CompoSecure’s SPAC Merger Deal Comes With a Twist

Payment card company CompoSecure is set to go public by merging with Roman DBDR Tech Acquisition (NASDAQ: DBDR), a special purpose acquisition company (SPAC). The transaction fetches CompoSecure an enterprise value of $1.2 billion and is expected to bring in more than $400 million in gross cash proceeds.

However, the PIPE (private investment in public equity) component has a unique twist that is new for SPAC deals.

What does CompoSecure do?

CompoSecure partners with large financial institutions to manufacture metal credit cards. These premium cards are typically used by high net worth individuals, and the company’s prominent partners include American Express (NYSE: AXP), JPMorgan Chase (NYSE: JPM), and Capital One Financial (NYSE: COF), among others.

The company has a patented manufacturing process that allows it to integrate security features into the materials that meet strict industry standards.

Metal credit cards have become popular because of their perceived status, and CompoSecure thinks that metal cards are becoming especially important among millennials. Offering metal cards is now an important marketing message for card issuers, and those cards tend to remain at the top of a consumer’s wallet. 

CompoSecure is also expanding into cryptocurrency storage and security with a new Arculus card that was introduced this year. The goal with Arculus is to offer secure cold storage of cryptocurrencies and other digital assets while facilitating payments using three-factor authentication. CompoSecure thinks being able to access cryptocurrencies for payments through a familiar factor — like a card — will help promote adoption.

The company generated $261 million in revenue in 2020, with sales forecast to grow to a range of $276 million to $296 million in 2021. Currently, the entire business is built on metal credit cards, though the company’s plans to expand into other areas such as crypto payments and digital assets would help diversify the business in the years ahead. CompoSecure expects to ship 22 million metal credit cards this year.

About that twist in the SPAC deal

The SPAC will bring about $236 million in cash to the table, assuming no redemptions. Many SPAC transactions include PIPE financing, but this time around, the institutional investors that are participating in the PIPE will be buying convertible notes instead of just common stock.

The PIPE includes $45 million in stock as well as $130 million in convertible notes for a total of $175 million. The bonds will have a five-year maturity, carry an interest rate of 7%, and have a conversion price of $11.50. That conversion price is comparable to the $11.50 strike price typical of SPAC warrants. 

Is the SPAC boom over?

The inclusion of convertible notes is notable because it could potentially suggest that PIPE investors are growing wary of the SPAC boom. The SPAC market has cooled off substantially in recent months, and critics argue that SPACs have become overheated.

Regulators have also been scrutinizing the SPAC market more carefully, fearing that loose rules could end up hurting investors. Compared with common stock, convertible notes offer a degree of downside protection because they are debt securities that still come with potential upside if the stock rises. 

The next blockbuster IPO?

2021 could be one of the biggest years for IPOs in stock market history. Yet, with just a small fraction of IPOs historically driving nearly all the profits, who will you trust to uncover the most innovative and high-upside IPOs in the coming months?

There’s a company that “called” these businesses long before they hit it big. They first recommended Netflix in 2004 at $1.85 per share, Amazon in 2002 at $15.31 per share, and Apple back in the iPod Shuffle era at $4.97 per share. Take a look where they are now.

That company: The Motley Fool.

For people ready to make investing part of their strategy for financial freedom, take a look at The Motley Fool’s flagship investing service, Stock Advisor. They just announced their top 10 “best buys now” across the entire stock market. Whether you’re starting with $100, $500, or more, you should check out the full details.

Click here to learn more

Leave a Reply

Your email address will not be published. Required fields are marked *

In This Article