CompoSecure’s SPAC merger agreement has a twist

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    The payment card company CompoSecure will go public as a result of the merger Roman DBDR Tech Acquisition (NASDAQ: DBDR), a special purpose vehicle (SPAC). The transaction is valued at $ 1.2 billion for CompoSecure and is expected to generate gross proceeds of more than $ 400 million.

    However, the PIPE (Private Investment in Public Equity) component has a unique twist that is new to SPAC deals.

    What does CompoSecure do?

    CompoSecure works with major financial institutions to manufacture metal credit cards. These premium cards are usually used by wealthy individuals. The company’s prominent partners include American Express (NYSE: AXP), JPMorgan Chase (NYSE: JPM) and Capital One Financial (NYSE: COF) among others.

    The company has a patented manufacturing process that allows security features to be incorporated into materials that meet strict industry standards.

    Metal credit cards have become popular because of their perceived status, and CompoSecure believes that metal cards are becoming especially important among millennials. The offering of metal cards is an important marketing message for card issuers today, and these cards tend to stay high on a consumer’s wallet.

    CompoSecure is also expanding the storage and security of cryptocurrencies with a new Arculus card, which was introduced this year. The goal of Arculus is to offer secure cold storage of cryptocurrencies and other digital assets while at the same time enabling payments using three-factor authentication. CompoSecure believes that accessing cryptocurrencies for payments through a familiar factor – like a card – will drive adoption.

    The company had sales of $ 261 million in 2020. Revenue is expected to grow to between $ 276 million and $ 296 million by 2021. Right now, all of its business is based on metal credit cards, although the company plans to move into other areas such as crypto payments and digital assets would help diversify the business in the years to come. CompoSecure expects to ship 22 million metal credit cards this year.

    About this twist in the SPAC deal

    The SPAC will bring around $ 236 million in cash to the table provided no withdrawals are made. Many SPAC transactions involve PIPE funding, but this time around, the institutional investors participating in PIPE will buy convertible bonds instead of just common stocks.

    The PIPE includes shares valued at $ 45 million and convertible bonds valued at $ 130 million for a total of $ 175 million. The bonds have a term of five years, an interest rate of 7% and a conversion price of USD 11.50. This conversion price is comparable to the typical exercise price of USD 11.50 for SPAC warrants.

    Is the SPAC boom over?

    The inclusion of convertibles is noteworthy as it could potentially suggest that PIPE investors are increasingly suspicious of the SPAC boom. The SPAC market has cooled significantly in the past few months, and critics argue that SPACs are overheating.

    Regulators have also taken a closer look at the SPAC market, fearing that loose rules could harm investors. Convertible bonds offer some downside protection compared to common stocks because they are debt securities that still have a potential uptrend as the stock rises.

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