility perspective, from a partnership perspective.”
High Profile, High Growth, High Profits
There are challenges with attracting a SPAC, he said. The targeted firm’s discipline needs to be there, the margin profile and growth rates need to be there. Investors want access to high-growth, high-profit margin businesses.
“If we think about what’s happening now with FinTechs, they’re the best ones that have those profiles — the high growth rate, the profit margins, and they are fulfilling the broader macro need for access to those types of companies in the public markets,” he said.
MoneyLion, he said, has been able to prove that its technology has been driving customer acquisition efficiency and that users are taking advantage of a broad range of services and financial products on offer. That’s been driving contribution profit margins over the past 12 months of more than 60 percent, and projections over the next several years have that margin growing into a 70 percent range and beyond.
With the assertion that there are 100 million Americans that are less than happily banked, he said, “we’re well-positioned to be the go-to partner of choice for middle-income American households.”
The Tracker
The latest edition of PYMNTS’ SPAC and IPO Tracker shows commerce-related initial public offering (IPO) plans into the first week of March picking up steam.
The first two months of the year have shown that payments and banking-related announcements dominated. FinTechs focused on shopping have also been in the headlines, as seen in the chart below.
Among the listings announced in the past few weeks coming into March, and the listings that debuted are Coupang, Hippo and Cipher Mining.
South Korea’s Coupang is looking at raising $3.6 billion in investment funds by going public in the U.S. Per the firm’s IPO filing, Coupang, which has been billed as the nation’s Amazon, saw its latest quarterly revenues jump by a multiple of four times.
Elsewhere, InsurTech Hippo, focused on home insurance, plans to go public by merging with SPAC Reinvent Technology Partners Z.
And Cipher Mining, a newly-formed bitcoin mining company, is filing to go public via a merger with Good Works Acquisition Corp., another SPAC.
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