eToro Lowers Valuation Expectations for SPAC Deal to $8.8 Billion

eToro, the Israeli social trading platform, is downgrading its valuation estimate from $10.4 billion to $8.8 billion ahead of its proposed merger deal with a special purpose acquisition company (SPAC).

eToro, which announced in March that it was set to go to public, is also holding back the end date of completion for the SPAC merger from December 31, 2021, to June 30, 2022. However, the proposed business combination is still believed to be on track to close before that date. But if the companies have not merged by the June deadline, they have the right to terminate the deal.

“Despite the best efforts of the parties, the parties will not have satisfied the requisite closing conditions set forth in the Original Merger Agreement as of December 31, 2021, including the condition that eToro’s registration statement on Form F-4 be declared effective,” the brokerage firm said in a filing with the US Securities and Exchange Commission.

As part of the restructured deal, eToro has lowered its pre-money valuation estimate from $9.301 billion to $7.906 billion. As such, the estimated implied post-money equity value of eToro is approximately $8.8 billion.

In addition, the number of price adjustment rights that correspond to the $17.50 price trigger issuable to eToro shareholders was reduced on a one-for-one basis for every warrant.

The company said the amendments, as well as some changes in existing PIPE proceeds, are in relation to current market conditions.

“The investors party to the Amended Subscription Agreements will receive warrants to purchase common shares of eToro if, following the closing, the eToro closing stock price is equal to or greater than $17.50 over a specified period, which warrants have substantially similar terms to the terms of the Price Adjustment Rights. Under the Amended Subscription Agreements, as of the date of this communication, eToro has received commitments for $441 million in the aggregate ,” the statement further reads.

In essence, a SPAC is a shell company that lists on a stock exchange with the purpose of buying another business and taking it public without consuming the time, costs and regulatory oversight required for traditional IPOs.

eToro, which expects to generate $1.2 billion in revenue for the full-year 2021, is now competing with the likes of Robinhood, Vanguard, E-Trade in the US after it secured the membership of Financial Industry Regulatory Authority, Inc. (FINRA). Additionally, it allowed US customers to trade stocks at no cost in July, ramping up the intensity of the brokers’ fight to eliminate trading commissions.

eToro expects to have 27 million total users and 2.4 million funded accounts as of December 31, 2021. Assets under administration (AUA) also stood at $10.6 billion in Q3 2021, up 13 percent compared with Q2’s $9.4 billion.