(Bloomberg) — Chicken Soup for the Soul Entertainment Inc. has acquired Redbox Entertainment Inc., a movies-to-rent streaming service that went public through a blank-check company last year, another sign that once-booming SPACs and the deals they fueled are losing steam.
The acquisition is valued at about $31 million, according to data compiled by Bloomberg, a huge markdown from the $254 million valuation Redbox had traded for before the deal was announced Wednesday. Chicken Soup has agreed to take on about $321 million in Redbox debt and got the company a new term loan.
As part of the all-stock transaction, shareholders of Redbox will receive 0.087 of Chicken Soup’s Class A common stock per share. Apollo Global Management, one of the largest backers of Redbox, will own roughly 15.2% of the newly combined entity while direct lender HPS Partners will own about 4%. The deal is set to close in the second half of 2022.
Redbox shares, which plunged as much as 50% Wednesday, closed down 43% to $3.20 apiece. Since the blank-check deal that took the company public, Redbox’s shares have now fallen more than 66%, giving it a market value of $145 million
Chicken Soup, whose stock had fallen almost 78% in the past year through Tuesday, didn’t fare much better after the deal was announced. Its shares swung between a 23% surge and an 12% drop, closing down 9.9% to $7.14 to shrink its market value to $110 million.
‘Cleaning Up’ Structure
“What we really tried to do was look at what should each of us own in the combined company based on what we were each bringing to it,” Chicken Soup Chief Executive Officer Bill Rouhana said in an interview with Bloomberg News. “We were bringing assets that were helpful in terms of the debt, cleaning up of the capital structure, access to new cash and they were bringing these incredible assets, this bigger revenue business and the ability to generate a lot of cash flow.”
The market for SPACs, or special purpose acquisition companies, got hugely popular in the past half decade. The once-niche business had been seen as a way for companies to avoid some of the requirements of an initial public offering, and the market lured all manner of financiers, celebrities and even former President Donald Trump, who sought to cash in. But SPACs have recently been hounded by regulators with new liability guidelines. If enacted, those proposed rules would apply not only to initial listings by SPACs, but also would extend through their mergers with target companies.
This year, 66 SPACs have raised $11.5 billion on U.S. exchanges, compared with $102 billion at this point in 2021, according to data compiled by Bloomberg.
Based in Oakbrook Terrace, Illinois, Redbox is best known for its early days of having DVD rental kiosks across the US. But in the era of streaming, the business expanded its focus to other customer touch points.
Mall Cop, Spiderman
Today, Redbox serves movie buffs through both a premium and ad-supported streaming option and tent-pole theatrical releases such as “Mall Cop” and “Spiderman: No Way Home.”
It still has kiosks, with 64 million rentals through them last year, Redbox Chief Executive Officer Galen Smith told Bloomberg News. And while most may think that DVDs sticking around is due to stubborn film aficionados defying an upgrade to the latest technology, Rouhana attributes it to a lack of proper broadband access.
Chicken Soup, an advertising-video-on-demand (AVOD) network operator, has been on the hunt to continue growing its content library and user base of more than 40 million monthly active viewers. Headquartered in Connecticut, the company operates multiple ad-supported streaming services including PopcornFlix, Chicken Soup for the Soul and also Crackle, which it acquired in 2019 from Sony Pictures Television.
According to Rouhana and Smith, the deal for Redbox came together in a matter of days. Nothing was agreed upon as of Sunday night. But initial talks from two years back helped discussions pick up where they left off when Redbox in an February filing with the U.S. Securities and Exchange Commission said it was exploring strategic options of its business.
“It’s always been logical, it’s always made sense, and everybody around the table has always known that,” Rouhana said. “So you could say its taken two years, you could say its taken three months, and if you’ve lived in it you could say it was a day.”
But “I’m happy that we broke through and got it right,” he added.
(Updates with closing share prices in fifth paragraph)
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