Travel SPACs are facing a reckoning

The SPAC frenzy of 2021, in which a slew of travel tech brands sought public listings via special purpose acquisition companies, has started to die down as factors including rising interest rates and harsher regulations cause share prices to stumble and investors to pull back.

Last April, Goldman Sachs said SPACs could account for about a trillion dollars in deals in the next two years and estimated around $129 billion of SPAC capital was seeking out targets.

Cut to June 2022, and the investment bank is pulling out of working with most SPACs it took public following new regulator liability guidelines, Bloomberg reports.

In travel, some of the more high-profile SPACs are facing scrutiny as valuations plummet and cost-cutting measures take hold.

Short-term accommodations provider Sonder, which went public in January via a SPAC created through a business combination with Gores Metropoulos II, last week laid off 21% of its corporate employees and 7% of its front-line staff as part of a restructuring designed to increase its cash flow.

Shares in the San Francisco-based company decreased by more than 80% from their peak and now sit at $1.71, while its $1.9 billion valuation at the time of IPO has dropped to $372 million.

Vacasa, meanwhile, which went public via SPAC at a $4.4 billion valuation, is now valued at about $1.3 billion, while shares have fallen by more than 65% since its debut, signaling potentially rough waters ahead.

When reached for comment, the vacation rental management company’s CEO, Matt Roberts, says: “While I can’t comment on Vacasa’s performance or guidance between earnings cycles, we remain confident in the strength of our business model,” pointing to Vacasa meeting or beating its financial guidance for the fourth consecutive quarter and generating operating cash flow of $62 million for Q1 2022.

Recent restructurings

Additional SPACs facing restructuring due to market conditions include shared mobility and mass transit provider Swvl and micromobility company Bird.

Los Angeles-based Bird, which went public via SPAC in November 2021, this month is laying off 23% of its existing team members as part of a broader cost-reduction strategy.

“While the need for and access to micro-electric vehicle transportation has never been greater, macro-economic trends impacting everyone have resulted in an acceleration of our path to profitability,” the company says in a statement.

“This path required us to reduce our cost structure in a way that allows us to responsibly and sustainably expand our service beyond the more than 400 cities we operate in today as climate action has never been more paramount. In addition to eliminating all non-critical third party spend, we also unfortunately had to depart with a number of team members who passionately helped create a new industry and paved the way for more eco-friendly transportation.”

Bird, which previously laid off about 30% of its employees early in the COVID-19 crisis, has seen its stock drop more than 90% since its public listing and is trading at $0.55.

For Swvl, which just went public via SPAC in April, the Dubai-based company is now faced with laying off 32% of its workforce.

Chief financial officer Youssef Salem says Swvl made a decision to turn cash-flow positive over the next 12 months, compared to in 2024 per its original de-SPAC business plan, to make sure “we have a self-funding business and not reliant on future external funding in the current challenging market environment.”

To achieve accelerated profitability, Salem says Swvl will continue to grow its profitable B2B and SaaS business “rapidly organically and inorganically while focusing the B2C business on Egypt and Pakistan, currently the company’s highest B2C revenue contribution and profitability markets.

“The staff cuts are primarily a result of this optimization of B2C route networks and headcount.”

However, of recent acquisitions including Shotl, Zeelo and Door2Door, he says: “They add substantial scale and growth to our profitable B2B and SaaS business so accretive for the business across growth, profitability and valuation.” In fact, he believes the current market presents additional attractive M&A opportunities at lower valuations.

And while the company’s valuation has dropped from $1.5 billion at IPO to $600 million and the overall macro and inflation environment remains uncertain, for Swvl, “it is a positive as it increases rider demand for more affordable transport solutions.”

Selina’s setback

Meanwhile, London-based hospitality company Selina, which had planned a public listing via SPAC in the first half of 2022, has delayed the transaction, now expected to close in the third quarter of 2022, according to its Q1 earnings report.

In December 2021, Selina said its combination with New York-based BOA Acquisition Corp. was expected to value the company trading as Selina Hospitality at about $1.2 billion.

In a statement, Selina says: "The closing timeline for the transaction is subject to various conditions, some of which are more or less within our control. As is normal with these transactions, some conditions have taken a little longer to work through than originally anticipated, but nothing has changed our commitment to the process and getting this closed as quickly as possible."

Speaking with PhocusWire in January, Selina co-founder and CEO Rafael Museri said the company, which provides accommodations as well as workspaces for guests, was anticipating proceeds of $285 million that it would put toward its growth strategy and technology investment.

Selina says the figure was based on a no-redemption scenario, in addition to the funding of the PIPE. “The shift in the SPAC markets, general macro-economic conditions and investor sentiment have seen redemptions increase significantly across a variety of transactions since last year. In light of these developments, we foresee higher redemptions than originally anticipated.

“However, we have addressed the SPAC funding issue by successfully raising a $147.5 million principal amount of convertible notes as announced in April. That transaction will close concurrently with the SPAC, and the capital from the convertible will provide us with the necessary capital to carry out our growth, technology and product investment plans.”

In January, Museri said the advantage of a SPAC is that you can choose your partner. “It’s an amazing thing. We knew that coming from Europe, Latin America and Israel and growing into the U.S., having strong U.S. partners [that are experts in the Wall Street and real estate environments] is going to represent a big part of our expansion. We complement each other. We’re bringing a very strong experiential culture,” he said.

“I believe that the disadvantage is that for some reason in the past year and a half people started criticizing it and looking at it as a bit of a short cut. I personally believe that internally, we have been working on for a year and a half every process, every improvement that needed to happen to become a great public company, and whether SPAC or IPO, the readiness is the exact same process.

“Time will tell. If at the end of day you are a good company, with a good product and you’re going to meet your projections whether you went through a SPAc or IPO, the market will appreciate it, so I’m focusing on building a great company,” Museri said.

Selina says COVID-19 helped it to align its business and gave the company experience operating in a lean environment. While Selina has no plans to restructure the business at the moment, it says it is always assessing its structure and performance in light of market conditions and can act nimbly should conditions change.