Tag Archives: Falcon’s Beyond

FALCON’S BEYOND (FBYD)

FAST ACQUISITION CORP. II has merged with FALCON’S BEYOND GLOBAL, INC.

FAST Acquisition Corp. II (FZT) raised $222M in March, 2021 to utilize in acquiring a company in the hospitality industry.  The Sponsorship group, now included on the Board of Directors, was led by Doug Jacob and Sandy Beall, both with outstanding brand building credentials within hospitality related industries. We were initially intrigued with their creativity in terms of improving the original SPAC structure, and informed our readers accordingly on 7/28/2002. Over the fifteen months since, the financial structure has been improved further for the benefit of public investors, just as the fundamental long-term outlook has also been enhanced, in particular by (1) a new Joint Venture relationship with one of the largest commercial property owners in China and (2) the addition of highly regarded Simon Philips as President of the Company.

FAST II has now combined with Falcon’s Beyond Global, Inc., an Orlando, FL based fully integrated, experiential entertainment enterprise with a collection of both Brick & Mortar and Intellectual Property assets.

The following short video provides a one-minute introductory overview.

( https://vimeo.com/570417222 ) (point & right-click, open hyper-link)

The Executive Chairman of Falcon’s Beyond is Scott Demerau, founder in 2007 of the House of Katmandu in Mallorca, Spain, which became a model for successful theme parks worldwide. In 2012 he established a 50/50 Joint Venture with Meliá Hotels International, which operates more than 380 resort properties across over 40 countries.

The CEO of Falcon’s Beyond is Cecil D. Magpuri, who founded in 2000 predecessor Falcon’s Treehouse, which has designed, planned and helped to execute over $100 billion worth of destination hospitality/entertainment venues worldwide. Prior to that Cecil had been Creative Director at Universal Studios and directed several projects like Apollo13, The Ride, Twister Ride it Out!. In 2021, Demerau and Magpuri merged their companies to create Falcon’s Beyond Global, Inc. (FBYD)

In addition to Falcon’s Creative Group (FCG) that designs projects, and Falcon’s Beyond Destinations that implements, plans and owns hotels, theme parks and retail destinations, there is Falcon’s Beyond Brands (FBB) that is developing Intellectual Property across entertainment and consumer product categories. As referenced above, Simon Philips, previously a senior advisor to Falcon’s Board of Directors, has recently joined full time as President. Philips most recently was Managing Director, Global Consumer Products, at Moonbug Entertainment, the company behind properties such as CoComelon, Blippi and Little Angel. Before that he was President of Marvel Entertainment Int’l, where he was a member of the leadership team that paved the way for its sale to Disney. At Disney, he become Executive VP and General Manager, Europe, the Middle East & Africa, where his strategic approach helped to generate over $16 billion of annual sales across iconic brands within the Disney, Star Wars, Pixar and Marvel portfolios. His particular skill set is obviously relevant to the expectation that Intellectual Property will amount to about one third of long-term corporate value.

The broad mission of the newly public Falcon’s Beyond Global is to produce operating cash flow, at the same time building for themselves brick and mortar and intellectual property,  just as they have created, planned and built for others over the last twenty-two years.

SUMMARY OF DEAL TERMS AND CURRENT VALUATION (@ $10.00/share

Special note: as of 10/17/23 at 1:30pm. In the last ten days FBYD, the stock, has gone from $10-12/share to $28, back to $12, as high as $40/share at 11:00am on 10/18 and is trading at $28/share as this is written at 1:30pm on 10/18 in the Big Apple. This extreme volatility has precedent with other SPACs just after their Business Combinations. Though we are obviously optimistic relative to the long-term prospect for FBYD, we expect it to fall back to a more “normal” level before moving higher over time.

The post-deal valuation, at $10.00/share, based on the starting shares outstanding will be about $570M, which is prior to “contingent” earn-outs that will depend on stock price and/or EBITDA generation in calendar ’23 and’24. Over the next eighteen months, as calendar ’23 and ’24 quarterly results are reported, 77.5M additional shares could be issued to holders of Company Units (including management, the Sponsors and underwriter, Jefferies. These earn-out shares are contingent upon the stock trading through the twenties to over $30/share, with revenues over $70M in ’23 and $140M in ’24 and EBITDA of at least $12.4M and $44.8M respectively. Keep in mind that ’23 and ’24 would be setting the stage for a much larger ’25, with the proxy material projecting Revenues of $449-499M and EBITDA of $133-148M.

It is worth noting that the operating principals of Falcon’s Beyond have contributed their entire equity ownership of Falcon’s Beyond in exchange for stock, owning as a result a combined 47.3% of the new equity. Our further approximation is that the combined company will have Infinite Acquisitions LLLP owning 47.1%, Scott Demerau (Executive Chairman) and Cecil Magpuri (CEO) owning 22.9% and 24.4% respectively, and a variety of others with about 6%.

Critically, with the proxy material suggesting $7M of EBITDA in the second half of ’23, there should be no operating “burn rate” in the short term, since the Falcon’s Creative Group is already a going concern, with visibility to provide $755M of goods and services over 4-5 years. The cash flow generation from Creative should help to fund the capital needs of Destination’s brick and mortar effort, with the first Meliá JV project (Punta Cana) already operating and two more to follow in ’25 and ’26. Longer term, the potential from building Brands’ proprietary Intellectual Property is expected to be a substantial third leg of Falcon’s unique position in hospitality/entertainment, generating asset light revenues and cash flow.

BRIEF DESCRIPTION of FALCON’S BEYOND

THREE SEGMENTS – (CREATIVE – DESTINATIONSBRANDS) – Short to intermediate term, Creative and Destinations will be fifty-fifty contributors to the results. Longer term Brands,  is expected to be an equal third leg.

A 2:26 minute Descriptive Video – just below

https://vimeo.com/641310306   (point & click, point & click on link)

Falcon’s Creative Group, (FCG) led by CEO, Cecil Magpuri, in addition to supporting internal projects, is currently executing the master planning for five third party theme park operators. These five parks will include the design of over 100 attractions, the media production for over 19 attractions, as well as procurement of necessary hardware. This backlog (including $100M for the Destination/Meliá JV) will amount to about $755M of billing over 4-5 years, and, based on indicated margins, should generate EBITDA of about $158M. These projects include a very large Creative project involving engagement by Saudi Arabia’s Qiddiya Investment Company (which recently purchased 25% of FCG for $30M) to lead the design of 26 assets within which $5 trillion is expected to be invested over twenty years in a new  entertainment district called Qiddiya. Creative began work on Qiddiya in 2018 on this very long-term project that will encompass 367 square kilometers (19×19 km. = 11×11 mi.).

Please watch the short videos below – only 3 of $100B worth of projects – (point & click, point & click on link)

BaNa Hills Mountain Resort in Da Nang, Vietnam on Vimeo

Making-of Becoming Jane: The Evolution of Dr. Jane Goodall at National Geographic Museum on Vimeo

https://vimeo.com/279458337   Atlantis Sanya – China’s premier Underwater World

Falcon’s Beyond Destinations is already capitalizing on the potential of the joint venture with Meliá Hotels International, owner and operator of about 380 resort hotels worldwide. In most anticipated locations Meliá plans to contribute an existing hotel to each project within the 50-50 joint venture and Destination provides the capital for the Katmandu Park (owned 50-50) as well as the 100% Destination owned Falcon’s Central entertainment and food center. Already in the JV is the Hotel and Park, now long established in Mallorca. The first new JV project is in Punta Cana (the site plan shown below), Dominican Republic, with the Park now open for six months, the hotel (contributed by Meliá) already the number one hotel in Punta Cana, with Falcon’s Central planned to open in early 2025. The next joint location is planned to be at Tenerife, in the Canary Islands, with the existing hotel planned to be renovated in 2024, the Park and Falcon’s Central planned to open in mid-2025. Planned after that is Playa del Carmen (in Mexico), with Falcon’s Central to open possibly in early 2025, the Park to fold in by mid-2025 and the hotel by mid-2026.

The Investor Presentation from 2022 estimated that, with the three new JV projects opened, Destination’s 50% of the joint venture plus 100% of Falcon’s Central, depending on the cap rate, will be worth from $954M to $1.451B.

Falcon’s Beyond Brands is focusing on expansion, execution and monetization of proprietary as well as partnered brands. Brands, consumer products and entertainment content can all be licensed, just as proprietary existing brands such as Katmandu, Cadim and the Monster Wave and VQuarium. In conjunction with Creative and Destination, as well as 3rd party partnerships with PBS Kids, Epic Story Media and others, this is an asset light effort that could be very substantial over time. Management estimates that Creative and Destinations will contribute 50% each to EBITDA for the next two years, but each division could contribute about 33% longer term. As indicated above, the recent installation of Simon Philips, with his brand building experience, as President of Falcon’s Beyond, is an important new ingredient.

CONCLUSION:

The value of Falcon’s 50% portion of just the first few projects with Meliá Hotels could approximate or exceed the initial valuation.  Longer term, more Destination projects with Meliá, the most recently announced Destination project with one of the  largest mall operators in China (described below), expanded Creative business with Qiddiya (also described below), and Brands could combine to double the projected mid-2026 $140M run rate of EBITDA by ’28-’29.  We emphasize again that current Creative operations should be cash flow positive in the very short term, providing the absence of operating burn rate.

There are sufficient very large moving parts so that future results can only be approximated in terms in terms of quantity and timing. It does, however, seem that success is more a question of how much and when, rather than if. The professionals at Falcon’s Beyond are not being asked to do anything they haven’t done before. The fact that this young creative name in the hospitality/entertainment arena could attract such world class JV partners owners speaks volumes. The starting valuation, without the earn-outs, is substantial but can be justified by the long-term potential, whether or not short-term results trigger the earn-outs.  On the upside, if the stock is $20-30 share, earn-outs will not bother investors. There will be a similar lack of concern if EBITDA has been produced as planned because the ongoing multi-decade opportunity should support the valuation at that point.

In summary, the possibility of about $140M of annualized EBITDA in less than 3 years, combined with the potential to build billions of dollars of brick-and-mortar capitalized assets makes the starting valuation under $600M seem reasonable. While acknowledging that the timing of projects so large in scope can be problematic, based on the past accomplishments of the Falcon’s management team, as well as the financial strength and long-term commitment of their joint venture partners, we believe the order of magnitude of expectations is credible. Accordingly, we believe that the common stock of newly public Falcon’s Beyond Global, Inc. (FBYD) offers an extremely attractive long term investment opportunity.

FALCON’S BEYOND IN MORE DETAIL

Falcon’s and its predecessor Creative companies have executed immersive story-driven development projects related to over $100B of projects in 27 countries and currently have $755M of revenue visibility. They are uniquely equipped to respond to the secular shift to “experiential” consumer leisure pursuits.

A 50/50 Destination driven joint venture with Meliá Hotels International, operator of 380 resort venues around the world, can provide value to Falcon’s common stock by way of $150M of annual EBITDA and $1B of asset value within several years. Also exciting are the long-term relationships with Qiddiya Development Company (building a $5 trillion entertainment district in the UAE) and New World Development Company (a major Chinese property owners).

Last, but far from least, Falcon’s Intellectual Property and Brand Development is expected to be an equal third leg to Falcon’s long term value building process.  Falcon’s Creative Group designs the projects, Destination develops the hard assets, and Brands will deploy proprietary and partnered brands across entertainment and consumer product categories. Recently recruited Simon Philips is now President of the Company, the implication being obvious as to the major role development of Intellectual Property is expected to plan.

For twenty-two years Falcon’s Creative Group has executed master plans, design, and media production projects all over the world, winning over 30 industry awards, and creating the capacity to serve billions of guests. The decades of experience as a third-party consultant sets up Falcon’s to now develop physical entertainment attractions and Intellectual Property for their own account. Their historical success is supported by the fact that 58% of first-time clients have returned for additional services, the scope of which expanded by 60x. Specific projects have included master plans for Lionsgate Zone in Dubai, U.A.E. and Atlantis Sanya in Hainan Island, China. Attractions and experiential destinations have included Hulk Epsilon Base 3D in Dubai, U.A.E. and Kennedy Space Center Heroes & Legends in FL, USA. Captivating media projects have included Become Jane: The Evolution of Jane Goodall, in Washington, DC, and Halo: OutPost Discovery which toured across the USA. Experiential Restaurant and Retail developments have included Finn & Jake’s Everything Burrito and Marvel Vault Store, both at the IMG Worlds of Adventure Theme Park in Dubai.

Below are links to short video presentations for just a few of the just named projects.

