Interest in a SPACtacular failure
The business news that matters.
Hello and welcome to the latest edition of Off to Lunch…
The rate of inflation has dropped to 2.3 per cent, according to ONS figures released this morning. This is the lowest level in almost three years but less than the 2.1 per cent economists were expecting. The prime minister Rishi Sunak says the figures mark a “major moment for the economy“ and that “brighter days are ahead“.
Elsewhere, the big business story for today is the collapse of Cazoo – and what it may say about the future of the SPAC. Back in 2020, they were all the rage as companies from WeWork to Virgin Galactic and DraftKings chose to go public through the special purpose acquisition companies route.
Cazoo got caught up in the hype. Founded by former Zoopla and Lovefilm boss Alex Chesterman in 2018, the online car dealer floated on the New York Stock Exchange through a SPAC just three years later, at a valuation of $8bn.
The company used the capital raised to acquire a number of businesses, including Vans365, and expand into Europe. It also splashed out on sports sponsorships for football teams including Aston Villa and Everton, as well as England Cricket. Revenue rose from £655m in 2021 to £1.2bn in 2022, but the losses were racking up.
September 2023 saw Cazoo agree to a debt-for-equity swap on nearly $630m of debt, which watered down the value of existing shareholders’ stock and led to its share price tumbling 23 per cent. Concerns have been mounting since that the company is in serious trouble, with its collapse into administration yesterday confirming that.
Other UK firms have struggled with the SPAC route to the public market. Digital health company Babylon took this route in June 2021 with a £3.3bn valuation, only to declare bankruptcy two years later. Virgin Galactic, meanwhile, launched with a valuation of around $2.4bn and a share price of $12.34 in October 2021. Today, the company’s market cap is around $400m and its share price is $0.97.
While SPACs may be a symbol of a bizarre time in business history, they serve as a timely reminder that cheap, easy money may lead you to fly too close to the sun.
Podcast…
The latest episode of the Business Leader podcast looks into the story behind Manchester-based travel company Travel Counsellors and why it might be the company with the best reviews in the UK.
Steve Byrne, the long-serving chief executive, explains why customers and staff rate it so highly, why you may not have heard about the company until now, and why it has ambitious plans for the future.
You can listen to the episode on Substack here, Spotify here and Apple here
Other stories that matter…
1. Today's inflation announcement casts a shadow over hopes of an interest rate drop next month, according to analysts. This comes the day after the IMF upgraded the UK’s growth forecast and gave the Bank of England room for three interest rate cuts in the remainder of 2024. You can read more here.
2. Government borrowing has hit its highest level in three years, exceeding expectations in April. The news puts more pressure on the prime minister and chancellor, who want to cut taxes ahead of the general election. You can read more here.
3. Shares in the London Stock Exchange’s most valuable company hit a record high yesterday. Investors are lapping up pharma giant AstraZeneca’s aims of almost doubling revenues to $80bn by the end of the decade. You can read more here.
4. Marks and Spencer smashed analysts’ estimates, with annual profits leaping 41 per cent to their highest level in more than a decade. The company also confirmed that it will pay its first dividend since 2019. The results come amid the supermarket giant’s five-year plan to cut costs by £100m. You can read more here.
5. Sorry in advance to Chelsea fans but I had to share this. Mauricio Pochettino left the club after just one season in charge, which tees up this great fact from The Athletic’s Will Jeanes:
And finally…
“My favourite Apple TV Plus show returns this month — and it's better than Ted Lasso”
Reading this headline stopped me in my tracks. As a massive fan of Ted Lasso, I thought this was a very bold claim but after watching the show the article was talking about, I can confirm that it’s spot on.
The first few episodes of the fourth season of Trying are now on Apple TV+ and I can’t recommend it enough. The show follows Nikki (Esther Smith) and Jason (Rafe Spall), who are struggling to conceive. It’s funny, has plenty of beautiful moments that stick with you, and a 93 per cent rating on Rotten Tomatoes.
Watch the show’s trailer here:
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