Is Vivid Seats the Ultimate Reopening Stock?
Internet ticket company Vivid Seats is preparing to go public via an IPO merger with Horizon Acquisition Corp. (NYSE: HZAC), a blank-check special purpose acquisition company (SPAC).
The deal gives Vivid Seats a valuation of close to $2 billion and comes with the backing of Todd Boehly, part-owner of the Los Angeles Dodgers baseball team and the Los Angeles Sparks basketball team.
Investors have given the deal tepid approval so far, with Horizon shares rising from $9.80 to more than $10 on news of the deal.
But could Vivid Seats be a compelling opportunity as a stock that will benefit from the economic reopening after COVID?
Here’s a closer look at some of the fundamentals behind the company and the IPO.
SPAC Facts: What Horizon Acquisition brings to the table
The SPAC half of the upcoming merger, Horizon Acquisition, is similar to the hundreds of other blank-check firms that have popped up in 2020 and 2021. However, it also has some features that could benefit Vivid Seats once the merger occurs:
- Todd Boehly’s profile as co-owner of the Los Angeles Dodgers, along with his founding and ownership of investment holding company Eldridge Industries, may give the IPO more weight with major investors.
- Boehly’s done this before with two other SPACs. One, Horizon Acquisition Corp. II (NYSE: HZON), garnered $525 million at its October IPO and is in negotiations to bring sports data company Sportradar public with an approximate $10 billion valuation, Bloomberg reports. The other, Horizon Acquisition Corp. III, is currently planning a roughly $500 million IPO.
- Vivid will rake in proceeds of about $769 million from the deal, two-thirds of which will come from Horizon Acquisition and the remainder from a PIPE, or private investment in public equity, from Boehly’s Eldridge Industries and other firms.
- Vivid Seats says the proceeds will be used “for debt repayment and capital structure optimization and to position Vivid Seats to continue to invest in growth and improve customer experiences.”
- If any shareholder redemptions occur, Eldridge Industries is pledged to make an extra investment by purchasing these shares at $10 each.
Why Vivid Seats could be a winning “reopening stock”
Vivid Seats is a well-established ticket exchange and reseller, now in its 20th year and exceeded in size and revenue only by StubHub and Ticketmaster, the latter a subsidiary of publicly traded Live Nation Entertainment (NYSE: LYV).
It has 12 million customers and coverage of 200,000 events, including sports, movies, and concerts.
Revenue fell to $115 million in 2020 from $471 million in 2019. However, the company thinks a rebound is underway and that it’s “poised to benefit from pent-up demand created during the pandemic as fans are craving the opportunity to see their favorite sports, concert and theater events.”
Here are revenue estimates (marked with an *asterisk) for the upcoming years:
|Revenue||$471 million||$115 million||$168 million*||$459 million*||$525 million*|
That revenue mix comes from 12% theaters, 42% sports, and 46% concerts. Boehly has touted the company’s “favorable mix of live events and its growing list of strategic partners,” along with “an impressive technology platform as well as a substantial customer base.”
The merger is expected to close in the second half of 2021.
The forecast for Vivid Seats looks positive
Vivid Seats has a bullish outlook backed by some solid metrics. It survived during the government-imposed lockdowns of 2020, and its projected rebound, if accurate, would bring an explosion of earnings growth over the next several years.
Vivid’s intention to use the robust IPO proceeds to deleverage and improve its balance sheet indicates smart management. The plans to use the cash windfall could make the business more resilient and flexible in the future by easing its debt expenses.
With strong backing and a successful business model, there’s good reason to be optimistic about this IPO, making Vivid Seats worth watching going forward.
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