ESPECIALLY ILLUSTRATIVE OF THEME PARK CAPABILITIES: SEEIMG”, BELOW:

(point & click, point & click on link)

https://vimeo.com/227291407  “IMG” Worlds of Adventure, Dubai –

https://vimeo.com/372003261 – Halo: Outpost Discovery

https://vimeo.com/378417546?share=copy – SpectraVerse Game Bay ecosystem

https://vimeo.com/111864378 – Suspended Theatre

                Current projects:

As shown in the first chart below, Falcon’s Creative is finalizing the full concept master plans for five “third party” theme parks, estimated to amount to $655M of goods and services, in addition to about $100M relative to the JV with Meliá.  Applying the estimated gross margin of 30-35% to services and 17-18% to hardware, the total gross margin (at the midpoint) would be $158M. Based on the timeline shown on the chart just above, one fifth of that would be about $32M of annual gross margin generated for Falcon’s.

Not shown below, Falcon’s is also actively developing the pre-concept master plans for three unique theme parks, as well as the full concept design for nine specialty themed hotels, each of which can generate subsequent phases of design.

Creative (as a segment of Falcon’s Beyond) should be demonstrating over the next six months a substantial positive cash flow, based on the indicated backlog

There is continuing support of Qiddiya, one of a series of giga-projects in Saudi Arabia, designed to consist of 367 square kilometers of family friendly theme parks, sports arenas (suitable for int’l competitions), academies for sports and the arts, concert and entertainment venues, motorsport racetracks and nature/environmental adventure activities. To date, for Qiddiya Falcon’s Creative has led the design of 26 assets within its distinct entertainment district. This has included the design of the region’s largest water theme park, spanning 252,000 square meters and combining 22 wet and dry attractions alongside competition level water sports facilities. Falcon’s is also now supporting the project in the role of creative guardian as construction advances.

Importantly, QIC Delaware, Inc., an affiliate of the Qiddiya Investment Company, invested $30M on 7/27/23 for a 25% equity interest in FCG (Falcon’s Creative Group LLC. This commitment obviously demonstrates Qiddiya’s intention to be intimately involved over the long term with Falcon’s Beyond.

 FALCON’S BEYOND DESTINATIONS (FBD)

Falcon’s Beyond Destination is currently comprised of the hotel and Katmandu theme park in Mallorca, plus the Hotel and Park in Punta Cana, with Falcon’s Central in Punta Cana, plus Tenerife and Playa del Carmen planned to be developed in the next twenty-four months. The hotels, contributed by Meliá and the Katmandu parks built and financed by Falcon’s, will be part of the 50-50 joint venture. Falcon’s Central, the adjacent retail, dining and entertainment venue will be built, operated and 100% owned by Falcon’s.

The model for the Falcon’s Destination/Meliá Joint Venture was the Sol Katmandu Park and Resort in Mallorca, Spain, the park having been established in 2007, whose performance improved substantially after merging with the adjacent Meliá hotel in 2012, complemented by the Falcon’s designed Katmandu compact theme park.  The design of this combined “entertainment with rooms” destination makes it convenient for guests to visit throughout the day and evening. Falcon’s developed stories, characters and environments to transport guests to Katmandu via immersive theming from entry through queues into each attraction.  The theme park, prior to COVID, averaged over 240,000 visitors per year, generated in only seven months per year as a seasonal destination. The hotel’s average occupancy was 77%, 6 points better than non-Katmandu hotels in Mallorca, with an average room rate of $154, 11% higher than non-Katmandu rooms.

The improvement in Mallorca, and the working relationship between Falcon’s Chairman, Scott Demerau, with Meliá encouraged the formation of the JV. Meliá has more than 380 resort and beach destinations across over 40 countries. Scott Demerau’s team has the theme park operating experience, and Cecil Magpuri leads the Creative production of a leading-edge entertainment experience. Meliá, by contributing an existing hotel to the JV, is betting that their 50% of the theme park (which Falcon’s is building) plus their 50% of the improved hotel cash flow, with higher room rates and occupancy, plus more business at other properties they may own in the area, will be more than their current cash flow from the hotel.  Falcon’s is getting access to premium resort real estate owned by Meliá that would be largely untouchable at today’s values. Both Meliá and Falcon’s will benefit from Meliá’s long term banking relationships, in addition to Falcon’s new access to US capital markets

Below is a concept rendering of the general site plan in Punta Cana, including, in listed order, the existing Falcon’s Resort by Meliá, the Falcon’s Central RD&E Zone, the Katmandu Park, and an approximate representation of the existing surrounding Meliá properties including Meliá Caribe, Meliá Punta Cana Beach, and Paradisus Palma Real, and Garden Suites by Meliá, the last of which has been rebranded as Falcon’s Resort by Meliá.

As the charts below from the Investor Presentation show: Within the joint venture are the Mallorca Sol Hotel Katmandu Park and Resort, theme park, plus the hotel and theme park in Punta Cana (Dominican Republic, with Tenerife (Canary Islands) and Playa del Carmen (Mexico) planned.  It should be noted that all are year-round tourist locations, 3.5M annually in Punta Cana, 8.4M in Tenerife and 12.5M in Playa del Carmen (excluding cruise ship visitors).

By the end of 2026 the joint venture expects to own and operate four destination resorts with over 2,000 hotel rooms, four theme parks, and three 100% owned retail districts. As shown below, the capitalized value of this brick-and-mortar portfolio could approximate the initial valuation of the deal, possibly more. Primary monetization of these developments will consist of hotel bookings, entertainment ticket sales, retail & food & beverage sales, and management fees.

Joint Venture Economics

As presented in the Investor Presentation in ’22, The Joint Venture, once all three new locations are opened and ramped, is expected to generate, after capex, about $125M of annual Cash Flow. Falcon Beyond’s 50% share would be about $63M, as shown in the chart below. We note the reference on the left “we expect to take advantage of Meliá longstanding banking relationship to secure attractive banking terms.” Leverage is calculated at 40-45% loan-value, which generates a 37% pretax return on equity for Falcon’s Beyond. The calculation, as shown in the Investor Presentation is just below:

              Falcon Central – the concept and the economics

Falcon’s Central is the “signature” venue at the center of the theme park, merging retail, dining and entertainment. Guests are exposed to a multitude of entertainment experiences, amenities, IP content and merchandise. Dining experiences are offered both from local restaurants as well as newly developed concepts. The shopping district offers both local and global retailers showcasing varied IP-infused merchandise. Attractions featured at Falcon’s Central may be VQUARIUM (planned to be provided to the KII JV in China), a virtual adventure, STORY HUB, an immersive location-based entertainment experience, CURIOSITY PLAYGROUND, an experiential edutainment venue, and GAMEHUB, an immersive video game experience.

 The chart, as presented in the ’22 Investor Presentation, shows Falcon Central’s Cash Flow, after capex and interest, from the three new locations amounting to $44M, generating a 36% pre-tax return on equity. Once again, as with the theme park development, Meliá banking relationships are expected to be instrumental (Borrowing $96M out of $217M initial investment).

Total Hard Asset EBITDA Generation (and capitalized Value)– at  mid-’26 Run Rate

As described in the discussion above:

When the three new locations are completely opened by mid-2026, the Joint Venture with Meliá is expected to be annualizing (for Falcon’s Beyond) EBITDA at $73M, before maintenance capex of $5.5M. Falcon’s Central (100% owned) is expected to be annualizing at $53M before maintenance capex of $5M capex.  The EBITDA annualized run rate on “hard assets”, after maintenance capex, is therefore expected to be about $118M. The difference between that and the $146-$156M of total EBITDA is expected to be generated by Falcon’s Creative, which appears reasonable based on the backlog of projects and the commensurate margins.

Capitalized Asset Value

Cash flow generation obviously has a value, depending on the reliability of the cash flow, and the cap rate provided by capital markets. The following table, from the ’22 Investor Presentation shows the calculation behind an asset value of $954M to $1.451B, depending on cap rate.

PLUS: JOINT VENTURE WITH “KII”– OPERATOR OF 26 MALLS, EACH OVER 5M SQUARE FEET, IN CHINA

On November, 2021, Falcon’s Beyond entered into a joint venture agreement (“Karnival”), as a 50-50 owner, with K11 Group’s “Raging Power,KII” itself a subsidiary of publicly held (in Hong Kong) New World Development Company Limited (NWDC), owner of 26 malls in China, each over 5M square feet. For perspective, there is only one mall of this size in the US, the 5.5M square foot Mall of America in Minneapolis. NWDC is described by Wikipedia: “Over the last four decades the group has…..established itself as one of the largest foreign direct investors…..existing investments in Mainland China has exceeded US$16.5 billion, spreading across four municipalities and 19 provinces”. An anticipated opening of the first project will be an installation of Falcon’s Vquarium attraction, at the Hong Kong International Airport “ll Skies” project, developed by NWDC’s subsidiary, K11. The Vquarium attraction may also be featured at Falcon’s Central (within the Meliá JV), per the proxy material: “Discovery and conservation come together through this educational, virtual adventure. With the assistance of an intelligent submersible vessel, a team of young scientists is guided through learning about our planet in ways never thought possible.”. This project, expected to be Hong Kong’s largest hub for retail, dining and entertainment, is expected to open in 2025. While Falcon’s investment has not yet been disclosed, Falcon’s is to receive 16.6-20.6% of the gross revenues.

FALCON’S BEYOND BRANDS, (FBB) – the asset light “kicker”

Falcon’s Brands will deploy and monetize owned and partnered brands. The unique brand expander strategy compresses the normal timeline for brand monetization and will do so across multiple venues, to include licensing agreements across outside channels. In March,2023, Simon Philips was named President of Falcon’s Beyond, the mission being expansion of existing business, with an emphasis on the Brands division. His particular experience should allow for deployment and monetization of Falcon’s Story-driven IPs and Third-party Partnered Brands through entertainment content and consumer products.

This effort is led by both internal talent, and outside advisors including Board members. It will include multi-media story telling by way of social media, films, books, comics, gaming, VR, apps, music, podcasts, audio books, etc. Distribution can take place through brick-and-mortar retailers, online direct to consumer, as well as in 3rd party marketplaces.  A variety of characters and universes are already within Falcon’s portfolio of brands.

A number of strategic partnerships with leading developers and distributors of brands are already in place to jump-start this effort. The synergistic effect of FBYD’s three divisions should be noted, since each project done well by a particular segment builds long term value for the others

The brand expander strategy is broken down into three primary components: (1) Entertainment Content (2) Consumer Products (3) Destinations. The three divisions feed into each other to accelerate the growth strategy.

Within Brands lies FBYD’s award winning ride systems and technology, including experiences such as Spheron, CircuMotion, Falcon’s Vision AR Headset, Suspended Theater, SpectraVerse and SpectraVerse GameBay, ONIX Theatre, and ÄEONXP technology. In the course of developing the above attractions and technology, multiple patents have been granted in more than a dozen countries.

Their extensive work-for-hire history provides a platform for research and development, leading to this portfolio of award-winning proprietary technology and attraction systems, as well as patents covering some of these technologies and systems. Many of the Attraction-based IPs have been developed and tested in-house at their Falcon’s X-Lab facility in Orlando, including:

Demonstrative of FBYD’s capabilities tying into monetization of brands: announced in September, 2022 was BeyondME, a new fan loyalty and online game platform powered by the proprietary ÄEONXP technology, which is designed to enable players of all ages to connect, personalize, and be rewarded for their engagement across both digital and real-world experiences. BeyondME aims to encourage players to gain experience points as virtual currency, called XP, by participating in a variety of real-world experiences across Falcon’s properties and virtual experiences within the BeyondME web app, and by playing BeyondME-enabled online games. XP can also be earned on purchases at Falcon’s own physical retail locations and on the Falcon’s e-commerce store.

Falcon’s Beyond Brands is expected to be, over the long-term, a one third contributor to total corporate EBITDA, equal to each of Creative and Destinations. This Division is alone worthy of (literally) a book to be written, describing the process and potential of developing and monetizing Intellectual Property. We expect to be exploring this area at depth with our readers.

PRO FORMA BALANCE SHEET AND NEAR TERM CASH FLOW DISCUSSION

As expected, redemptions from the original SPAC investors came in virtually at the maximum level, leaving very little from the original offering over two years ago. As described in the latest proxy material, remaining commitments from the private placement investors, as well as the $30M strategic investment from QIC is therefore funding working capital needs as the Creative division ramps up its activities. Falcon’s capex contributions for brick-and-mortar projects, with Meliá Hotels International and K11 in China will be made in conjunction with their financially strong partners, who obviously look to Falcon’s more for their creative contribution than deep pockets.

Investors should be aware that, due to the closing on October 6th, the 9/30/23 10Q will not yet reflect the balance sheet for the Business Combination. The facts and figures relative to the current operating quarter (Q4’23) will not be disclosed until the year-end 10K is filed, probably in March, though there will no doubt be operational and financial announcements between now and then.

