Hedge fund Elliott Management is investing in a special purpose buyout firm deal, representing a rare bright spot for blank-check investment vehicles that have slipped out of favor and left dealmakers roaming for investors.
Elliott and New York-based Ceres Capital are investing $20 million in a so-called pipe deal for Mondee travel technology group Spac, according to people familiar with the deal.
The Spac deal values Mondee, which operates a suite of digital travel platforms, at $1 billion.
At the height of the coronavirus pandemic, special purpose buyouts surged in popularity, becoming Wall Street’s most sought-after investment product. Spac sponsors raise money from investors and publicly list the vehicles as a cash shell before looking for a private company to merge with and offer to the public.
After listing on the stock market, Spacs typically requires more capital to fund the acquisition, preferably via a pipeline deal with a well-known investor that can act as a vote of confidence in the target company’s prospects.
But with uptake in blank checks falling sharply amid a series of failed deals and heightened regulatory scrutiny, the pipe finance market has dried up. Deal makers had to improve the terms offered or secure other, more expensive sources of financing.
The Mondee deal goes against the trend and shows that while the Spac market is getting tougher, investors are willing to raise money for attractive companies with a successful track record. This represented a shift from the investments in startups before the revenue generation that was a staple of Spac’s boom at its peak.
Elliott and Ceres are investing in Mondy’s Pipe at the record price of $10 per share, and the pipes are all common stock, which is also unusual in the current environment. Deal makers are increasingly offering discount tubes or convertible debt at exciting interest rates as part of the tubes in an effort to attract investors and prevent deal cancellations.
So far this year, 21 Spac mergers have been abandoned, compared to three in the same period last year, according to Dealogic data.
“The pipe market is brutal,” said one M&A lawyer. Any tubes that are put into place are fitted with a convertible [debt] Or anything that gives the investor a certain degree of protection against regression.”
Elliott and Ceres did not respond to requests for comment.
California-based Mundi generated $93 million in net revenue in 2021, a 41 percent increase compared to 2020 as the travel sector recovered from the economic impact of the COVID-19 pandemic.
It merges with ITHAX Acquisition Corp, a blank check vehicle led by Orestes Fintiklis, founder of private equity group Ithaca Capital Partners, which focuses on the travel and hospitality sectors. In 2018, Fintiklis gained attention by expelling the Trump Organization from the Panama Hotel due to mismanagement.
The $20 million investment adds to a previously agreed $50 million tube backed by investors including Morgan Stanley Investment Management and Arc Pe, a Miami-based private equity group.
