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The Paris Billionaire Set Bets Its Reputation on a SPAC - Energy And Water Development Corp

The Paris Billionaire Set Bets Its Reputation on a SPAC

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French capitalism’s greatest hits have tended to mix ambitious entrepreneurs, complex financial structures and hefty doses of debt. The latest deal in Europe’s SPAC adventure ticks all those boxes.

Undeterred by the bursting of the bubble in US blank-check firms last year, a who’s who of European business is out to prove that the special purpose acquisition company isn’t just about speculative excess. These assorted moguls have done a clever deal. The question is whether it will be too clever for the stock market.

To recap, Pegasus Entrepreneurial Acquisition Company Europe BV listed in Amsterdam in December, raising 210 million euros ($218 million) and seeking to combine with “a European growth company.” Luxury billionaire Bernard Arnault and French asset manager Tikehau Capital SCA underpinned the fundraising.

Fellow sponsors include entrepreneur and Chief Executive Officer Pierre Cuilleret, as well as former UniCredit SpA boss Jean Pierre Mustier and Bank of America Corp. ex-head of investment banking, Diego De Giorgi.

The blank-check firm agreed last week to merge with FL Entertainment NV, a Paris-based media company backed by entertainment giant Vivendi SE. Just as the Vivendi of the dot-com era used reliable cash flow from its water utility to fund diversification into media and telecoms, so this mini conglomerate combines two seemingly unconnected businesses: Banijay, the television production company behind MasterChef and Temptation Island, and Betclic, a gambling app.

The operational synergies between box-set binging and boxing betting aren’t obvious. Financially, Banijay benefits from being able to use Betclic’s cashflow to invest. Nevertheless, FL cannot self-fund its growth indefinitely. A series of bolt-on acquisitions plus the larger purchase of production company Endemol Shine Group have made Banijay the largest industry player outside the US while also saddling it with debt. And FL still doesn’t own its main businesses outright.

The time has come to raise equity and tidy things up. The conventional next step — an initial public offering — looks challenging given the weakness of stock markets, especially for an outfit whose financial history is complicated by serial deal-making.

Enter the Pegasus cash machine. Shareholders who provided around half the SPAC’s existing funds are backing the deal with FL. The investment vehicle of Italy’s billionaire Agnelli family plus Axa Investment Managers are providing a top-up.

Banijay’s founder, reality TV entrepreneur Stephane Courbit, is actually putting more money in. All in all, more than 620 million euros of cash has been committed so far. Most of this is earmarked to pay for buying out a co-investor in Betclic, with the rest available for cutting leverage.

The enthusiasm reflects seemingly favorable terms for Pegasus. The transaction ascribes FL an enterprise value of 7.2 billion euros, 11 times the company’s own forecast for its earnings before interest, tax, depreciation and amortization this year. The multiple doesn’t look demanding given US production company Lions Gate Entertainment Corp. trades on 14 times, while UK betting peers Entain Plc and Flutter Entertainment Plc command multiples of 10 and 17, respectively.

As for the FL side, Courbit is set to retain control through super-voting shares. He obtains a listed M&A currency and some powerful allies. His current partners get either a partial cash exit or stock that can be sold later. It’s not clear what their alternatives were.

What about ordinary investors in the SPAC? The deal may be inexpensive and position FL for more expansion, but this stands to be an unconventional public company with founder control and some big individual shareholdings. The stock would also be thinly traded in the first instance.

There will almost certainly be more acquisitions, so investors need to trust Courbit’s M&A nous. Leverage will be above the three-times Ebitda comfort level at first. Unless Betclic is eventually separated, its presence may deter new investors who want nothing to do with gambling. 

Still, this is not some distant “pre-revenue” tech moonshot. The reputational investment vastly outweighs the financial commitment of the wealthy protagonists. Europe’s SPAC party may fizzle before it’s even started, but this transaction will remain highly visible given its size, scarcity and the characters involved. None of them can afford a hangover.

More From Bloomberg Opinion:

• Billionaire SPAC Whistles Past Netflix Graveyard: Lionel Laurent

• On the Internet Nobody Knows You’re a Kid – Yet: Parmy Olson

• You Can’t Bank on SPACs. Thanks, Gary Gensler: Chris Bryant

(Corrects roles of Jean Pierre Mustier and Diego De Giorgi in fourth paragraph.)

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Chris Hughes is a Bloomberg Opinion columnist covering deals. Previously, he worked for Reuters Breakingviews, the Financial Times and the Independent newspaper.

Lionel Laurent is a Bloomberg Opinion columnist covering digital currencies, the European Union and France. Previously, he was a reporter for Reuters and Forbes.

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