Former Glu CEO on the rise of mobile game SPACs amid the coronavirus pandemic

Former Glu CEO Niccolo de Masi joined Yahoo Finance to discuss the rise of mobile game SPACs amid the coronavirus pandemic.

Video Transcript

ADAM SHAPIRO: Welcome back to "Yahoo Finance Live." Want to talk about what's going on not only in the electronic-game space but also how SPACs are helping fuel this-- not only the electronic-game industry but, you know, SPACs in general, $35 plus billion this year alone. And somebody who should know that well because he's got three of them is Niccolo de Masi, former Glu-- you're not the former. You're still CEO at Glu, aren't you?

NICCOLO DE MASI: No, I'm the chairman of Glu now.

ADAM SHAPIRO: The chairman of Glu Mobile as well as dMY Technology Group CEO. How do you do three SPACs and then-- two of them have already acquired companies. And they've done it pretty quickly because you have a 24-month window to fulfill all of that, don't you?

NICCOLO DE MASI: Yeah, that's correct. But at the end of the day, you know, investors care a lot, as do we, about time-adjusted returns. So if we can move quickly and find a great partner business who wants to work with us, why not transact quickly?

Look, I mean, I think they always say, well, it takes 10 years to be an overnight success. There's a lot of truth to that, right? So we are effectively monetizing a pipeline of entrepreneurs who we've known for a long time. There's a trusted relationship already. We're obviously seen as experts in the space. I've done 35, 36, 37 M&A deals in the gaming business as a public-company leader in the past two decades.

So, you know, it's a really good fit, I think, for where a lot of Glu's success has come from, you know, by acquisition. SPACs are kind of the purest expression, I guess, of what I'm good at and what I enjoy doing professionally. And so we expect that we will transact, you know, in a similar time horizon for our third SPAC as well.

SEANA SMITH: How has COVID affected this strategy at all? Is it-- I mean gaming specifically. Obviously we've seen a huge uptake just in terms of the number of users but also in just how it's affecting some of the deals that you're making and also just possible opportunities out there.

NICCOLO DE MASI: Yeah, well, look, I've seen actually the same investors six times this year for my three SPACs and Glu Mobile. We did a secondary at Glu in Q2. I did an IPO for my first SPAC in February, found a deal in July and announced that. Raised a PIPE for that. Second SPAC was August IPO, October PIPE deal announcement, and now a third SPAC. So six times, similar thematic gaming investors.

And I'd say this. The COVID, I'd say, impact is a bit of rising tide lifting all boats. At the same time, there's permanent behavioral change that we believe has come into the market this year. So we're seeing an enhanced level of ARPDAU, Average Revenue Per Daily Active User. We're seeing bigger spenders in both the gambling and the free-to-play space.

And I think there's a lot of people now that are looking at their lives going, yeah, I'm not sure I'm more productive driving three hours a day to commute to the office. I'm not sure I need to actually be in a land-based casino. I'm having a lot of fun talking to my friends here online. So we think there is a tailwind that's going to last permanently for many years here.

You know, when the airline industry gets back to normal in 2023 or beyond, you know, maybe there will be some reversion to this behavior. But right now I think it's guns blazing on gaming, and it's picking up a lot of market share of people's incremental time these days at home.

ADAM SHAPIRO: You were talking about the deals you did, Rush Street Interactive and Genius Sports. I'm curious when you as somebody who's launched a SPAC are in negotiations with a company that you want to bring public, how do you convince them that this is the way to go as opposed to the old-fashioned have the underwriters with the roadshow, that you're going to make them wealthier faster than the old-fashioned way?

NICCOLO DE MASI: That's a good question. A lot of it comes down to that trusted relationship, whether or not we as SPAC sponsors are seen as highly value-added board members.

It's also really fundamentally a strategic decision for companies. You know, you can go public in two years with a normal S-1. If you're really famous, you might have a direct-listing option.

But in our size range-- and we focus on the $1 to $3 billion enterprise, you know, premoney valuation zone-- we offer really a full suite of services and value add. A lot of the companies that we work with don't have public-company infrastructure. Rush Street Interactive just announced the CFO in the last quarter, but when we actually raised the PIPE and announced a deal in July, we were still searching. So Harry You, my partner, was the formal CFO of Oracle, Accenture, and EMC, and he's instrumental in this process.

I think that being able to talk about your forecasts with the merger proxy that comes with a SPAC is very powerful. I think the extra liquidity is very powerful. The certainty of valuation, the fact that if you look at my SPAC deals, you know, Rush Street is trading today at $13 or so. Genius is trading at, you know, $10.50. Neither of these deals doubled or tripled the day they were announced. And that, to me, is a really good sign. It means that we are pricing fairly as SPAC sponsors and we're not leaving a lot of money on the table for not the company, right, for other investors.

So we're effectively providing a healthy tension with our underwriter, Goldman Sachs, and we do have the premiere technology franchise underwriter in our camp. But we're also guiding valuation in that discussion with Goldman Sachs and the company to, frankly, get the company a better price. And we're also helping them get the PIPE investors in there to validate the price.

You know, Fidelity led our first PIPE transaction for Rush Street. And for Genius Sports, which is a really wonderful SaaS duopoly business that provides data to the global sports-betting market, it's underwritten, you know, in the PIPE by similarly powerful fundamental investors. We actually raised a bigger PIPE in genius than we had in the SPAC trust account, which is a really big sign of confidence in the marketplace.

SEANA SMITH: When you take a look out not only into next year but beyond into 2022, 2023, how popular do you see SPACs getting? I mean, what's the percentage, do you think, of companies going public that are going to prefer to do it via SPAC rather than direct listing or the traditional IPO avenue?

NICCOLO DE MASI: Yeah, well, look, the trends are pretty powerful. Believe it or not, I've been following the SPAC market since I sold my first public company in 2007, and they've come a long way from off the beaten path and almost a curiosity even four or five years ago. Today it's 50% of equity capital market's volumes in 2020 are SPAC IPOs.

So, you know, I'm not going to sit here and promise that it's going to always be more than 50%, but they're here to stay because they're a really powerful feature with a quality underwriter, quality sponsor team, quality company driving an ecosystem and bringing companies to the public market that, frankly, have been scared off in the last 20 years from the public markets.

If you think about how many public companies there were at the time of the dot com boom, twice as many as we have today. So there's been 20 years of private-equity companies picking companies off and people being afraid to list their business earlier on. It used to be when you were Apple or Microsoft in the '80s and late '70s, you would IPO your company as a growth-stage business, and people shied away from that.

So I see my job as a public-company entrepreneur and someone who's done six public companies and been, you know, fairly successful but enjoyed my time in the public markets as really bringing in the next generation of great entrepreneurs and earlier-stage growth opportunities to get everybody in the marketplace able to participate in that.

So I think they're here to stay, to answer your question. I think they're going to keep getting more institutionalized. You're going to see quality differentials between a Goldman Sachs three times issuer like myself and my partner Harry You at dMY and first-time issuers that can't command the attention of a Goldman Sachs for track-record reasons.

You're going to see differentiation in the PIPEs, from quality investors like a Fidelity, a Wellington, you know, a T. Rowe, a Capital Research, a Caledonia, et cetera. These are the kinds of people that you want in your PIPE because they indicate quality. They do their diligence, and they're long-term holders.

And so you're going to see continued demand from fundamental investors coming into the SPAC space with the platinum teams, the top 5 or 10 teams that obviously we consider ourselves to be one of.