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Grindr’s $2.1bn IPO via SPAC

By Nishil Lakhani, Jack McGing, Dhruv Kotecha and Frangiskos Kapatos (University of Nottingham) and Sonia Andrzejuk, Mikołaj Borowiak, Argyro Charizona, Vlad Marcu (Bocconi University)

Photo: Margaux Bellott (Unsplash)

 

Summary of SPAC


Grindr has announced it has agreed to go public through a merger with Tiga Acquisition Corp, a Spac set up by Ashish Gupta in 2020. The deal will give the LGBTQ+ dating app an implied valuation of $2.1bn and an expected $384mn in proceeds that the company said it would use a significant portion of to pay down debt. Shares surged by more than 200%, proving a massive but temporary windfall for the firm’s investors.


Company and SPAC Profile


Grindr is a location-based social networking and online dating application targeted for the LGBTQ+ community. It offers a free, ad-supported service and a tiered premium subscription version. The company was founded in 2009 and is based in West Hollywood, California.


Ticker: NYSE:GRND

Sector: Social Media

Exchange floated: New York Stock Exchange

Offered price and number of shares: $16.90 per share and 30 million shares

Market cap as of 13th December 2022: $1.04bn

Over-allotment option: 4.5 million Preferred Shares

Valuation and relevant multiples at IPO (18th November 2022):

  • Market Capitalization: $2.1bn

  • EV: $2.2bn

  • LTM EV/Revenue: 11.8x

  • LTM EV/EBITDA: 37.1x

Advisor: The Raine Group LLC


Strategic Rationale


Why did Grindr go public?

Grindr, like most other dating apps, primarily makes money from in-app ad revenue and tiered subscriptions, therefore it is always looking for ways to grow its 10.8 million active user base. Since IPOs often draw lots of public attention, going public will almost certainly boost the number of users across Grindr’s platform.


This IPO will also raise significant capital for Grindr, which can help with future projects to enhance its user experience, such as adding travel recommendations, as well as increasing its hiring potential. The new funds will allow Grindr to continue its successful business model, which resulted in 42% revenue growth this year, to increase its profitability and acquire a larger share of the dating app market.


Grindr’s IPO also sets a milestone for inclusion in financial services, an industry the LGBTQ+ community has been historically underrepresented in, and something this IPO will undoubtedly bring attention to. In addition, through its IPO, Grindr aims to capitalise on its first-mover advantage, as there is no equivalently popular dating app that exclusively targets the LGBTQ+ community.


Why did Grindr use a SPAC?

Special Purpose Acquisition Companies (SPACs), otherwise known as ‘blank cheque’ companies, are shell companies which have no commercial operations. Their primary goal is to serve as an investment vehicle to bring another company public via business combination.


SPAC activity has been on a downward trend since the highs reached in 2021 in which 613 SPACs, collectively worth $162.5bn, were employed as alternatives to IPOs in a favourable equity market. This comes as the SEC has proposed regulations for SPACs which would require more disclosures and procedures for SPACs, limiting their advantages relative to IPOs.


It is therefore interesting to consider why Grindr opted to go public via a SPAC as opposed to the conventional IPO process, as they are now seen as an unreliable method of raising funds, with investors often backing out.


As previously stated, one of the main benefits of Grindr going public is the increased attention regarding the company and its services, potentially leading to a boost in users and therefore revenue. Using a SPAC is an effective way to achieve this goal quickly, as while the proposed SEC regulations are not yet in place, SPACs offer a faster and more streamlined process to a public listing. As a result, using a SPAC could also result in more capital being raised (another key goal for Grindr) than in an IPO, as more optimistic/forward looking projections can be used, while there will also be less scrutiny on the negatives, which for Grindr have included various data privacy concerns in the last few years.


Market Reaction


Build-Up

The deal was announced in May 2022; SPAC market activity was at a low due to scrutiny from regulators, a lack of investor confidence, and a growing track record of underperformance. The announcement took place a long time after the SPAC boom, which was considered unusual by many. As of May, the SPAC index (which measures SPAC performance) was down 20% from the previous year. Grindr has also had to deal with some issues in the past, especially involving consumer data and privacy. They were fined $7 million by the Norwegian Data Protection Authority for sharing consumer data to advertisers without consent. In addition, the Chinese owners were forced to sell the company due to pressure from the US Government about the privacy of its Chinese users. Investors had to bear this in mind when considering buying shares in GRND.

Grindr was not acquired by already publicly listed dating companies, Match Group or Bumble - this was some cause for concern. However, since they went public, their stocks had only been falling. This therefore gave people pause for thought on how well this SPAC deal was going to go down for Grindr.

On the other hand, the figures provided investors reason to be confident about the deal: Grindr made $147 million revenue with 53% profit margins in 2021, with an expected growth of 35-40% in sales revenue for 2022.


Launch

Grindr’s shares surged by more than 200% following their merger with special-purpose acquisition company Tiga Acquisition Corp. Their shares launched at $16.90 on 18th November 2022 on the NYSE. Immediately after the launch, 99% of shareholders opted to redeem their investment in the SPAC. As a result, relatively few shares were floating on the market which led to the shares skyrocketing to $71.51; and shortly after, fell to a closing price of $36.50. This share price represents about a $3.4 billion market cap which is an extreme overvaluation against LTM EBITDA of $77 million. As of today, Grindr’s shares are trading at $6.13. Until the redeemed shares unlock, the company may see volatility spikes on any positive momentum. In Q3 2022, Grindr reported a $4.7 million loss likely owing to the expenses of their launch. This, combined with the volatile launch of the stock, has led to concerns regarding the future of the dating app company.


Potential Risks and Downsides


With the current macroeconomic environment with major central banks adopting a more hawkish approach in order to curb inflation, investors tend to be more precautious and capital markets are characterised by increased levels of volatility. Such market conditions pose a risk to Grindr’s stock performance even if we include Grindr’s strong fundamentals, recurring revenue model and EBITDA growth in our analysis.


The above argument becomes even more applicable in this case after analysing its major competitors, i.e. Match and Bumble whose stock prices, despite relatively strong financial performance, have plummeted almost 70% and 35% since the beginning of this year, respectively.


Another risk that clearly may have a negative impact on the company’s stock price is the fact that it went public via a SPAC. The company was sold to a group of private investors at an enterprise value of $620 million in 2020, $330 million of which was equity with the rest being debt assumption. It must be noted that the 2020 valuation was based using 2019 earnings and the SPAC valuation depended on 2021 earnings. Between 2019 and 2021, Grindr grew revenues by 35% but its valuation almost quadrupled. Its exorbitant valuation results from the dynamics between the initial SPAC investors and the managers. Since investors redeemed 99% of their shares, which was greater than the amount of capital initially raised, the SPAC contributed almost no capital and artificially set such a high IPO price that does not reflect the company’s earnings forecast.


In conclusion, there are numerous risks associated that pose a threat to Grindr’s future performance, most of which resulting from the path the company decided to take by going public via a SPAC merger. Moreover, overall market sentiment, a saturated market with competitors offering very alike services, and increased risk of recession in 2023 may have a negative impact on the stock’s price.


"Today marks an important milestone not only for the team at Grindr, but for the LGBTQ community we serve. We enter the public markets with momentum, carried by our market leadership, strong financial performance and significant growth runway as we step up investment in our core product and services." - George Arison, CEO (Grindr)

References


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