Special purpose acquisition companies (SPACs) were popular investment vehicles over the past couple of years. More than half of companies that had initial public offerings (IPOs) in the U.S. in 2020 and 2021 were SPACs, according to the website SPAC Analytics.
These companies don't have business operations of their own but look to buy businesses and take them public. In 2019, there were just 59 SPAC IPOs. But there were 248 and 613 in 2020 and 2021, respectively.
In 2022, there have only been 70 SPAC IPOs so far, showing this red-hot trend is cooling down. But there are still plenty of SPACs out there with cash looking to make an acquisition. And on July 12, FAST Acquisition Corp II (FZT 1.74%) announced it was putting its cash to use by merging with Falcon's Beyond.
You've likely never heard of Falcon's Beyond. However, if you're a travel investor who likes resorts, water parks, theme parks, immersive virtual reality (VR) experiences, and intellectual property that can be leveraged across different media types, then you might want to get to know Falcon's Beyond because it is involved with all of these things.
What is Falcon's Beyond?
Falcon's Beyond has three business segments: the Creative Group, Beyond Destinations, and Beyond Brands. The main segment is its Creative Group, which has been in operation for 22 years. Over this time, the aggregate value of its projects is over $100 billion. And the company has worked with A-list media brands like Walt Disney, Lions Gate Entertainment, Lego, and more.
To better understand what Falcon's Beyond does, consider a deal it has with the Kingdom of Saudi Arabia. Its Creative Group is developing a master plan for an upcoming water park. Not only will the company help design 22 rides, but it will also weave theme elements together throughout the park while trying to use 75% less water than traditional water parks, recognizing how precious this resource is in a country like Saudi Arabia.
Full-concept master plan deals like this typically have life spans of four to five years, giving Falcon's Beyond good revenue visibility. And right now, the company is working on five theme park deals, which collectively could be worth $655 million over their life spans.
Falcon's Beyond is looking to leverage the expertise from its Creative Group to build its businesses in Beyond Destinations and Beyond Brands. With the Beyond Destinations segment, the company is looking to develop themed resorts that it either owns outright or co-owns with partners. And with Beyond Brands, it hopes to monetize its own intellectual property (IP) and that of certain partners by releasing movies, toys, and more.
Given its years of experience working with top theme parks and IP owners, it makes a lot of sense for Falcon's Beyond to apply its knowledge toward ventures that it has larger and longer-lasting stakes in.
Is Falcon's Beyond a good stock to buy?
According to Statista, the travel and tourism industry is expected to grow at more than a 10% compound annual rate through 2026, reaching nearly $1 trillion. In short, this is a massive and growing market. And the executives of FAST Acquisition II believe there's a shift underway toward more experiential travel, which is Falcon's Beyond specialty.
Moreover, Falcon's Beyond has catalysts for long-term growth. It recently started a partnership with Melia Hotels International (SMIZ.F 12.05%), a brand with nearly 400 hotels, that could be a strong source of future cash flows. In November, this partnership announced a 50-50 joint venture in the Dominican Republic to develop a $350 million resort, scheduled to open in 2023. And through its partnership with Melia, the company will open two more resorts in 2024.
However, $350 million is a lot of money, and this is why Falcon's Beyond is going public. It will get more than $200 million from its merger with FAST Acquisition, and it intends to use this money toward the Dominican Republic project.
Falcon's Beyond is extremely interesting and could be a good investment. But it's too soon to form a strong opinion because of how it's going public. SPAC stocks are allowed to be selective with the information they share with potential investors. With Falcon's Beyond, it simply didn't share much regarding its historic or current financials, giving potential investors little to go on.
With the company going public at a market capitalization of $1 billion, I'm not sure if Falcon's Beyond is a good opportunity or not. And I won't have a strong opinion until it's been public for at least a few quarters, giving us a better look under its hood and allowing us to get more familiar with management. For this reason, I have no intention to buy shares of Falcon's Beyond right now. However, it's one to watch over the next couple of years.