By Anirban Sen and Krystal Hu

(Reuters) – Los Angeles Dodgers co-owner Todd Boehly made a lucrative offer last March that Sportradar Group AG founder and CEO Carsten Koerl could not pass up.

A merger was proposed by him with Horizon Acquisition Corp II, his special purpose acquisition (SPAC) company. It would have brought Sportradar to $10 billion. It was 110 times what the Swiss data and sports betting company had earned in adjusted cash flows of 90.4 million dollars ($76.9 million) for 2020. It was valued less than twice as high by its peers.

Wall Street was beginning to lose interest in SPAC deals. These were the hottest trend at that time. Sportradar went public instead this week via a traditional initial public offer (IPO), which valued the company at only $8 billion.

Based on interviews with four individuals familiar with the situation and a Reuters analysis Sportradar’s financials, this account of deal negotiations is based. Horizon, CPPIB, and Sportradar spokespeople did not return requests for comment.

    Boehly’s SPAC deal would have allowed Sportradar to go public in New York. It was not necessary to do an IPO. The regulations restrict companies’ financial projections and make them more accessible to investors.

    Sportradar was also a top investor. Canada Pension Plan Investment Board (CPPIB) believed Boehly could meet Sportradar s lofty valuation expectations. SPACs fascinated investors at that time. According to Dealogic, in January, SPACs had made public 91 of the US companies, while IPOs were only 27.

    The price offered and comparison with other SPAC transactions such as DraftKings’ (NASDAQ:) were not acceptable to investors who were invited to take part in the private investment in public Equity (PIPE), transaction.

Sportradar was able to grow its revenue quickly, but it made a lot of assumptions about the legalization of gambling in some states. Although the company reduced its expectations for valuation to $9 billion, it failed to attract any investors.

    Sportradar opted out of the SPAC contract in June, and filed for an IPO registration in July. The company debuted this week on Nasdaq.

    According to Reuters interviews of more than a dozen professionals in capital markets and a review on market data, SPAC market conditions have rapidly declined over the past summer. SPAC deals are often inked by sweetening their PIPE terms. SPAC executives have often accepted less generous compensation.

People familiar with the plan say that other companies abandoned SPAC contracts for IPOs, such as digital ad platform Outbrain Inc or F45 Training Holdings Inc. F45 Training Holdings Inc is a fitness chain backed Hollywood actor Mark Wahlberg. The companies didn’t respond to our requests for comment.

RAISED TOO MUCH MONEY

Investors have been spooked by many SPACs’ poor financial performance and a regulatory crackdown led by the U.S. Securities and Exchange Commission over their disclosures. SPACs were responsible for only 32 of the 57 US IPOs.

SPAC shares had risen 28% averagely in the first trading day. Dealogic reports that SPAC shares gained less than 1% over the course of July. That’s less than the 30% gain on the first trading day after an IPO.

SPAC investors have been selling shares on the open market and exercising their rights to redeem their shares once they are announced. SPAC managers had to either put in more or forfeit valuable compensation, and abandon attempts at mergers.

We as an industry have raised too many funds too fast. For the moment, it’s over. There aren’t enough investors who understand SPACs and want to invest in them,” said Douglas Ellenoff, a SPAC lawyer with Ellenoff Grossman & Schole LLP.

Graphic: PIPEs get smaller as SPAC market deteriorates: https://graphics.reuters.com/USA-SPACS/SLOWDOWN/gkplgwgzzvb/chart.png

For an interactive graphic, click here: https://tmsnrt.rs/3lif0sN

POOR STOCK PERFORMANCE

    The stakes are high. The stakes are high. 438 SPACs, which have collectively raised more than $130 Billion for mergers, have yet to sign deals. Investors will need to reimburse them if they fail to ink a merger in the next two years. There is little chance they will be able execute even on an agreement.

Jocelyn Arel a partner in law firm Goodwin Procter LLP said, “What you see now is a marketplace adjustment, which is incredibly challenging.”

    Some companies were able to list in the SPAC market thanks to the bonanza. IPO investors would not have approved them. These companies were instead supported by private investors and hedge funds that wanted to take speculative risks.

The opportunity has ended. Based on data compiled from Jay Ritter, an IPO expert and professor at The University of Florida, 94 of the 131 announced mergers are now trading below $10 IPO prices. Investor expectations are low that these deals will succeed or be completed.

SPAC Research found that the 50% average redemption ratio of deals concluded in July and August was higher than the 24% average in the 40 mergers finished in April-June.

Ritter stated that it is common now for a SPAC IPO raising $200 million to only have $40 million in trust, after all shareholders have redeemed the shares before the merger was complete.

The telecommunications service company Syniverse Technologies LLC merged with SPAC M3–Brigade Acquisition II Corp last month. This meant that the bulk of its $265 million PIPE had to be offered in convertible preferred stock. Instead of common stock it pays a 7.5% yield.

SPAC’s managers made it clear that they would not be able to sell their stock until the end of the year. They also stipulated that vesting of 30% was contingent on their shares being traded 25% higher than their deal price 20 days per month.

Syniverse has declined to comment. M3-Brigade didn’t respond to our request for comment.

“We clearly hit an inflection point and it was probably only a matter of time before the market slowed,” said Christopher Barlow, partner at law firm Skadden, Arps, Slate, Meagher & Flom LLP.