Renaissance Capital logo

DraftKings lists on the Nasdaq following SPAC merger; up more than 5% in early trading

April 24, 2020

Diamond Eagle Acquisition, the fifth blank check company formed by entertainment veteran Jeff Sagansky, completed its previously-announced acquisition of DraftKings. The newly combined company began trading on the Nasdaq on Friday under the symbol DKNG, with an expected market cap of more than $3 billion.

Run a SPAC screen on IPO Pro

The blank check company originally raised $350 million in May 2019, listing its units under the symbol DEACU, which comprised common shares and 1/3 warrants. At Thursday's close, the SPAC's common shares last traded at $17.53, a 75% return from the $10 offer price, signaling that investors would approve the pending transaction. The stock opened Friday trading at $20.49, a 17% gain, before settling to about $19.15 by noon  (+9%). 

The transaction kept DraftKings' current management team in place, including co-founder, Chairman and CEO Jason Robins. Jeff Sagansky's two previous SPACs acquired TX-based specialty rental accommodations provider Target Hospitality (TH; $1.60 as of Thursday) and mobile office rental company WillScot Corp (WSC; $10.28).

Wellington, Franklin Templeton, and others agreed to invest more than $300 million upon completion of the merger. In addition to a deep bench of institutional investors, DraftKings may have drawn interest from its large user base of online betters. The platform boasts over five million user accounts, including 684,000 monthly unique payers in 2019 (+14% y/y), with each generating average revenue of $39 (+26% y/y). 

Despite the widespread cancellation of live sports in the US, including March Madness and the NBA finals, investors appear optimistic about DraftKings' bet on the long-term shift in consumer behavior to online betting, as well as its ongoing legalization in more parts of the US. However, the fate of the NFL's 2020-2021 season is still in question, and losing that revenue would be a major blow to the company. DraftKings has launched various non-sports betting options, and the CEO has stated that even if live sports don't return this year or next, the company is financially viable.

Investors will need to stomach heavy losses in the meantime. DraftKings generated revenue of $323 million in 2019 (+43% y/y), though adjusted EBITDA loss widened significantly to -$99 million (-31% margin). Its total accumulated deficit is more than $1 billion.

While most companies seeking to go public will wait for the IPO market to open up, DraftKings' initial success further cements SPAC acquisitions as a viable alternative to IPOs in certain cases. Roughly 100 active SPACs have not completed acquisitions, and the recent broad sell-off may provide dealmakers with opportunities to find undervalued assets. After a brief pause during the downturn, SPAC issuance roared back to life this week with three new offerings raising more than $1 billion combined.