Playboy SPAC

Playboy Enterprises Inc. is to be acquired by Mountain Crest Acquisition Corp (“MCAC”) via SPAC.  Mountain Crest Acquisition Corp is a publicly listed special purpose acquisition vehicle (“SPAC”) with $58.5 million in cash.

Playboy is valued at a $381.3 million enterprise value consisting of $239.2 million in equity value and $142.1 million of debt.  Playboy will be rolling 100% of its equity into Mountain Crest Acquisition Corp’s SPAC, resulting in a pro forma market capitalization of $373 million enterprise value and $413 million market cap.

Post acquisition, Playboy will own 66% of the publicly traded enterprise with $101 million of cash on the balance sheet.  Analysts estimate 2021 EBITDA of $40.3 million resulting in a pro forma EV/EBITDA of 10.3x.  The remaining equity will be held by SPAC Investors (17.5%) and PIPE Investors (13.4%).

The goal of the publicly traded enterprises is to leverage Playboy’s brand awareness, resulting in 2025 adjusted EBITDA of $100 million

Since 2017, Playboy has went through a full strategic review consisting of streamlining the corporate management team, ending their advertising business and off-brand partnerships and exited underperforming segments.

The strategic review lead to a new management team and a more focused strategy (adjusted 2025 EBTIDA $100 million) to leverage the global brand.  To leverage the brand, Playboy has used  the power of social influencers such as Kylie Jenner, Travis Scott, Bad Bunny, Lizzo and King Princess.  The reach of social influencers has reestablished the brand among younger generations such as millennials and Gen-Z.

In addition, Playboy has completed several acquisitions such as Yandy and a rapidly growing digital gaming business.

Yandy is an ecommerce retailer of lingerie, dresses, costumes and accessories.  Yandy has over 20,000 products, 750K active subscribers, an email list of 2.5 million subs and average of over 70K orders per month.  Revenues for Yandy are estimated to be $25.2 million for 2020, 37% growth from 2019.

Analysts estimate 2020 revenues will hit $131 million, growth of 68% from 2019.  With estimated 2020 adjusted EBITDA of $24.1 million, compared to $11.7 million in 2019, Playboy is leveraging a significant amount of operating leverage which should benefit equity holders.

Revenues are broken down into four different segments (2020 estimates):

  • Sexual Wellness ($54 million revenues)
  • Style and Apparel ($69 million revenues)
  • Gaming and Lifestyle ($4 mllion)
  • Beauty and Grooming ($3 million)

Sexual and Wellness consist of intimates and lingerie (yandy.com), condoms, lubricants, wipes and intimacy kits.  This segment also includes CBD arousal offerings, PlayboyTV, Playboy Plus, and Playboy.tv.

The Style and Apparel consists of men’s and women’s casual wear (shoes, sleepwear, swimwear, formal suits, etc.)

The Gaming segment includes casinos and social venues, slots and table games, social casino gaming, live dealer sports betting partnerships and in-app purchases.

Finally the Beauty and Grooming segment consists of men’s and women’s fragrances.

Licensing model for operating leverage

The attractive part of the Playboy model is their long-term licensing agreements.  The licensing agreements effectively allow retail partners the use of the “bunny”.  Currently, Playboy has over $400 million of forward booked cash flows from multiple licensing agreements at an 80% gross margin.  These contracted cash flows have a tenure of seven years with a renewal rate of 95%.  This suggests Playboy could generate $46-50 million in cash flows through 2027 solely from licensing agreements.

2021 Adjusted EBITDA Target

In 2020, analysts expect Playboy to generate $24.1 million in adjusted EBITDA.  Playboy’s goal for 2021 is to hit $40.3 million in adjusted EBITDA.  The follow bullet points illustrate how Playboy plans to hit their guided $40.3 million in adjusted EBITDA.

  • $8.4 million from Licensing
  • $7.0 million Sexual Wellness
  • $1.2 million Legacy Business
  • $1.0 million Yandy
  • An increase of G&A of $1.5 million – this shows the operating leverage of the business model.

Conclusion

Playboy is one of the world’s most iconic global consumer lifestyle brands.  With over $400 million of contracted cash flows through 2027, and strong growth in each segment, a 10.3x 2021 adjusted EBITDA multiple does not seem too rich.  In addition, Playboy has over $180 million of NOLs which will provide a tax shield against net income for a few years.  Given the current SPAC craze and the well known “Playboy” brand, it would not be surprising to see the public entity get a significant amount of press and investment dollars

Disclaimer: We do not hold a position in Playboy.



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