Intro to Forest Road (NYSE:FRX) SPAC
FRX SPAC is often referred to as “Shaq SPAC” due to the former NBA star’s role as strategic advisor. While enhanced by the advisory presence of Shaq and MLK III, the heart FRX lies within the deal flow of the media team. The team has significant expertise in media and a host are former Disney executives. Specifically, a specific focus on the new audience aggregation platforms transforming the TMT landscape, premium intellectual property driving significant value expansion, and other broad themes.
FRX SPAC raised $300M in trust to pursue TMT (Tech/Media/Entertainment) targets by November 2022. The team also raised on fairly typical SPAC terms, with a third of a warrant per unit. Former executives likely played a key role in the acquisitions of ABC, Pixar, Marvel, Lucasfilm, 21st Century Fox, and BAMTech by Disney.
Sponsor Reputation and Context
Instead of being a traditional private equity team seen in most SPACs, the sponsor is actually a specialty finance firm. They have extensive experience in media, particularly film lending and tax optimization. The firm has generated over $100 million in revenues since the beginning of 2019.
In fact, the SPAC vehicle itself seems to be a product of Forest Road. From their website, “SPAC Road is a new vertical of The Forest Road Company focused on sponsoring Special Purpose Acquisition Companies (“SPACs”) to effectuate successful business combinations.” It’s almost as if the sponsor is one of the investment banks involved with the process as in traditional SPACs. This could cause problems with deal flow that we will dive into later.
To be said, it is a little disappointing that none of the core ex-Disney execs are involved with Forest Road. Also, the specialty finance firm seems quite small in relation to the trust size. That being said, we will dive deeper into the key players outside of the Forest Road sponsor.
More on the Key Executives
Tom Staggs was the former 2nd in command at Disney from 2015-16. He was instrumental in the successful acquisition of ABC and Marvel. His body of work at Disney has been overwhelmingly looked at as successful and from all accounts is widely respected as an executive leader. Mr. Staggs was also deeply involved in a range of strategic and financial initiatives including the acquisitions of Pixar and Marvel Entertainment.
Kevin Mayer was the former Head of Streaming at Disney & former TikTok CEO (3 months). He served as Disney’s chief strategy officer, spearheading the purchases of Pixar, Marvel, Lucasfilm, most of 21st Century Fox and BamTech, now known as Disney Streaming Services. Mr. Mayer was responsible for Disney’s DTC strategy. This led to the addition of the live and on-demand video streaming vertical. All in all, he was instrumental with the launch of the Disney+ streaming platform.
Regarding Shaq, he is an awesome addition for a media SPAC. Shaq has earned more in entrepreneurship and investing than he earned in the NBA. Dr. Shaquille O’Neal holds a PhD in Education. The video below to illustrate his potential with this SPAC.
Disney CEO Position Drama
Tom and Kevin were both passed over for the CEO position at Disney as replacements for Bob Iger. The consensus from online sources is that both are very talented and well-decorated, but there was something behind the scenes that kept them from being chosen. All the dynamics behind Disney’s decision here are blurry and its tough to read the tea leaves. That being said, that may be a knock on Forest Road in terms of ability to drive value after a deal closes. If they were a great fit as operators, one of the two may have winded up in the CEO position. Feel free to read more about this debacle here.
MLK III’s addition was questionable to say the least. I expected to find something worth mentioning but he seems to have no experience or qualities to help with a media acquisition. The only relevant element of his past was cofounding Bounce TV in 2011, an African American broadcast network. Much like his father, he advocates non-violence and working together across racial and economic lines. However, this doesn’t seem very relevant to a Media SPAC in terms of operational improvements, increase in deal flow, or something else. He may be able to help with promoting an announced deal in some manner that we may not be expecting, though.
Deal Flow Analysis
Specifically, the Forest Road company will be seeking media or entertainment innovators with the following characteristics.
- New audience aggregation platforms
- Premium Intellectual Property
- Niches where consumer behavior is changing
- Cutting edge technology focus
- Evolving ecosystem paving the way for new business models
- Capital intensive platforms that can benefit from $300M
Forest Road has already successfully raised over $300 million worth of capital and funded and brokered over 150 film and TV projects through state motion picture tax credits. Thus, the sponsor clearly can help source a movie industry adjacent target or prominent filmmaking company.
That being said, the deal flow of the executive team members may also come into play. From their history and Disney and Tiktok, they likely tapped into extensive deal flow in the media and entertainment industries. Although – since there is no private equity sponsor involved – a deal might take close to the deadline to finalize or announce a definitive agreement.
Potential Acquisition Targets
One potential target that comes to mind is Masterclass, due to the affiliations with Disney+ execs. Masterclass is a DTC platform which connects viewers with educational content from celebrities. It raised over $100M this year, which would likely be too small for the SPAC.
The entertainment space has also seen a ton of competition recently, with new platforms like Discovery+ and Disney+. Also, CuriosityStream also recently SPACed which would have been up Forest Road’s alley. It may be difficult to do an online streaming platform, so perhaps something closer to movies or film financing.
It’s tough to find media targets in the range of $500M – $1B, meaning that any deal Forest Road pursues may make a big move on the larger industry. Investors should hope they don’t do something last minute that ends up like Hall of Fame Resorts (HOFV) which crashed after deal close.
Summary on FRX SPAC
In total, although the team should be able to add value post-deal, Forest Road seems like a very mediocre SPAC. It’s tough finding potential targets in the media industry with competition running high in the space. Not only between conglomerates like Disney and Discovery, but also with other TMT SPACs. Additionally, prominent figures have questionable impacts. For example, Shaq may have more experience in the franchising business than media given his investing history. Also, MLK III’s impact on the SPAC is unknown and highly variable as of now. All in all, they could do something very interesting but its tough to tell as of now.