NEW YORK, May 11 (Reuters) - Investment banks have raked in billions of dollars by feeding the frenzy for blank-check companies, and they have done so largely without risking any of their own money on hundreds of deals that have left many investors with punishing losses.
A look at one of these deals shows how.
In late 2020, Acies Acquisition Corp tapped into investor demand for blank-check companies – formally known as special purpose acquisition companies, or SPACs – with an initial public offering that raised $215 million. Among the investment banks Acies signed up to underwrite the IPO were JPMorgan Chase & Co, Morgan Stanley and Oppenheimer & Co.
When the offering closed, Acies, essentially a shell company, followed the SPAC template. With the cash it had raised, it had two years to find and merge with a private company seeking a stock market listing, or return the money to investors. Acies’ management team announced it was on the hunt for a business in the “experiential entertainment industry.”
The team didn’t have to look for very long. Hours after the IPO closed, bankers advising Playstudios Inc contacted Acies managers to tell them the Las Vegas-based maker of mobile casino games was for sale, regulatory filings show. Those bankers were also with JPMorgan. In early 2021, the two companies announced plans for a merger that valued Playstudios at $1.1 billion.
In the run-up to the merger and the listing of the combined company’s shares, Playstudios touted a rosy future. It forecast that surging ad sales, a new role-playing game and cross-marketing offerings to game players would bring a 20% rise in revenue in 2021 and a 33% jump this year.
Since then, the company has scrapped the new game, and revenue fell far short of predictions. Retail investors suffered the consequences. The stock is down more than 50% since shareholders approved the merger last June.
“Playstudios is one that looks like crap right now,” Dan Ushman, a 37-year-old Chicago-area entrepreneur, said earlier this year. He put about $26,000 into Acies after it announced its deal with Playstudios and soon saw his investment drop more than 35%.
Investment banks involved in the deal fared much better, having risked none of their own money, based on a Reuters review of regulatory filings.
JPMorgan
(JPM.N), in particular, pocketed hefty fees for its dual role as an underwriter for the Acies IPO and as an adviser to Playstudios – perfectly legal, despite the apparent conflict of interest, if the bank discloses its role, as JPMorgan did.
The bank has not disclosed its fees, but financial data provider Refinitiv estimates that JPMorgan earned $4.7 million in underwriting fees and $14.2 million as a sell-side adviser. It also received $1.6 million for helping Acies raise additional capital through a maneuver known as private investment in public equity, or PIPE, according to financial research firm Morningstar Inc and a Reuters analysis. PIPEs, which tap big institutional investors, are often necessary to close a SPAC merger.
Morgan Stanley earned about $5.9 million and Oppenheimer about $1.2 million in underwriting fees, according to Refinitiv estimates. Each bank also got about $1.6 million in PIPE-related fees, according to Morningstar and a Reuters analysis. LionTree Advisors, another Playstudios adviser, earned $6.2 million on the deal, according to Refinitiv estimates, plus $1.6 million in PIPE fees, according to Morningstar and a Reuters analysis.