We would be remiss not to reiterate the boilerplate caveats included in the 800-page proxy document. Adjustments to financial plans, for better or worse, are always a possibility. Brick and mortar can open late, cost more, or do less well than expected, and financing might not be available as planned. In this case, however, the substantial and apparently growing contractual backlog with the Creative division should allow for adjustments in timing, rather than elimination, of future projects. The predictable positive operating run rate at Creative would also buy time to arrange acceptable financing for brick-and-mortar projects. While short-term results could be affected, longer term plans would (hopefully) remain intact.

PEER VALUATION COMPARISONS

The chart below, from the proxy material shows the valuations of publicly held companies that are also in the hospitality/entertainment business. The starting valuation for Falcon’s Beyond, without including possible earn-out shares, at $10.00 per share is only about four times the projected $140M of EBITDA in calendar ’26, less than half the comparable composite ’25 peer numbers, perhaps half of peer ’26 estimates. If Falcon’s hits their projections, the extra shares would bring Falcon’s multiple roughly in line with the peer group. We suggest that the growth rate at Falcon’s, a different order of magnitude, would likely create a much higher multiple. None of these “peers” has, or is likely to have, any thing remotely like the story that Falcon’s Beyond Global has to tell.

CONCLUSION: As provided above

The value of Falcon’s 50% portion of just the first few projects with Meliá Hotels could approximate the initial valuation.  Longer term, more Destination projects with Meliá, the most recently announced Destination project with one of the largest mall operators in China (described above), expanded Creative business with Qiddiya (also described above), and Brands could combine to double the projected mid-2026 $140M run rate of EBITDA by ’28-’29.  We emphasize again that current Creative operations should be cash flow positive in the very short term, providing the absence of an operating burn rate.

There are sufficient very large moving parts that future results can only be approximated in terms in terms of quantity and timing. It does, however, seem that success is more a question of how much and when, rather than if. The professionals at Falcon’s Beyond are not being asked to do anything they haven’t done before. The fact that this young creative name in the hospitality/entertainment arena could attract such world class JV partners speaks volumes. The starting valuation, without the earn-outs, is substantial but can be justified by the long-term potential, whether or not short-term results trigger the earn-outs.  On the upside, if the stock is $20-30 share, earn-outs will not bother investors. There will be a similar lack of concern if EBITDA has been produced as planned because the ongoing multi-decade opportunity should support the valuation at that point.

In summary, the possibility of about $140M of annualized EBITDA in less than 3 years, combined with the potential to build billions of dollars of brick-and-mortar capitalized assets makes the starting valuation under $600M seem reasonable. While acknowledging that the timing of projects so large in scope can be problematic, based on the past accomplishments of the Falcon’s management team, as well as the financial strength and long-term commitment of their joint venture partners, we believe the order of magnitude of the projections is credible. Accordingly, we believe that the common stock of newly public Falcon’s Beyond offers an extremely attractive long term investment opportunity.

Roger Lipton

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FAST ACQUISITION CORP II (FZT)(FBYD as of 10/5/23) GOES UP 30% ON TUESDAY, AS BUSINESS COMBINATION WITH FALCON’S BEYOND IS APPROVED BY SHAREHOLDERS

We have written for over two years about  Special Purpose Acquisition Companies (“SPAC”s, and the approximately eight companies sponsored by restaurant executives that we have known for many years. Those articles can be accessed by way of the SEARCH function on our HOME PAGE.

It’s fair to say that our discussion of SPACs over the last several years has been generally skeptical relative to the risk and reward profile for the investing public. Justifying our view, now that  the SPAC “bubble” has burst,  only one hospitality/restaurant participant  remains, with a business combination completed and the stock trading at a premium to its original $10/share issue price. Happily, this is a Company that we have viewed favorably and described at great length within these pages.

This Company is  FAST Acquisition Corp. II (FZT), sponsored by Sandy Beall and Doug Jacob, merged yesterday with a rapidly growing Hospitality/Entertainment/Intellectual Property Company called Falcon’s Beyond.  We will update the outlook in the near future, but, in a nutshell: in addition to their Intellectual Property Development capabilities,  Falcon’s Beyond has master planned and helped to execute over $100B  of worldwide destination entertainment projects. Among their current assignments, they are  actively working with the Saudi’s within a twenty year plan that will deploy something like five trillion dollars building an entertainment district that will encompass about 100 square miles. Also on the hospitality/entertainment side of the business, they have a joint venture with Melia’, a Mallorca, Spain based, publicly held hotel company, that operates worldwide what could be termed a “priceless” portfolio of about 350 resort properties.

Our previous reports (which you can find by way of a SEARCH within our HOME PAGE for FZT) (in particular our report dated 8/24/22, link below) include  a number of short descriptive videos which are more entertaining than most research product you will come across. Enjoy!.

Roger Lipton

https://www.liptonfinancialservices.com/2022/08/fast-acquisition-corp-ii-fzt-u-to-combine-with-falcons-beyond-their-spac-structure-as-modified-is-much-improved-the-risks-seem-manageable-and-the-upside-issub/

FAST ACQUISITION CORP II (to become FBYD as of 10/5/23) moves forward, TO ACQUIRE FALCON’S BEYOND, WITH SIGNIFICANT POSITIVE NEWS JUST THIS MORNING

IMPORTANT ANNOUNCEMENT THIS MORNING: We provide below the headline, a link to the full announcement, and several “highlight” paragraphs.

SIMON PHILIPS JOINS GLOBAL ENTERTAINMENT POWERHOUSE, FALCON’S BEYOND, AS  PRESIDENT – FORMER DISNEY, MARVEL AND MOONBUG EXECUTIVE ASSUMES LEADERSHIP ROLE TO BOLSTER FALCON’S BEYOND INNOVATION IN ENTERTAINMENT

Link to the full release:

https://www.businesswire.com/news/home/20230310005308/en/

“As President, Philips will oversee the future growth and expansion of entertainment-based business and development of the company’s IPs. This will include developing and implementing comprehensive corporate strategies for future growth across all commercial operations of the company and its wholly owned subsidiaries. Leveraging his deep industry expertise and relationships, Philips will also focus on strategically building the infrastructure of new consumer products and entertainment content.

“When I became Senior Advisor to the Board last year, I commented that Falcon’s Beyond is playing in a vast sandbox. Since last year, I have been so impressed with the Company’s mark on the industry. This is a terrific time to join the team for what we expect to be explosive growth in the industry,” said Simon Philips. “I appreciate the opportunity to bring more than 30 years of experience and insight to Falcon’s and am thrilled about the abundant opportunities we will pursue together.”

“Simon’s reputation and acclaim in entertainment has been truly inspirational for me and the greater Falcon’s team,” said Cecil D. Magpuri. “His visionary cross-channel approach to brand expansion will further strengthen our own IP Expander flywheel. We feel incredibly fortunate to have found someone of Simon’s caliber whose values are so perfectly aligned with Falcon’s culture.”

“Among his many accomplishments, Philips previously served as president of Marvel Entertainment International, where he was a member of the leadership team that helped build Marvel into an internationally renowned brand and pave the way for its sale to Disney. He later became Executive Vice-President & General Manager, The Walt Disney Company, Europe, the Middle East & Africa, where his strategic approach to bringing to life iconic brands from across the Disney, Star Wars, Pixar and Marvel portfolio through licensing generated more than $16 billion in annual sales.”

THE FOLLOWING IS THE UPDATE  PREVIOUSLY PREPARED:

FAST ACQUISITION CORP II (FZT.U) MERGER WITH FALCON’S BEYOND MOVES FORWARD – S-4 FILED – SPAC STRUCTURE IMPROVED FURTHER AND FUNDAMENTALS CONTINUE TO BE PROMISING – THE UPSIDE HERE IS SUBSTANTIAL! – OUR UPDATE!

Introduction: This proposed transaction was announced on 7/12/22. We’ve followed the professional careers within the FAST II Sponsorship group for many years, were initially intrigued with their creativity in terms of improving the typical SPAC structure, and informed our readers accordingly on 7/28/22. In September we visited the first joint venture site in Punta Cana (which we wrote about here on 9/20/22. Based on the recently filed S-4 and a new Investor Presentation (elements of which are provided below) we remain enthused about the long term prospects for this unique Company. Importantly: since the normal redemption hurdle has been removed from this situation, this deal will print!

In the briefest possible form, the Company is introduced just below in fifty-nine seconds

( https://vimeo.com/570417222 ) (point & click, point & click on link)

THE SPAC – AN IMPROVED STRUCTURE

The original SPAC structure was improved, as we described last July, and has been further adjusted to reduce the risk for public shareholders. The latest version, as described below, provides reward to the Sponsors based on capital raising results, to the operators based on their fundamental success, and protects the public shareholders if the first two stakeholders don’t perform as projected.

FAST ACQUISITION CORP. II to merge with FALCON’S BEYOND

FAST Acquisition Corp. II (FZT) raised $222M to utilize in acquiring a company in the hospitality industry.  The Sponsorship group and proposed Board of Directors have outstanding brand building credentials in the hospitality/restaurant/retail industries. Included are &vest’s Doug Jacob (co-founder of &vest), Bill Hinman (partner of &vest and former Director of the SEC’s Division of Corporate Finance), Sandy Beall (partner of &vest, founder of Ruby Tuesday’s, founder of Blackberry Farm and Blackberry Mountain) and others.

FAST II is proposing the acquisition of well-established Falcon’s Beyond, an Orlando, FL based fully integrated, experiential entertainment enterprise with a collection of both Brick & Mortar and Intellectual Property assets. The principals at Falcon’s Beyond have unquestionable creative and operating credentials. The Executive Chairman of Falcon’s Beyond is Scott Demerau, founder in 2007 of the House of Katmandu in Mallorca, Spain, which became a model for successful theme parks worldwide. In 2012 he established a 50/50 Joint Venture with Meliá Hotels International, which operates more than 380 resort properties across over 40 countries. The CEO of Falcon’s Beyond is Cecil D. Magpuri, who founded in 2000 predecessor Falcon’s Treehouse, which has designed, master planned and helped to execute over $100 billion worth of hospitality/entertainment venues worldwide. In addition to Falcon’s Creative Group that designs the projects, and Falcon’s Beyond Destinations that implements the plans and owns the hotels, theme parks and retail destinations, there is Falcon’s Brands that will deploy proprietary and partnered brands across entertainment and consumer product categories. Among the expected public Board Members of Falcon’s Beyond is Simon Philips, previously General Manager of The Walt Disney Company EMEA and President of Marvel Entertainment.

The broad objective of the newly public Falcon’s Beyond will be to produce operating cash flow, at the same time building for themselves brick and mortar, as well as intellectual property, just as they have created, planned and built for others over the last twenty-two years.

SUMMARY OF DEAL TERMS AND STARTING VALUATION

We will describe the deal terms and valuation in greater detail below but the post-deal “base case” valuation, at $10.00/share, will be about $620M, implying a modest 4.7x 2025 estimated base case EBITDA (17.3x 2024 est. EBITDA). Including performance incentives, the post deal valuation would be $1.02B, or 7.7x base case 2025 EBITDA (28.4x 2024 EBITDA).  Importantly, the principals of Falcon Beyond are merging their entire professional careers into this venture, as well as providing $60M to the Melia’ transaction, and will own about 68% of the pro forma common equity with their existing shareholder base.

Critically, though there was an operating loss during the last twelve months of organizational activities at Falcon’s Beyond, there should be positive earnings and cash flow in short order, since the Falcon’s Creative Group has tangible visibility to provide $755M of goods and services over 4-5 years. The cash flow generation from Creative should help to fund the capital needs of Destination’s brick and mortar effort, with the most recent Meliá JV project (Katmandu Park in Punta Cana) opening on March 15th, 2023, and two more locations to follow during ’24 and ’25. Longer term, the potential from building Brands’ proprietary Intellectual Property is expected to be a substantial third leg of Falcon’s unique position in hospitality/entertainment and represents significant upside to investors.

FALCON’S BEYOND – A HISTORICAL OVERVIEW

Executive Chairman, Scott Demerau, has spent decades building and operating themed entertainment facilities, both in the US and abroad.  In 2007 he founded the House of Katmandu, a relatively small theme park adjacent to one of  Meliá’s hotel properties, in Mallorca, Spain. Katmandu’s success, accompanied by a dramatic improvement in room rates and occupancy at the hotel, encouraged Meliá and Demerau to expand the Mallorca site into a 50-50 jointly owned Katmandu Park & Resort venture. In the course of Demerau’s activities, at Katmandu and elsewhere, he used the creative services of Cecil Magpuri, CEO of then Falcon’s Treehouse, formed in 2000. Prior to Falcon’s, Cecil had been Creative Director at Universal Studios and directed several projects like Apollo13, The Ride, Twister: Ride it Out! Over the last twenty-three years, Falcon’s Treehouse has had a master plan and execution role in over $100B worth of destination themed entertainment projects.

