Here's Why I'm Adding To Horizon Acquisitions II On Deal Rumors

Summary

• HZON is reportedly in talks with Sportradar AG.
• The market has loved some of the earlier gaming/data companies.
• Even though shares are up 18%, I've added some.
• Potentially, the market hasn't fully priced in the seriousness of the rumor.
• This idea was discussed in more depth with members of my private investing community, Special Situation Report. Get started today »

Bloomberg just reported that Horizon Acquisition Corp II (NYSE:HZON) is in talks to take Sportradar AG public. Bloomberg is a strong source of course. But the rumor is a bit lacking in detail. Some things that stood out to me:

A transaction value couldn't immediately be learned.

As with any deal that hasn't been finalized, it's possible terms change or talks fall apart.

No numbers are a bad sign in a rumor. There's no timeline either. Otherwise the article is mostly background info about Sportradar AG although some of it will get people excited.

Sportradar, led by Chief Executive Officer Carsten Koerl, counts Canada Pension Plan Investment, Revolution Growth, basketball star Michael Jordan and Mark Cuban among its backers. The National Football League invested in Sportradar in 2015 and in 2019, signing a multiyear deal for exclusive rights to distribute official NFL data to legal sports-betting operators in the U.S. and abroad.

Interestingly there's another article circulating by a lesser known sports-focused source (Sportshandle) about Sportradar AG that says a deal is finalized but the reporter doesn't know with which SPAC. The article is dated March 2 and the reporter, Matt Rybaltowski has written for the New York Times, The Guardian and Reuters. He does seem to have only one source and there are no new numbers. He did have a bit more on timeline indicating the formal announcement may come in the next few days but it wouldn't come Tuesday.

Sportradar has come to terms with a special purpose acquisition company on a reverse merger deal that will enable the company to go public, a source close to the negotiations told Sports Handle Monday evening.

The source, who spoke to Sports Handle on condition of anonymity, did not reveal the name of the SPAC or the terms of the deal. While Sportradar, a Switzerland-based sports betting data provider, may formally announce a partnership in the coming days, an announcement is not expected on Tuesday, the source said.

The article also had some additional interesting information to consider:

Sportradar is not necessarily looking at a SPAC with the most capital, but one that can provide a value-add in helping the company deepen its relationship with professional sports leagues and sportsbook operators, sources say. Sportradar is also interested in broadening its relationship with media entities, another priority of the company.

Sportradar is also thinking deeply of the listing as a public event, similar to DraftKings' public debut last spring, according to a source. During the height of the pandemic, DraftKings CEO Jason Robins took part in a virtual bell-ringing ceremony last April to toast the company's first day of trading on the NASDAQ Global Select Market.

"They are hoping not for a fundamentals valuation, they are hoping for a DraftKings kind of valuation … one that impacts what kind of valuation tier investors place with it," the source said.

Sportradar's decision to go public through a SPAC route represents a change in strategy from prior years when CEO Carsten Koerl preferred the traditional IPO path, another source said.

Horizon Acquisitions is led by Todd Boehly, an ex-Guggenheim exec, who also happens to co-own the Los Angeles Dodgers. Jason Robins, mentioned above and co-founder of DraftKings (DKNG) is a director.

I already owned Horizon Acquisitions II, as is Seth Klarman through Baupost, and it was listed #21 on my latest SPAC Shopping List. My favorite period to invest in SPACs is on announcements. But I'm not averse to making money post announcement. Lately the SPAC market has taken a step back. Valuations have cooled off a bit after being red hot.

However, this would be a deal related to gaming which has tremendous tailwinds from U.S. state gaming legislations.

DraftKings is one of the key SPACs that has made the space so attractive. Another one that tied up Genius Sports Group is dMY Technology Group Inc. II (DMYD), another sports data provider, which has done very well too.

Data by YCharts

Data is also a hot theme. I'm not going to tally up the IPO runs companies like Snowflake (SNOW) and Palantir (PLTR) went on because these aren't great comps. But to me it appears as if the market is clearly counting on data companies to be able to keep competition at bay in the long term. HZON is up 18% pre-market to a hair under $12 for the shares as I'm finishing this up.

I added some shares at $12.15 pre-market. My thesis here is that the market may be discounting or not fully discounting the Sportshandle info. If I put together these sources, I'm getting to a high probability this deal gets announced in the next few days. Sportshandle did not report the name of the SPAC but the color provided does match well with HZON. The market reaction is relatively muted. I'll be awaiting either 1) a discrediting of these rumors 2) a confirmation of the rumor through a definitive agreement. I expect HZON to gain some ground on a definitive agreement. I'll be perfectly happy to start decreasing my exposure on that announcement and I'll do the same if the rumor is discredited or the market doesn't respond favorably to an actual announcement.

Analyst’s Disclosure: I am/we are long PLTR, HZON, HZONU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.