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Trading platform eToro to go public through SPAC merger

Online broker eToro has agreed to go public at a $10.4bn valuation by merging with Fintech Acquisition Corp V, a special purpose acquisition company (SPAC) set up by banking veteran Betsy Cohen, in one of the largest SPAC deals so far this year. The Israeli stockbroking and spread betting platform has experienced significant growth during 2020 as lockdown measures promoted more retail investing, reporting a 275% increase in funded accounts last year and reaching more than 20 million registered users. The company plans to use the proceeds from the deal to help capitalise on the recent digital trading boom by expanding its investment platform, particularly in newer markets such as the US.

Company overview

Founded in 2007, eToro is a trading and multi-asset brokerage firm “with the vision of opening the global market for everyone to trade and invest in a simple and transparent way,” according to CEO Yoni Assia. The company allows its users to invest in cryptocurrencies, stocks, commodities, and more. EToro, which competes with other online brokerages such as Robinhood, has benefited from the recent surge in retail investing activity, as zero-commission trading drew locked-down investors with more free time and capital into stock markets, adding over 5 million new registered users last year. This trend has continued to accelerate this year with the company registering 1.2 million new users and executing more than 75 million trades on its platform in January, significantly higher than 2019 and 2020, when monthly registrations averaged 192,000 and 440,000 respectively. The platform, which offers the ability to buy fractions of shares, allows traders to get started in markets with small amounts of money, which has contributed to a boom in popularity among young investors, with the average user being just 34 years old.

Unlike US firms, the 14-year-old Israeli company doesn’t make money by customer orders to trading firms that fulfil them in a business called payment-for-order flow, a practice that is prohibited in Europe. Instead, eToro profits from a spread between the price it charges consumers and the price it pays for securities. Last year, amidst the pandemic-induced surge in demand, eToro generated gross revenues of $605m, representing 147% growth from the same period the year before. 

Deal summary

Fintech Acquisition Corp V, a blank cheque company that went public in December 2020, will merge with eToro in a transaction that is expected to close sometime in the third quarter this year. Under the terms of the deal, eToro will receive $250m raised by SPAC during its IPO last year as well as a further $650m from a fundraising round known as private investment in public equity (PIPE). The institutional investors involved in the PIPE include Fidelity Management, SoftBank Group, Third Point LLC, and ION Investment Group.  Current equity holders will own about 91% of the company after the deal, giving the company an implied equity valuation of $10.4bn. The transaction, which has been approved by both company boards, is now pending shareholders’ approval and the combined company is set to be listed on the Nasdaq exchange as eToro Group Ltd. Upon the deal’s announcement, FinTech Acquisition Corp V’s share price rose 30% to $13.87, closing the day up more than 15%.

The deal comes as SPAC fundraising in the US, the largest market for these vehicles, reached an all-time high of $78bn last year. SPACs are targeting increasingly larger businesses, with this merger being the latest to contribute to the accelerating trend. Fintech Acquisition Corp V is chaired by finance entrepreneur Betsy Cohen, who has had a distinguished career as one of the earliest female entrepreneurs in the commercial banking industry and has been a serial SPAC investor over the past years. Jefferson Bank, which she started in 1974, has recently used blank cheque companies to buy and list several private companies, including New York boutique investment bank Perella Weinberg Partners, CardConnect and Intermex Wire Transfer. EToro will be hoping that this deal will be able to replicate the success of Betsy Cohen’s previous SPAC mergers in order to help the company expand its operations.

Deal rationale

EToro, which was founded in Israel and has offices in Cyprus, the UK, Australia and the US, plans to use the merger with FinTech Acquisition Corp V as a way to grow its business and create more brand-name recognition, especially as Robinhood is still dealing with the bad press it received for temporarily banning trading in GameStop on the platform.

The company describes itself as a social trading platform, allowing its users to invest, but also to communicate with each other, giving its users the ability to see, follow, and automatically copy successful investors from all around the world. “In the last few years, eToro has solidified its position as the leading online social trading platform outside the US, outlined its plans for the US market, and diversified its income streams,” said Betsy Cohen, chairman of FinTech Acquisition V. “It is now at an inflection point of growth, and we believe eToro is exceptionally positioned to capitalize on this opportunity.” Having launched its platform in the US just over two years ago, eToro has seen rapid growth as of late; raising the funds from this transaction will allow the company to gain market share in an expanding industry and establish a market-leading position of its platform. 

Sources

https://www.ft.com/content/4b82d9c8-beb4-44c7-baaa-f20005f15c4f

https://edition.cnn.com/2021/03/16/investing/etoro-spac-robinhood/index.html

https://www.wsj.com/articles/etoro-group-to-go-public-in-merger-deal-with-spac-11615906920

https://www.reuters.com/article/us-etoro-m-a-fintech-acquisit/israels-etoro-to-go-public-through-10-4-billion-spac-deal-backed-by-softbank-others-idUSKBN2B81G1

https://www.bloomberg.com/news/articles/2021-03-15/etoro-said-to-near-10-billion-merger-with-betsy-cohen-spac

https://techcrunch.com/2021/03/16/trading-platform-etoro-to-go-public-via-spac-merger-in-10b-deal/?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAHkc80_t955ab-RvsGxZOWniPa0Gjjap7h7iNB7048fxrXgJZ_q3iipN38WV1z0sZ3X_izkaZmVo8TGVIqLyu-hIT-oN0EyUj_3DeOjUrqCkg22PKXUVmJcjAWzrdRVj7KSzsgOVonLJXCPLqBe0QWbs9if3yXJdtaMaIz2QX5sH

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