In 2021, Demerau and Magpuri merged their companies to create Falcon’s Beyond.

Another 2:26 minutes, broadly describing Falcon’s Beyond:

https://vimeo.com/641310306   (point & click, point & click on link)

BRIEF DESCRIPTION of FALCON’S BEYONDTHREE SEGMENTS (CREATIVE, DESTINATIONS, AND BRANDS)

Short to intermediate term, Creative and Destinations will be fifty-fifty contributors to the results. Longer term Brands, and its ability to develop valuable intellectual property, is expected to be an equal third leg and therefore represents further upside for investors.

Falcon’s Creative Group, led by CEO, Cecil Magpuri, in addition to supporting three internal projects (Punta Cana, Tenerife and Playa del Carmen), is currently executing the master planning work for five third party theme park locations. These five parks will include the design of over 100 attractions, the media production for over 19 attractions, as well as procurement of necessary hardware. This backlog of scope (including $100M for the Destination/Meliá JV) will amount to about $755M of billing over 4-5 years, and, based on indicated margins, should generate EBITDA of about $158M. Creative has a continued collaboration with Saudi Arabia’s Qiddiya Investment Company after Creative successfully led the design of 26 assets within an early portion of a new entertainment district called Qiddiya. Creative began work on Qiddiya in 2018 on this very long-term project that will encompass 367 square kilometers (19×19 km.,11×11 mi.). The expected operating profit within Creative should generate cash flow for investment in the brick & mortar at Falcon’s Beyond Destinations as well as buy time for Falcon’s Beyond Brands to monetize their asset light efforts.

Below: videos – 3 of $100B worth of projects – (point & click, point & click on link)

BaNa Hills Mountain Resort in Da Nang, Vietnam on Vimeo

Making-of Becoming Jane: The Evolution of Dr. Jane Goodall at National Geographic Museum on Vimeo

https://vimeo.com/279458337   Atlantis Sanya – China’s premier Underwater World

Falcon’s Beyond Destinations will be capitalizing on the potential of the joint venture with Meliá Hotels International, owner and operator of about 380 resort hotels worldwide. In most anticipated locations Meliá plans to contribute an existing hotel to each project within the 50-50 joint venture and Destination provides the capital for the Katmandu Park (owned 50-50) as well as the 100% Destination owned Falcon’s Central entertainment and food center. The first major JV project is in Punta Cana, Dominican Republic, currently soft-opened and with a grand opening scheduled for March 15th. The hotel planned to be contributed to the JV is already rated as a top hotel in Punta Cana.  The next completed joint location will be at Tenerife, in the Canary Islands, where the JV’s existing hotel is to be renovated in 2024, and the Park and Falcon’s Central opened by mid-2025. The following spot is at Playa del Carmen, in Mexico, Falcon’s Central to open in early 2025, the Park by mid-2025and the hotel by mid-2026.

The Investor Presentation indicates that Falcon’s Beyond “base case” EBITDA is estimated in 2025 at $131M, a combination of Creative’s effort as well as cash flow from Mallorca (already part of the JV), Punta Cana (Katmandu Park already soft-opened), Tenerife (where the JV already owns a hotel), which will come on stream during 2025, and the Falcon’s Central portion of Playa del Carmen which will open in early 2025.

Falcon’s Beyond Brands is focusing on expansion, execution and monetization of proprietary as well as partnered brands. Brands, consumer products and entertainment content can all be licensed, just as proprietary existing brands such as Katmandu, Cadim, the Monster Wave and VQuarium. In conjunction with Creative and Destination, as well as 3rd party partnerships with BRON Studios, Moonbug Entertainment, PBS Kids, Epic Story Media and others, this is an asset light effort that could be very substantial over time. Management estimates that Creative and Destinations will contribute 50% each to EBITDA for the next two years, but each division could contribute about 33% longer term.

CONCLUSION:

From what we now know, having studied and physically visited this situation over the past eight months, it seems at this point that success is more a question of how much and when, rather than if. Another important consideration at this juncture is that the latest SPAC structural change calls for no redemption hurdle to overcome. THIS DEAL WILL PRINT!

Back to the fundamentals, the professionals at Falcon’s Beyond are not being asked to do anything they haven’t done before. A billion dollar valuation, diluted for performance incentive earn-outs, is a significant starting valuation, but the resultant combination of equity and/or debt, invested productively in brick & mortar projects, and the earnings power at the Creative division should support a good portion of that. Moreover, the value of Falcon’s 50% portion of just the first few projects with Meliá Hotels could approximate the initial $1B valuation.  Longer term, more Destination projects with Meliá and others, expanded Creative business with Qiddiya (described below) and others, and Brands could combine to double the projected mid-2025 $131M run rate of EBITDA by ’28-’29. It is a crucial consideration that Creative operations, with a $755M backlog to be addressed over 4-5 years, should shortly be cash flow positive, available for the development of brick & mortar assets. This feature, along with the banking relationships of Meliá, should allow for growth as planned, even if final proceeds are less than FZT currently holds. The possibility of $131M annualized EBITDA in just over 2 years, the potential to build billions of capitalized value attached to new brick and mortar assets, with Intellectual Property development a material “kicker”, makes the current $1B (or $620M) starting point appear reasonable. Should results lag expectations for the base case (and the earn-outs), the $620M lower valuation will provide substantially more reward for public shareholders who wait out the time for the fundamentals to develop.  Precise timing of events is always uncertain, and the degree of success cannot be assured, but the intellectual, physical and financial assets seem to be in place. While, per Yogi Berra, “Predictions are always difficult, especially about the future”, uniquely positioned Falcon’s Beyond provides an unusually attractive investment proposition

FALCON’S BEYOND IN MORE DETAIL

Falcon’s and its predecessor Creative companies have executed story-driven development projects related to over $100B worth of projects in 27 countries and currently have $755M of revenue visibility. They are uniquely equipped to respond to the secular shift to “experiential” consumer leisure pursuits.

A 50/50 Destination driven joint venture with Meliá Hotels, operator of 380 resort venues around the world, can provide value to Falcon’s common stock by way of $131M of base case annualized EBITDA in just over 2 years.

Last, but far from least, Falcon’s Intellectual Property and Brand Development is expected to be an equal third leg to Falcon’s long term value building process.  Falcon’s Creative Group designs the projects, Destination develops the hard assets, and Brands will deploy proprietary and partnered brands across entertainment and consumer product categories.

Falcon’s Creative Group

For twenty-three years Falcon’s Creative Group has executed master plans, design, and media production projects all over the world, winning over 30 industry awards, and creating the capacity to serve billions of guests. The decades of experience as a third-party design firm sets up Falcon’s to now develop physical entertainment attractions and Intellectual Property for their own account. Their historical success is supported by the fact that 58% of first-time clients have returned for additional services, the scope of which expanded by 60x.

Specific projects have included master plans for Lionsgate Zone in Dubai, U.A.E. and Atlantis Sanya in Hainan Island, China. Attractions and experiential destinations have included Hulk Epsilon Base 3D in Dubai, U.A.E. and Kennedy Space Center Heroes & Legends in FL, USA. Captivating media projects have included Become Jane: The Evolution of Jane Goodall, in Washington, DC, and Halo: OutPost Discovery which toured across the USA. Experiential Restaurant and Retail developments have included Finn & Jake’s Everything Burrito and Marvel Vault Store, both at the IMG Worlds of Adventure Theme Park in Dubai, Falcon’s award winning technology includes experiences such as Spheron, CircuMotion, Falcon’s Vision AR Headset, the Spectra Verse Game Bay gameplay ecosystem, Suspended Theater, SpectraVerse, ONIX Theatre, and AEONXP technology. In the course of developing the above projects and technology, multiple patents have been granted in more than a dozen countries. Below are links to short video presentations for just a few of the named projects and products.

ESPECIALLY ILLUSTRATIVE OF THEME PARK CAPABILITIES: SEEIMG”, BELOW:

(point & click, point & click on link)

https://vimeo.com/227291407  “IMG” Worlds of Adventure, Dubai –

https://vimeo.com/372003261 – Halo: Outpost Discovery

https://vimeo.com/378417546 – Spectra Verse Game Bay ecosystem

https://vimeo.com/111864378 – Suspended Theatre

                Current projects:

As shown in the first chart below, Falcon’s Creative has contracted full concept master plans for five “third party” theme parks, estimated to amount to $655M of goods and services, in addition to about $100M relative to the JV with Meliá.  Applying the estimated gross margin of 30-35% to services and 17-18% to hardware, the total gross margin (at the midpoint) would be $158M. Based on the timeline shown on the chart just above, one fifth of that would be about $32M of annual gross margin generated for Falcon’s.

Not shown below, Falcon’s is also actively developing the pre-concept master plans for three unique theme parks, each of which can generate subsequent phases of design.

There is continuing support of Qiddiya, one of a series of giga-projects in Saudi Arabia, designed to consist of 367 square kilometers of family friendly theme parks, sports arenas (suitable for int’l competitions), academies for sports and the arts, concert and entertainment venues, motorsport racetracks and nature/environmental adventure activities. To date for Qiddiya, Falcon’s Creative has led the design of 26 distinct entertainment assets for a district that ranges from hotels to theme parks. This has also included the design of the region’s largest water theme park, spanning 252,000 square meters and combining 22 wet and dry attractions alongside competition level water sports facilities. Falcon’s is also now supporting the project in the role of creative guardian as construction advances.

Creative (as a segment of Falcon’s Beyond) should shortly be operating with a substantial positive cash flow. Subject to the timing of individual projects, the Creative segment of daily activities seems capable of generating something like $25-35MM of annual EBITDA. That should contribute substantially to the asset building brick and mortar activities with Meliá and otherwise, as well as support the asset light activities of Falcon’s Brands.

Falcon’s Beyond Destinations is currently comprised of the hotel and Katmandu theme park in Mallorca, the hotel in Tenerife, and a shopping center and Katmandu theme park in Punta Cana with three 50-50 projects under way. The hotels, contributed by Meliá and the Katmandu parks primarily designed and financed by Falcon’s, will be part of the 50-50 joint venture. Falcon’s Central the adjacent retail, dining and entertainment venue will be built, operated and 100% owned by Falcon’s.

The model for the Falcon’s Destination/Meliá Joint Venture was the Sol Katmandu Park and Resort in Mallorca, Spain, the park having been established in 2007, whose performance improved substantially after merging with the adjacent Meliá hotel in 2012, complemented by the Katmandu compact theme park.  The design of this combined “entertainment with rooms” destination makes it convenient for guests to visit throughout the day and evening. Falcon’s proprietary stories, characters and environments are used to transport guests to Katmandu via immersive theming from entry through queues into each attraction.  The theme park, prior to COVID, averaged over 240,000 visitors per year, generated in only seven months per year. The hotel’s average occupancy was 77%, 6 points better than non-Katmandu hotels in Mallorca, with an average room rate of $154, 11% higher than non-Katmandu rooms.

The improvement in Mallorca, and the working relationship between Falcon’s Chairman, Scott Demerau, with Meliá encouraged the formation of the JV. Meliá has more than 380 resort destinations across over 40 countries. Scott Demerau’s team has the theme park operating experience, and Cecil Magpuri leads the Creative production of a leading-edge entertainment experience. Meliá, by contributing an existing hotel to the JV, is betting that their 50% of the theme park (which Falcon’s is building) plus their 50% of the improved hotel cash flow, with higher room rates and occupancy, plus more business at other properties they may own in the area, will be more than their current cash flow from the hotel.  Falcon’s is getting access to premium resort real estate owned by Meliá that would be largely untouchable at today’s values. Both Meliá and Falcon’s will benefit from Meliá’s long term banking relationships, in addition to Falcon’s new access to US capital markets.

As the charts below from the Investor Presentation show: Within the joint venture are the Mallorca Sol Hotel and Katmandu theme park, plus the hotels and theme parks in Punta Cana (Dominican Republic, Tenerife (Canary Islands) and Playa del Carmen (Mexico). It should be noted that all are year-round tourist locations, 3.5M annually in Punta Cana, 8.4M in Tenerife and 12.5M in Playa del Carmen (excluding cruise ship visitors).
By mid-2025 the joint venture expects to own and operate four destination resorts with over 1,900 hotel rooms, four theme parks, and three 100% owned retail districts. As shown below, the capitalized value of this brick-and-mortar portfolio could approximate the initial valuation of the deal, possibly more. Primary monetization of these developments will consist of hotel bookings, entertainment ticket sales, retail & food & beverage sales, and management fees.

   Falcon’s Central

Falcon’s Central is the “signature” venue at the center of the resort destination, merging retail, dining and entertainment. Guests are exposed to a multitude of entertainment experiences, amenities, IP content and merchandise. Dining experiences are offered both from local restaurants as well as newly developed concepts. The shopping district offers both local and global retailers showcasing varied IP-infused merchandise. Attractions featured at Falcon’s Central will be VQUARIUM, a virtual adventure, STORY HUB, an immersive location-based entertainment experience, CURIOSITY PLAYGROUND, an experiential edutainment venue, and GAMEHUB, an immersive video game experience.

Falcon’s Brands – Last but Far from Least – the Asset Light “Kicker”

Falcon’s Brands will deploy and monetize owned and partnered brands. The unique brand expander strategy compresses the normal timeline for brand monetization, will do so across multiple venues, and include licensing agreements across outside channels.

 

 TRANSACTION OVERVIEW

The following chart summarizes the transaction. We have written before, and above, about the improvements in comparison to a typical SPAC structure. Most notable is (1) The starting valuation, without the earn-outs is a modest 4.7x projected base case 2025 EBITDA of $131M. If the earn-outs come into play, the starting valuation will be a still modest 7.7x the base case (2) The current operating cash flow should presumably be positive shortly, since CREATIVE is working off a $755M backlog (3) Principals within Falcon’s Beyond are remaining and will own 68% of the equity, and an affiliate is investing $60M  (4) Sponsors have contributed 20% of their shares to a bonus pool for SPAC shareholders who do not redeem and private placement investors (5) SPAC investors remaining will receive an 8% preferred stock for half their shares. (6) Private placement investors have agreed to vesting in equal installments over four years.

PEER OPERATIONAL BENCHMARKING

The charts below, from the Investor Presentation, show how reasonably valued Falcon’s is, based on the growth rate, EBITDA margins, and 2025 projected revenues and EBITDA. These numbers, to us, are mostly illustrative of the substantial re-rating possibilities for Falcon’s stock if and when they have produced the results as projected. Since Falcon’s Beyond is expected to be growing much faster than the peer group, the valuation accorded should be proportionately higher.

CONCLUSION: As provided above

From what we now know, having studied and physically visited this situation over the last eight months, it seems to us that success is more a question of how much and when, rather than if. Another important consideration is that the latest SPAC structural change is that there is no redemption hurdle to overcome. THIS DEAL WILL PRINT!

Back to the fundamentals, the professionals at Falcon’s Beyond are not being asked to do anything they haven’t done before. A billion dollar valuation, diluted for performance incentive earnouts, is a significant starting valuation, but the resultant combination of equity and/or debt, invested productively in brick & mortar projects, and the earnings power at the Creative division should support a good portion of that. Moreover, the value of Falcon’s 50% portion of just the first few projects with Meliá Hotels could approximate the initial $1B valuation.  Longer term, more Destinations projects with Meliá and others, expanded Creative business with Qiddiya (described below) and others, and Brands could combine to double the projected mid-2025 $131M run rate of EBITDA by ’28-’29. It is a crucial consideration that Creative operations, with a $755M backlog to be addressed over 4-5 years, should shortly be cash flow positive, available for the development of brick & mortar assets. This feature, along with the banking relationships of Meliá, should allow for growth as planned, even if final proceeds are less than FZT currently holds. The possibility of $131M annualized EBITDA in just over 2 years, the potential to build billions of capitalized value attached to new brick and mortar assets, with Intellectual Property development a material “kicker”, makes the current $1B starting point appear reasonable. Should results lag expectations for the base case (and the earnouts), the starting valuation will be only $620M, and public shareholders will receive more reward for the extra time spent to reach corporate objectives.  Precise timing of events is always uncertain, and the degree of success cannot be assured, but the intellectual, physical and financial assets seem to be in place. While, per Yogi Berra, “Predictions are always difficult, especially about the future.”, uniquely positioned Falcon’s Beyond provides an unusually attractive investment proposition

Roger Lipton

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FALCON’S BEYOND, TO MERGE WITH FAST ACQUISITION CORP II (FZT)(FBYD as of 10/5/23), ANNOUNCES DETAILS OF PUNTA CANA KATMANDU PARK

FALCON’S BEYOND, TO MERGE WITH FAST ACQUISITION CORP II (FZT), ANNOUNCES DETAILS OF PUNTA CANA KATMANDU PARK

We have written, in August and September, articles describing FAST ACQUISITION CORP II and its pending business combination with Falcon’s Beyond. Links to both articles are provided below.

Falcon’s Beyond yesterday released a public update describing the theme park that will open in Punta Cana (in the Dominican Republic) in early 2023. Just below we provide the release.

Falcon’s Beyond Announces Details of the Caribbean’s First World-Class Theme Park

Katmandu Park/Punta Cana

Oct. 12, 2022 10:45 AM ET

New theme park to feature immersive entertainment and innovative rides and attractions based on the popular characters of the company’s original Katmandu franchise

ORLANDO, Fla.–(BUSINESS WIRE)– Falcon’s Beyond Global, LLC (“Falcon’s Beyond,” “Falcon’s,” or the “Company”), a leading fully integrated global entertainment development company specializing in intellectual property (IP) creation and expansion, announced today details of its forthcoming world-class theme park, Katmandu Park | Punta Cana. Expected to open early 2023 in the Dominican RepublicKatmandu Park, conceived and built by Falcon’s, will feature cutting-edge rides and attractions that immerse guests in the company’s original, proprietary franchise, The Hidden Realms of Katmandu.

Katmandu Park | Punta Cana will be brought to life through immersive storytelling experiences, including four marquee attractions and the use of several proprietary technologies. As part of one overarching, episodic Katmandu storyline, these major rides stand alone while living within the universe of the Katmandu franchise. Falcon’s Beyond carefully matched the attraction systems to the chapters in the Katmandu storyline in a way that best immerses guests in the unfolding adventure, while allowing them to enjoy each as an independent experience.

“Katmandu Park | Punta Cana will deliver an unprecedented theme park experience based on the popular characters of our very own Katmandu fantastical universe,” said Cecil D. Magpuri, CEO of Falcon’s Beyond. “Through innovative rides and attractions that deliver unmatched and immersive storytelling, guests will truly lose themselves in the Hidden Realms of Katmandu. Combined with other day and night entertainment, dining and shopping, Katmandu Park will offer an extraordinary experience for families and theme park lovers in the premier resort location of Punta Cana.”

Katmandu Park | Punta Cana’s signature attractions will include:

  • Voyage of the Fathom Wanderer: The park will feature its first-ever Suspended Theater attraction, where guests will join Kilgore Goode on an underwater mission to protect the Hidden Realm of Azurlan from a sea monster. For this attraction, guests enter and begin the experience in what appears to be a standard widescreen theater experience. But, unlike experiences that may exist in other parks around the world, there is a key element of surprise: guests are swiftly but elegantly lifted through the air and placed in front of another giant, compound curved screen, ushering them inside the story. Riders will soar through epic adventures, as this unparalleled attraction delivers the unique sensation of flight in a whole new way.
  • Challenge of the Mad Mage: The ON!X Theater attraction will reimagine the traditional 4D interactive theater with an impressive array of features seamlessly blended with advanced technology. Here, an Explorer Mage named Alvis challenges guests to a blaster duel through the Hidden Realms. A fully interactive real-time system gives every player the agency to direct the outcome of the action and even affect the narrative that unfolds before them on the massive, cinema-style screen, warranting repeatability to further discover new realms and interactions. A unique targeting system provides accurate and persistent positional tracking that not only detects where players aim, but where and how they move their blasters. Simultaneously, electric motion seats provide guests with multi-sensory feedback in the form of poking, tickling, vibration, wind, air blast, water mist, scent, localized speakers in headrests, and more.
  • Legend of the Desirata: A highly sophisticated attraction typically found only at the world’s biggest theme parks, the 4D Dark Ride attraction will be an immersive experience that tells the Katmandu origin story and empowers guests to feel the thrill of adventure through movement. Seamlessly blending scenic elements and media, erasing the lines between reality and imagination, guests follow inventor and explorer Kilgore Goode into the Himalayas in a dynamically moving vehicle to experience his journey into the Hidden Realms as he discovers the mysterious Desirata. The attraction features multiple integrated projection screens, delivering high-framerate and high-fidelity stereoscopic 3D media content, immersive audio, lighting effects, wind effects and stunning scenic elements throughout the guest journey. The action in the rider’s surroundings and on the screens is choreographed with the vehicle’s movement, making it feel as if the rider is truly immersed in the story alongside the characters.
  • EtherQuest: This interactive walk-through attraction will make its global debut at Katmandu Park | Punta Cana. The attraction combines proprietary technologies, elaborate scenic elements, immersive projection and an interactive gameplay journey to reimagine a traditional walk-through experience. Several of the rooms feature projection on all four walls to transport guests from the halls of “Jadu” (the house of Katmandu) into the Hidden Realms to defeat powerful Explorer Mages with various interactive props, find an invaluable EtherMetal ember and get back home. To give guests the chance to explore, play and influence their experience, this attraction uses an action-packed interactive walk-through system, where guests are really the main characters of their own adventure.

Additional attractions at Katmandu | Park Punta Cana will include Expedition Golf, a 36-hole mini golf course charting over mountains and inside caves, High Point Adventure, an outdoor ropes course experience, and The Quadagon, featuring four unique indoor climbing courses for both adults and kids. The centerpiece of the park’s plaza will be the Wheel of Infinite Wonder, a Katmandu-themed carousel with custom figures inspired by creatures and characters from the Hidden Realms. The park will offer several themed food and beverage venues, carnival-style games, retail shops and an arcade.

Each guest of Katmandu Park | Punta Cana will receive a smart wristband that carries their attraction passes, enables cashless payments and grants them their own unique and virtual identity with BeyondME™, a new free-to-use fan loyalty and online game platform for all ages. Through it, guests will be able to customize their own BeyondME persona, personalize their avatar, gain and spend experience points as virtual currency, called XP, and level up their status for additional benefits. In addition to the real-life experiences inside the park, BeyondME will connect to various digital experiences, such as mobile games, Roblox and online shopping, to further earn and redeem XP.

The theme park industry has long been dominated by traditional “mega park” experiences – attractions scattered across a massive footprint. With Katmandu Park, Falcon’s will offer a revolutionary alternative through a “Big Experience/Small Footprint” theme park concept, offering world-class experiences in a smaller landscape. Katmandu Parks will be connected to premier resort destinations, providing consumers a unique “resortainment” hospitality experience that seamlessly blends extraordinary entertainment experiences with premium resort amenities. The first of these new resorts, Falcon’s Resort by Meliá | All Suites Punta Cana, will debut in December 2022 and is located just steps away from the park.

Following Punta Cana, Falcon’s is expected to open Katmandu Parks in locations across the globe, including: Tenerife, Canary Islands, scheduled to open in 2024; Playa Del Carmen, Mexico, scheduled to open in 2025; and Puerto Vallarta, Mexico, with an opening date to be announced.

The Punta Cana park expands upon the original Katmandu Park that opened in Mallorca, Spain in 2012 to complement the beach holiday experience and has since introduced millions of guests to Katmandu’s whimsical universe. The Punta Cana location evolves the original concept with proprietary attraction technologies and immersive story concepts and is the latest step in Falcon’s mission to activate the Katmandu franchise across all forms of entertainment, including entertainment content, consumer products, and of course, themed location-based entertainment destinations.

The unveiling of Katmandu Park | Punta Cana follows other recent transformative news from Falcon’s Beyond. On July 12, Falcon’s Beyond announced plans to become a publicly listed company on Nasdaq through a definitive merger agreement with FAST Acquisition Corp. II (FZT) (“FAST II”) (NYSE: FZT), a special purpose acquisition company founded by Doug Jacob and headed by Sandy Beall. Upon the closing of the transaction, the new combined company will be named “Falcon’s Beyond Global, Inc.” and is expected to be listed on Nasdaq under the ticker symbol “FBYD.” More information about the transaction can be found in the Investor Relations section of Falcon’s website.

About Falcon’s Beyond

Headquartered in Orlando, Florida, Falcon’s Beyond is a fully integrated, top-tier experiential entertainment development enterprise focusing on a 360° IP Expander model. The Company brings its own proprietary and partner IPs to global markets through owned and operated theme parks, resorts, attractions, patented technologies, feature films, episodic series, consumer products, licensing, and beyond. The Company has won numerous design awards and provided design services in 27 countries around the world, turning imagined worlds into reality.

Additional Information

This communication relates to the proposed business combination between FAST II and Falcon’s Beyond. This communication does not constitute an offer to sell or exchange, or the solicitation of an offer to buy or exchange, any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, sale or exchange would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. Falcon’s Beyond intends to file a Registration Statement on Form S-4 with the SEC, which will include a document that serves as a joint prospectus of Falcon’s Beyond and proxy statement of FAST II, referred to as a proxy statement/prospectus. A proxy statement/prospectus will be sent to all FAST II shareholders. No offering of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended, or an exemption therefrom. FAST II and Falcon’s Beyond will also file other documents regarding the proposed business combination with the SEC. BEFORE MAKING ANY VOTING DECISION, INVESTORS AND SECURITY HOLDERS OF FAST II ARE URGED TO READ THE REGISTRATION STATEMENT, THE PROXY STATEMENT/PROSPECTUS AND ALL OTHER RELEVANT DOCUMENTS FILED OR THAT WILL BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED BUSINESS COMBINATION AS THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED BUSINESS COMBINATION. Investors and security holders will be able to obtain free copies of the registration statement, the proxy statement/prospectus and all other relevant documents filed or that will be filed with the SEC by FAST II or Falcon’s Beyond through the website maintained by the SEC at www.sec.gov. The documents filed by FAST II with the SEC also may be obtained free of charge upon written request to 109 Old Branchville Road Ridgefield, CT 06877. The documents filed by Falcon’s Beyond with the SEC may also be obtained free of charge upon written request to 6996 Piazza Grande Avenue, Suite 301, Orlando, FL 32835.

LINK TO MOST RECENT ARTICLE, DESCRIBING VISIT TO PUNTA CANA

https://www.liptonfinancialservices.com/2022/09/fast-acquisition-corp-ii-fzt-merger-with-falcons-beyond-is-pending-we-visited-the-dominican-republic-so-you-dont-have-to/

LINK TO ORIGINAL ARTICLE DESCRIBING IMPROVED SPAC STRUCTURE AND FUNDAMENTALS AS DESCRIBED IN THE INVESTOR PRESENTATION

https://www.liptonfinancialservices.com/2022/08/fast-acquisition-corp-ii-fzt-u-to-combine-with-falcons-beyond-their-spac-structure-as-modified-is-much-improved-the-risks-seem-manageable-and-the-upside-issub/

 

 

 

CORRECTION TO YESTERDAY’S REPORT ON FAST ACQUISITION CORP, II (FZT)(FBYD as of 10/5/23) AND PENDING MERGER WITH FALCON’S BEYOND

CORRECTION TO YESTERDAY’S REPORT ON FAST ACQUISITION CORP, II (FZT) AND PENDING MERGER WITH FALCON’S BEYOND

The hotel that Melia’ Hotels is contributing to the joint venture with Falcon’s Beyond (planning to merge with FZT) was built in 2018 (not sixty five years ago) and is a five star  (not four star) hotel. It is Melia’, not the hotel, that is sixty five years old.

We’ve made these corrections in the original article, so new readers will be properly informed. We appreciate the Company correcting this “misinformation”:), and encourage our readers and/or the Companies we describe to do the same when appropriate.

Roger Lipton

 

 

FAST ACQUISITION CORP. II (FZT)(FBYD as of 10/5/23) – MERGER WITH FALCON’S BEYOND IS PENDING, – We visited the Punta Cana project in the Dominican Republic – MELIA’ PROVIDES A LESSON IN HOSPITALITY!

FAST ACQUISITION CORP. II (FZT) – MERGER WITH FALCON’S BEYOND IS PENDING, – We visited the Punta Cana project in the Dominican Republic. – MELIA’ PROVIDES A LESSON IN HOSPITALITY!

We wrote in late July about the substantially improved SPAC structure at FZT and in late August provided our interpretation of the Investor Presentation. In summary, we believe that, opposed to many other SPACs, this Business Combination will be consummated, due to the fundamental attractions of Falcon’s Beyond artistic creativity and theme park design/operating skills, combined with the operating and financial strength of their Joint Venture partner, Melia’ Hotels International. Our previous articles can be accessed with the SEARCH function on our HOME Page. (Use “FZT”). As we wait for the S-4 filing, which will obviously provide a great deal of quantitative information we thought it would be productive to fill out the qualitative mosaic of this unique “entertainment/hospitality” venture. We therefore visited last week the first site to be developed by Falcon’s/Melia’, at Punta Cana in the Dominican Republic.

Development of the Katmandu Theme Park is well along, with heavy construction largely completed, mechanical and electrical support installed, predictably still with a great deal of finishing work to be done. Equipment, some of it on site, is yet to be installed. Flooring, wall coverings, final lighting, all kinds of finishing treatment is still to be done, but the project seems on track to be completed by late this year or very early in ’23.

The 2018 built five star hotel that Melia’ Hotels (founded 65 years ago)  has contributed to the Joint Venture,  currently called Paradisus Grand Cana, to be renamed Falcon’s Resort by Melia’, is a standout. Whether you call it the “hospitality quotient” or “customer pleasing culture”, it was outstanding. Every staff member seemed to be wearing a smile, and that does not happen by accident. There was  always somebody nearby, eager to help. Every surface was spotless and the maintenance of the landscape was impeccable. Labor is obviously available at an acceptable wage and happy to be employed by Melia’. It’s fair to say that our previous article describing the Falcon’s/Melia’ Joint Venture  did not emphasize adequately what Melia’, managing 380 hotel properties worldwide, brings to the table. Our trip was obviously instructive in terms of Melia’ operating skills. Melia’s financial strength seems important as well, and we will address that more completely in the near future.

Below we provide pictures, from the Melia’ Hotel website, that show important aspects of the resort experience at   Punta Cana. As you scan them, think about what this might cost at resorts you’ve been to and we will provide the relevant cost/day at the end of this article.  We should emphasize again that the pictures were matched, in terms of visual appeal, cleanliness, and the quality of the food service, by our personal experience.

MORE THAN TEN RESTAURANTS ON SITE

THE COST

RATES ARE CHARGED “PER PERSON”, AND ARE “INCLUSIVE” of ROOM, FOOD & BEVERAGE (INCLUDING ALCOHOL), BASICALLY “ALL YOU CAN EAT AND DRINK”. Melia’ has a reward  system in place, with 14 million members, that provides a discount up to 20% for repeat customers. The “rack rate” quoted to me today, without discount or promotions, for the One Bedroom Suite pictured, is $370/night, “all inclusive” for two this time of year (“off season”). The rate in February (“peak season”) would be about 35% higher or about $500 per couple per night, all inclusive. Considering that food and beverage for two on vacation could normally run $200-300 per day, the remaining room cost “off season” would be $170-270/day “off season”, 35% higher in February or March, at “peak”. That’s pretty good, but Melia’ Reward Members, with a 20% discount  would only pay $296/per night per couple today, almost nothing for the room after deducting the normal cost of food and drink. At peak season $500 per couple per night leaves a net room cost of only $200-300, also outstanding value when there is snow on the ground in New York City.

TAKEAWAY FROM THE TRIP

While noting that Paradisus Grand Cana, to be renamed Falcon’s Resort by Melia’, is among the highest priced facilities within the Melia’ portfolio, the hospitality skills demonstrated are likely in place at lower priced facilities as well (at a proportionate level). We’ve discussed before the attractive ROI for both Falcon’s Beyond and Melia’ as a result of the Joint Venture. Now that we have visited Punta Cana, we can better appreciate the hospitality expertise of Melia’ and its complement to the creativity within Falcon’s Beyond.

It is worth recalling that Melia’, in Mallorca, was able to charge 11% higher room rates, with free access to the Katmandu Park. There seems to be similar pricing power in this situation, considering the current price/value equation and reports that the hotel is already at capacity “in season”.  Previous cash flow generation should be materially improved within the Joint Venture because of higher room rates and occupancy, also augmented by lower food cost since guests will eat some of their meals at the Katmandu Park rather than the hotel. As we’ve reported, the Punta Cana project will be followed within eighteen months by similar developments in Tenarife (in the Canary Islands, off the coast of Spain) and Playa del Carmen (in Mexico). Beyond that : Melia’ manages  a portfolio of 377 other hotels, many of which are in “priceless” locations.

We will report further once the S-4 is filed.

Roger Lipton

 

 

 

FAST ACQUISITION CORP II (FZT.U)(FBYD as of 10/5/23) TO COMBINE WITH FALCON’S BEYOND – THEIR SPAC STRUCTURE (as modified) IS MUCH IMPROVED, THE RISKS SEEM MANAGEABLE AND THE UPSIDE IS……SUBSTANTIAL.

FAST ACQUISITION CORP II (FZT.U) TO COMBINE WITH FALCON’S BEYOND – THEIR SPAC STRUCTURE (as modified) IS MUCH IMPROVED, THE RISKS SEEM MANAGEABLE AND THE UPSIDE IS……SUBSTANTIAL.

Introduction: This proposed transaction was announced on July 12th. We’ve followed the professional careers within the FAST II Sponsorship group for many years, were initially intrigued with their creativity in terms of improving the typical SPAC structure, and informed our readers accordingly on 7/28. After studying the Investor Presentations, this situation is well worth more study.  A preliminary S-4 has not yet been filed, but between the Investor Presentation and publicly available information regarding Falcon’s Beyond,  the Company is introduced here in fifty-nine seconds

( https://vimeo.com/570417222 ) (point & click, point & click on link)

and we provide the report below.

THE SPAC – AN IMPROVED STRUCTURE

Relative to the improved SPAC structure, our 7/28 article concluded:It’s possible that the FZT/Falcon’s Beyond deal would take place with or without the adjustments. In our mind, however, the new structure provides a much more balanced approach between “organizers”, operating principals and the public investors and is no doubt a function of &vest’s navigation of the SPAC market over the past few years. There is less of a “promote” for the organizers and underwriters, potential stock sales by the operating principals are longer term than normal, more dependent on building the business as well as the stock price, all improving the reward/risk profile for public investors.”  See our 7/28 article for “Transaction Overview” and “SPAC Shareholder Incentives”.

FAST ACQUISITION CORP. II to merge with FALCON’S BEYOND

FAST Acquisition Corp. II (FZT) raised $222M to utilize in acquiring a company in the hospitality industry.  The Sponsorship group and proposed Board of Directors have outstanding brand building credentials in the hospitality/restaurant/retail industries. Included are &vest’s Doug Jacob (co-founder of &vest), Bill Hinman (partner of &vest and former Director of the SEC’s Division of Corporate Finance), Sandy Beall (partner of &vest, founder of Ruby Tuesday’s, founder of Blackberry Farm and Blackberry Mountain) and others.

FAST II is proposing the acquisition of well-established Falcon’s Beyond, an Orlando, FL based fully integrated, experiential entertainment enterprise with a collection of both Brick & Mortar and Intellectual Property assets. The principals at Falcon’s Beyond have unquestionable creative and operating credentials. The Executive Chairman of Falcon’s Beyond is Scott Demerau, founder in 2007 of the House of Katmandu in Mallorca, Spain, which became a model for successful theme parks worldwide. In 2012 he established a 50/50 Joint Venture with Melia’ Hotels, which operates more than 380 resort properties across over 40 countries. The CEO of Falcon’s Beyond is Cecil D. Magpuri, who founded in 2000 predecessor Falcon’s Treehouse, which has designed, planned and helped to execute over $100 billion worth of hospitality/entertainment venues worldwide. In addition to Falcon’s Creative Group that designs the projects, and Falcon’s Beyond Destinations that implements the plans and owns the hotels, theme parks and retail destinations, there is Falcon’s Brands that will deploy proprietary and partnered brands across entertainment and consumer product categories. Among the Board Members of Falcon’s Beyond is Simon Philips, previously General Manager of The Walt Disney Company EMEA and President of Marvel Entertainment.

The broad objective of the newly public Falcon’s Beyond will be to produce operating cash flow, at the same time building for themselves brick and mortar, as well as intellectual property, just as they have created, planned and built for others over the last twenty-two years.

 

SUMMARY OF DEAL TERMS AND STARTING VALUATION

We will describe the deal terms and valuation in greater detail below but the post-deal valuation, at $10.00/share, will be about $1B, about 6.7x the projected $150M EBITDA run rate by mid 2025.  Importantly, the principals of Falcon Beyond are merging their entire professional careers into this venture and will own about 80% of the equity, as well as providing $60M to the Melia’ joint venture. Public SPAC shareholders (assuming modest redemption) will own about 10.7%. Private Placement investors will own 5.8% and Sponsors about 3.0%.

Critically, there will be no operating “burn rate” at the outset, since the Falcon’s Creative Group is already a going concern, with tangible visibility to provide $755M of goods and services over 4-5 years. The cash flow generation from Creative should help to fund the capital needs of Destination’s brick and mortar effort, with the first Melia’ JV project (Punta Cana) opening by early 2023 and two more to follow between early ’24 and mid ’25. Longer term, the potential from building Brands’ proprietary Intellectual Property could be a substantial third leg of Falcon’s unique position in hospitality/entertainment and represents significant upside to investors.

FALCON’S BEYOND – A HISTORICAL OVERVIEW

The July 12th Investor Presentation, with the associated conference call, provided some context as to how the key principals came to form today’s Falcon’s Beyond. Executive Chairman, Scott Demerau, has spent decades building and operating themed entertainment facilities, both in the US and abroad.  In 2007 he founded the House of Katmandu, a relatively small theme park adjacent to one of 380 Melia’ Hotel properties, in Mallorca, Spain. Katmandu’s success, accompanied by a dramatic improvement in room rates and occupancy at the hotel, encouraged Melia’ and Demerau to expand the Mallorca site into a 50-50 jointly owned Katmandu Park & Resort venture. In the course of Demerau’s activities, at Katmandu and elsewhere, he used the creative services of Cecil Magpuri, CEO of then Falcon’s Treehouse, formed in 2000. Prior to Falcon’s, Cecil had been Creative Director at Universal Studios and directed several projects like Apollo13, The Ride, Twister: Ride it Out!. In 2021, Demerau and Magpuri merged their companies to create Falcon’s Beyond.

Another 2:26 minutes, broadly describing Falcon’s Beyond:

https://vimeo.com/641310306   (point & click, point & click on link)

BRIEF DESCRIPTION of FALCON’S BEYONDTHREE SEGMENTS (CREATIVE, DESTINATIONS, AND BRANDS)

Short to intermediate term, Creative and Destinations will be fifty-fifty contributors to the results. Longer term Brands, its economics not included in the deal discussion, is expected to be an equal third leg and therefore represents further upside for investors.

Falcon’s Creative Group, led by CEO, Cecil Magpuri, in addition to supporting three internal projects, is currently executing the master planning for five third party theme park operators. These five parks will include the design of over 100 attractions, the media production for over 19 attractions, as well as procurement of necessary hardware. This backlog (including $100M for the Destination/Melia’ JV) will amount to about $755M of billing over 4-5 years, and, based on indicated margins, should generate EBITDA of about $158M. These projects include a very large Creative project involving engagement by Saudi Arabia’s Qiddia Investment Company to lead the design of 26 assets within a new entertainment district called Qiddia. Creative began work on Qiddia in 2018 on this very long-term project that will encompass 367 square kilometers (19×19 km.,11×11 mi.). The expected operating profit within Creative should generate cash flow for investment in the brick & mortar at Falcon’s Beyond Destinations as well as buy time for Falcon’s Beyond Brands to monetize their asset light efforts.

Below: videos – 3 of $100B worth of projects – (point & click, point & click on link)

BaNa Hills Mountain Resort in Da Nang, Vietnam on Vimeo

Making-of Becoming Jane: The Evolution of Dr. Jane Goodall at National Geographic Museum on Vimeo

https://vimeo.com/279458337   Atlantis Sanya – China’s premier Underwater World

Falcon’s Beyond Destinations will be capitalizing on the potential of the joint venture with Melia’ Hotels International, owner and operator of about 380 resort hotels worldwide. In most anticipated locations Melia’ plans to contribute an existing hotel to each project within the 50-50 joint venture and Destination provides the capital for the Katmandu Park (owned 50-50) as well as the 100% Destination owned Falcon’s Central entertainment and food center. The first major JV project will be in Punta Cana, Dominican Republic, to open by early 2023. It was recently announced by Melia’ that the new park will open in December, and the hotel in the JV is already the number one hotel in Punta Cana.  The second joint location will be at Tenerife, in the Canary Islands, to open in early to mid-2024. The third spot is at Playa del Carmen, in Mexico, the park to be open in early-mid-2024 and the hotel in mid-2025.

The Investor Presentation estimates that by mid-2025, Destination’s 50% of the joint venture plus 100% of Falcon’s Central, depending on the cap rate, will be worth from $954M to $1.451B.

Falcon’s Beyond Brands is focusing on expansion, execution and monetization of proprietary as well as partnered brands. Brands, consumer products and entertainment content can all be licensed, just as proprietary existing brands such as Katmandu, Cadim, the Monster Wave and VQuarium. In conjunction with Creative and Destination, as well as 3rd party partnerships with BRON Studios, Moonbug Entertainment, PBS Kids, Epic Story Media and others, this is an asset light effort that could be very substantial over time. Management estimates that Creative and Destinations will contribute 50% each to EBITDA for the next two years, but each division could contribute about 33% longer term.

CONCLUSION:

We have more to learn, from the S-4 when filed and our further research, but it seems at this point that success is more a question of how much and when, rather than if. The professionals at Falcon’s Beyond are not being asked to do anything they haven’t done before. A billion dollars is a significant starting valuation, but the ROI on over $200M of SPAC proceeds, invested productively in brick & mortar projects, and the earnings power at the Creative division should support a good portion of that. Moreover, the value of Falcon’s 50% portion of just the first few projects with Melia’ Hotels could approximate the initial $1B valuation.  Longer term, more Destination projects with Melia’ and others, expanded Creative business with Qiddiya (described below) and others, and Brands could combine to double the projected mid-2025 $150M run rate of EBITDA by ’27-’28. It is a crucial consideration that current Creative operations are cash flow positive, available for the development of brick & mortar assets. This feature, along with the banking relationships of Melia’, should allow for growth as planned, even without a broad vote of confidence from current FZT shareholders. The possibility of $150M annualized EBITDA in only about 2.5 years, the potential to build billions of capitalized value attached to new brick and mortar assets, with Intellectual Property development a material “kicker”, makes the current $1B starting point appear reasonable. Precise timing of events is always uncertain, and the degree of success cannot be assured, but the intellectual, physical and financial assets seem to be in place. While, per Yogi Berra, “Predictions are always difficult, especially about the future.”, uniquely positioned Falcon’s Beyond provides an unusually attractive investment proposition

FALCON’S BEYOND IN MORE DETAIL

Falcon’s and its predecessor Creative companies have executed story-driven development projects related to over $100B of projects in 27 countries and currently have $755M of revenue visibility. They are uniquely equipped to respond to the secular shift to “experiential” consumer leisure pursuits.

A 50/50 Destination driven joint venture with Melia’ Hotels, operator of 380 resort venues around the world, can provide value to Falcon’s common stock by way of $150M of annual EBITDA and $1B of asset value in about 2.5 years.

Last, but far from least, Falcon’s Intellectual Property and Brand Development is expected to be an equal third leg to Falcon’s long term value building process.  Falcon’s Creative Group designs the projects, Destination develops the hard assets, and Brands will deploy proprietary and partnered brands across entertainment and consumer product categories.

Falcon’s Creative Group

For twenty-two years Falcon’s Creative Group has executed master plans, design, and media production projects all over the world, winning over 30 industry awards, and creating the capacity to serve billions of guests. The decades of experience as a third-party consultant sets up Falcon’s to now develop physical entertainment attractions and Intellectual Property for their own account. Their historical success is supported by the fact that 58% of first-time clients have returned for additional services, the scope of which expanded by 60x. Specific projects have included master plans for Lionsgate Zone in Dubai, U.A.E. and Atlantis Sanya in Hainan Island, China. Attractions and experiential destinations have included Hulk Epsilon Base 3D in Dubai, U.A.E. and Kennedy Space Center Heroes & Legends in FL, USA. Captivating media projects have included Become Jane: The Evolution of Jane Goodall, in Washington, DC, and Halo: OutPost Discovery which toured across the USA. Experiential Restaurant and Retail developments have included Finn & Jake’s Everything Burrito and Marvel Vault Store, both at the IMG Worlds of Adventure Theme Park in Dubai. FBY’s award winning technology includes experiences such as Spheron, CurcuMotion, Falcon’s Vision AR Headset, the GameSuite gameplay ecosystem, Suspended Theater, SpectraVerse, ONIX Theatre, and AEONXP technology. In the course of developing the above projects and technology, multiple patents have been granted in more than a dozen countries. Below are links to short video presentations for just a few of the just named projects.

ESPECIALLY ILLUSTRATIVE OF THEME PARK CAPABILITIES: SEEIMG”, BELOW:

(point & click, point & click on link)

https://vimeo.com/227291407  “IMG” Worlds of Adventure, Dubai –

https://vimeo.com/372003261 – Halo: Outpost Discovery

https://vimeo.com/477784289 – Gamesuite ecosystem

https://vimeo.com/111864378 – Suspended Theatre

                Current projects:

As shown in the first chart below, Falcon’s Creative is finalizing the full concept master plans for five “third party” theme parks, estimated to amount to $655M of goods and services, in addition to about $100M relative to the JV with Melia’.  Applying the estimated gross margin of 30-35% to services and 17-18% to hardware, the total gross margin (at the midpoint) would be $158M. Based on the timeline shown on the chart just above, one fifth of that would be about $32M of annual gross margin generated for Falcon’s.

Not shown below, Falcon’s is also actively developing the pre-concept master plans for three unique theme parks, as well as the full concept design for nine specialty themed hotels, each of which can generate subsequent phases of design.

There is continuing support of Qiddiya, one of a series of giga-projects in Saudi Arabia, designed to consist of 367 square kilometers of family friendly theme parks, sports arenas (suitable for int’l competitions), academies for sports and the arts, concert and entertainment venues, motorsport racetracks and nature/environmental adventure activities. To date, for Qiddia Falcon’s Creative has led the design of 26 distinct entertainment assets ranging from hotels to theme parks. This has also included the design of the region’s largest water theme park, spanning 252,000 square meters and combining 22 wet and dry attractions alongside competition level water sports facilities. Falcon’s is also now supporting the project in the role of creative guardian as construction advances.

Creative (as a segment of Falcon’s Beyond) is operating, safe to say, with a substantial positive cash flow. Subject to the timing of individual projects, the Creative segment of daily activities seems capable of generating something like $25-35MM of annual EBITDA. That should contribute substantially to the asset building brick and mortar activities with Melia’ and otherwise, as well as support the asset light activities of Falcon’s Brands.

Falcon’s Beyond Destination is currently comprised of the hotel and Katmandu theme park in Mallorca, with three 50-50 projects under way. The hotels, contributed by Melia’ and the Katmandu parks built and financed by Falcon’s, will be part of the 50-50 joint venture. Falcon’s Central the adjacent retail, dining and entertainment venue will be built, operated and 100% owned by Falcon’s.

The model for the Falcon’s Destination/Melia’ Joint Venture was the Sol Katmandu Park and Resort in Mallorca, Spain, the park having been established in 2007, whose performance improved substantially after merging with the adjacent Melia’ hotel in 2012, complemented by the Falcon’s designed Katmandu compact theme park.  The design of this combined “entertainment with rooms” destination makes it convenient for guests to visit throughout the day and evening. Falcon’s developed stories, characters and environments to transport guests to Katmandu via immersive theming from entry through queues into each attraction.  The theme park, prior to COVID, averaged over 240,000 visitors per year, generated in only seven months per year. The hotel’s average occupancy was 77%, 6 points better than non-Katmandu hotels in Mallorca, with an average room rate of $154, 11% higher than non-Katmandu rooms.

The improvement in Mallorca, and the working relationship between Falcon’s Chairman, Scott Demerau, with Melia’ encouraged the formation of the JV. Melia’ has more than 350 resort and beach destinations across over 40 countries. Scott Demerau’s team has the theme park operating experience, and Cecil Magpuri leads the Creative production of a leading-edge entertainment experience. Melia’, by contributing an existing hotel to the JV, is betting that their 50% of the theme park (which Falcon’s is building) plus their 50% of the improved hotel cash flow, with higher room rates and occupancy, plus more business at other properties they may own in the area, will be more than their current cash flow from the hotel.  Falcon’s is getting access to premium resort real estate owned by Melia’ that would be largely untouchable at today’s values. Both Melia’ and Falcon’s will benefit from Melia’s long term banking relationships, in addition to Falcon’s new access to US capital markets.

As the charts below from the Investor Presentation show: Within the joint venture are the Mallorca Sol Hotel and Katmandu theme park, plus the hotels and theme parks in Punta Cana (Dominican Republic, Tenerife (Canary Islands) and Playa del Carmen (Mexico).  It should be noted that all are year-round tourist locations, 3.5M annually in Punta Cana, 8.4M in Tenerife and 12.5M in Playa del Carmen (excluding cruise ship visitors).

By mid-2025 the joint venture expects to own and operate four destination resorts with over 1,900 hotel rooms, four theme parks, and three 100% owned retail districts. As shown below, the capitalized value of this brick-and-mortar portfolio could approximate the initial valuation of the deal, possibly more. Primary monetization of these developments will consist of hotel bookings, entertainment ticket sales, retail & food & beverage sales, and management fees.

Joint Venture Economics

The Joint Venture, once all three new locations are opened and ramped, is expected to generate, after capex, about $125M of annual Cash Flow. Falcon Beyond’s 50% share would be about $63M, as shown in the chart below. We note the reference on the left “we expect to take advantage of Melia’ longstanding banking relationship to secure attractive banking terms.” Leverage is calculated at 40-45% loan-value, which generates a 37% pretax return on equity for Falcon’s Beyond. The calculation, as shown in the Investor Presentation is just below:

              Falcon Central – the concept and the economics

Falcon’s Central is the “signature” venue at the center of the theme park, merging retail, dining and entertainment. Guests are exposed to a multitude of entertainment experiences, amenities, IP content and merchandise. Dining experiences are offered both from local restaurants as well as newly developed concepts. The shopping district offers both local and global retailers showcasing varied IP-infused merchandise. Attractions featured at Falcon’s Central will be VQUARIUM, a virtual adventure, STORY HUB, an immersive location-based entertainment experience, CURIOSITY PLAYGROUND, an experiential edutainment venue, and GAMEHUB, an immersive video game experience.

 

The chart, as presented in the Investor Presentation, shows Falcon Central’s Cash Flow, after capex and interest, from the three new locations amounting to $44M, generating a 36% pre-tax return on equity. Once again, as with the theme park development, Melia’ banking relationships are expected to be instrumental (Borrowing $96M out of $217M initial investment).

      Total Hard Asset EBITDA Generation (and capitalized Value)– at  mid-’25 Run Rate

As described in the discussion above:

When the three new locations are completely opened by mid-2025, the Joint Venture with Melia’ is expected to be annualizing (for Falcon’s Beyond) EBITDA at $73M, before maintenance capex of $5.5M. Falcon’s Central (100% owned) is expected to be annualizing at $53M before maintenance capex of $5M capex.  The EBITDA annualized run rate on “hard assets”, after maintenance capex, is therefore expected to be about $118M. The difference between that and the $146-$156M of total EBITDA is expected to be generated by Falcon’s Creative, which appears reasonable based on the backlog of projects and the commensurate margins.

Capitalized Asset Value

Cash flow generation obviously has a value, depending on the reliability of the cash flow, and the cap rate provided by capital markets. The following table shows the calculation behind an asset value of $954M to $1.451B, depending on cap rate.

Falcon’s Brands – Last but Far from Least – the Asset Light “Kicker”

Falcon’s Brands will deploy and monetize owned and partnered brands. The unique brand expander strategy compresses the normal timeline for brand monetization, will do so across multiple venues, and include licensing agreements across outside channels.

This effort is led by both internal talent, and outside advisors including Board members. It will include multi-media story telling by way of social media, films, books, comics, gaming, VR, apps, music, podcasts, audio books, etc. Consumer products will also be developed, enabling rapid monetization of IP with minimal investment. FBY’s technical expertise will align with prominent global partners to distribute toys, games, apparel, collectables, electronics and published goods.

Distribution can take place through brick and mortal retailers, online direct to consumer, as well as in 3rd party marketplaces.  A variety of characters and universes are already in the library of brands within Falcon’s.

A number of strategic partnerships with leading developers and distributors of brands are already in place to jumpstart this effort. The synergistic effect of FBY’s three divisions should be noted, since each project done well by a particular segment builds long term value for the others.

Falcon’s Beyond Brands is expected to be, over the long term,   a one third contributor to total corporate EBITDA, equal to each of Creative and Destinations.

 CASH FLOW – SOURCES AND USES

The following chart from the Investor Presentation provides a summary of cash coming and going between the Business Combination (estimated at year end ’22) and mid-2025. It shows cash provided by the SPAC ($222M), Private Placement from Falcon’s affiliate ($60M), Secured Term Debt of Falcon’s Central ($96M) and Cash Flow from Operations (Creative and Destinations) ($110M). Outflow includes Transaction expenses ($46M), Falcon’s contributions to JV ($161M), Falcon’s Central capex ($ 217M). There is a $63M “cushion” to allow for SPAC redemptions.

Adjustments to financial plans, for better or worse, are always a possibility. Good news is not of concern to investors but, in consideration of possible short-term disappointment:  should redemptions amount to more than expected, projects open late or do less well than expected, or financing not be available as planned, the positive current operating cash flow from Creative would allow for adjustments in timing, rather than elimination, of future projects. The predictable positive operating run rate would also buy time to arrange alternative financing for brick-and-mortar projects. While short-term results could be affected, longer term plans would (hopefully) remain intact.

 TRANSACTION OVERVIEW

The following chart summarizes the transaction. We have written before, and above, about the improvements in comparison to a typical SPAC structure. Most notable is (1) The starting valuation is a modest 6.7x projected annualized EBITDA in about 2.5 years.  (2) The current operating cash is presumably positive. (3) Principals within the company to be purchased are staying, owning over 80% of the new company, and investing (through an affiliate) an additional $60M. (4) Sponsors are giving up 20% of their inexpensive shares. (5) SPAC investors remaining will receive an 8% preferred stock for half their shares. (5) Earnout shares will not be issued for at least a year and when the stock is $20, $25, and $30/share. (6) Sponsor, affiliates and board members are well equipped to provide strategic guidance.

PEER OPERATIONAL BENCHMARKING

The charts below, from the Investor Presentation, show how reasonably valued Falcon’s is, based on the growth rate, EBITDA margins, and mid-2025 projected EBITDA. These numbers, to us, are mostly illustrative of the substantial re-rating possibilities for Falcon’s stock if and when they have produced the results as projected.

CONCLUSION: As provided above

We have more to learn, from the S-4 when filed and our further research, but it seems at this point that success is more a question of how much and when, rather than if. The professionals at Falcon’s Beyond are not being asked to do anything they haven’t done before. A billion dollars is a significant starting valuation, but the ROI on over $200M of SPAC proceeds, invested productively in brick & mortar projects, and the earnings power at the Creative division should support a good portion of that.  Moreover, the value of Falcon’s 50% portion of just the first few projects with Melia’ Hotels could approximate the initial $1B valuation.  Longer term, more Destination projects with Melia’ and others, expanded Creative business with Qiddiya and others, and Brands could combine to double the projected mid-2025 EBITDA of $150M by ’27-’28. It is a crucial consideration that current Creative operations are cash flow positive, available for the development of brick & mortar assets. This feature, along with the banking relationships of Melia’, should allow for growth as planned, even without a broad vote of confidence from current FZT shareholders. The possibility of $150M annualized EBITDA in only about 2.5 years, combined with the potential to build billions of value attached to brick-and-mortar assets makes the current $1B starting point appear reasonable. Precise timing of events is always uncertain, and the degree of success cannot be assured, but the intellectual, physical and financial assets seem to be in place. While, per Yogi Berra, “Predictions are always difficult, especially about the future.”, uniquely positioned Falcon’s Beyond provides an unusually attractive investment proposition.

Roger Lipton

 

 

 

 

 

 

 

 

 

 

FAST Acquisition II – WRITING A NEW BOOK WITHIN THE “SPAC” SPACE

FAST  Acquisition Corp. II – WRITING A NEW BOOK WITHIN THE “SPAC” SPACE

Prologue:

It is obvious that the excitement surrounding Special Purpose Acquisition Companies has waned. After hundreds of BILLIONS were raised over the last several years, there were zero SPACs funded last week. The average SPAC that accomplished a Business Combination is trading down something like 35% from the $10 issue price. Still, according to Nomura Securities, there are 132 SPACs trying to get funded, to the tune of $22B. and there are 580 SPACs seeking acquisition targets, with $152 Billion in trust. This bankroll, with leverage, could produce well over $500 billion in purchasing power, however:

Since the general market, most notably the speculative sector, is down substantially, current SPAC shareholders may be tempted to cast a negative vote relative to a proposed deal and retrieve their capital completely, which would be a “win” in this environment.

FAST II ACQUISTION CORP (FZT.U AND FZT) – ADJUSTING ACCORDINGLY

Our readers know that we have consistently been skeptical of the activity in the SPAC space, but “help is on the way”. In particular, the Sponsors of FAST Acquisition Corp. II (FZT and FZT.U) have made some material adjustments to the basic structure of their prospective Business Combination, all of which are materially beneficial to the public shareholders. We have followed all three SPACs (FST, FZT and VELO) that were formed by this Sponsorship Group and their holding company, &vest, since we have known some of &vest’s principals for decades. The just announced proposed deal between FZT and Falcon’s Beyond is intriguing, to say the least, and we will report on the fundamentals over time. Relative to the SPAC space, and the new less speculative stock market, the SPAC structure, as reformulated by FZT principals, is worthy of description. Beneficial as it is for shareholders, therefore useful as it will prove to be for SPAC sponsors, it is described below. References to the FZT/Falcon’s Combination are intended to be illustrative of the new SPAC “structure”, not a detailed description of this particular deal. We will report more regarding the operating fundamentals of the proposed Business Combination as time goes by.

A BETTER STRUCTURE FOR INVESTORS

If you can forgive the metaphor: Everybody knows that the SPAC castle has burned down, but from the ashes an ember sometimes continues to burn. Our readers know that we are not generally a fan of SPACs because too often:

  • The credentials of the Sponsors are often more of a “celebrity” than an operating nature and the operating principals at the selling company are sometimes selling and/or leaving.
  • The resultant starting valuation is many years ahead of the near-term fundamentals.
  • There is uncertainty as to whether the SPAC investors will agree to the proposed Business Combination, and the presence of their funds may be necessary for a closing.
  • There is substantial downside risk if the earnings are late or less than expected, because the starting point may be more of a “plan” than a “existing business”.
  • There is often substantial dilution of the public shares by earnout incentives that depend on short term stock price rather than longer term results. If there is a short term move in the stock, the dilution can take place though the stock price quickly falls back and the fundamentals are still far in the future.

In this case, at this time with so much disillusionment regarding SPACs, the Business Combination between FZT and Falcon’s Beyond provides a number of fundamentally attractive features. Moreover, Sponsors and Underwriters of FAST Acquisition Corp. II have adjusted the deal structure to help eliminate the above negatives:

  • The Sponsorship group and proposed Board of Directors have outstanding brand building credentials in the hospitality/restaurant/retail industries. Included are &vest’s Doug Jacob (co=founder of &vest), Bill Hinman (partner of &vest and  former  Director of the SEC’s Division of Corporate Finance), Sandy Beall (partner of &vest, founder of Ruby Tuesday’s, founder of Blackberry Farm and Blackberry Mountain) and others. The operating partnership with prestigious Melia’ Hotels speaks for itself. Furthermore, the “sellers” are accepting stock and staying, putting their entire business careers into the new venture. Lastly, an affiliate of the seller will contribute up to $60M to the new company, $20M of which is already in place.
  • The first project, in Punta Cana, Dominican Republic, opens in early 2023, within months of the Business Combination and calendar 2024, with $150M of projected EBITDA, will be little more than a year away. Melia’ Hotels will be contributing existing hotels, situated on attractive resort real estate, as part of their contribution to the 50-50 jV, providing brick and mortar value to the new Company. Lastly, even if projects should be delayed for some reason, indications of success will not be long in coming as the Punta Cana project inaugurates the new effort in a very few months.
  • This transaction will likely move forward, even with substantial SPAC redemptions. The projects are largely pre-funded, an affiliate of the seller will provide up to $60M, and Melia’ operating credibility and contribution of brick and mortar should provide a range of financing alternatives.
  • The risk is fundamentally less than normal here because brick and mortar hotels will be contributed by Melia’ as each project moves forward. In addition, the downside risk is reduced because half of the public’s common shares will be exchanged into an 8% convertible preferred stock.The Sponsor is also forfeiting 20% of their “promote”, to be reallocated between Private Placement and non-redeeming public investors. Depending on redemptions, the effective discount (stock dividend) will be from 6.1% to 8.1% from a theoretical $10.00 purchase price.
  • The potential dilution from earnout shares is a non-factor because that would take place only after one year, triggered in tranches at the much higher levels of $20, $25, and $30/share, at which point public shareholders will have already made substantial returns.

CONCLUSION:

It’s possible that the FZT/Falcon’s Beyond deal would take place with or without the adjustments detailed above. In our mind, however, the new structure provides a much more balanced approach between “organizers”, operating principals and the public investors and is no doubt a function of &vest’s  navigation of the SPAC market over the past few years. There is less of a “promote” for the organizers and underwriters, the exit for the operating principals is longer term in nature so more dependent on building the business, not just the stock price, so the reward/risk profile is far more attractive for public investors. We look forward to following the progress of the above described transaction as well as developments in the general SPAC space.

Roger Lipton