July 9, 2021

Breakingviews: Bob Diamond SPAC takes aim at his former employer

by Breakingviews.

Sticking it to former colleagues is one sort of payback, and it’s what Bob Diamond is hoping for. The erstwhile Barclays boss’s blank-cheque vehicle is merging with digital-currency operator Circle, whose blockchain-based products may one day threaten corporate banks’ core business. But a $4.5 billion enterprise value is premised on eyebrow-raising growth rates, and regulators could easily spoil the party.

Circle and Concord Acquisition, the $276 million special-purpose acquisition company chaired by Diamond, unveiled the deal on Thursday. Boston-based Circle will go public via a merger with the SPAC while also raising $415 million from institutional investors including hedge fund Marshall Wace.

It’s arguably even more of a punt than past Diamond ventures like Atlas Mara, a vehicle for buying up African banks whose share price plunged by 80% in the three years after its 2013 float.

Circle is seeking to usurp traditional lenders by offering fast, cheap treasury and payments services secured via blockchains. Corporate customers open a Circle account and swap their dollars for USD Coin, a digital currency whose value is pegged to the greenback. They can then make payments that settle immediately and cost a fraction of a cent.

The 8-year-old company also wants to create blockchain equivalents for corporate bonds and equities, so that clients can raise money directly from investors without paying wholesale banks’ chunky underwriting commissions.

There’s a long way to go yet. The company had just 1,421 accounts open at the end of June. Its targeted 2021 revenue of $115 million implies an eyeball-popping enterprise value-to-sales multiple of 39 times. That falls to around 5 times, a far more reasonable mark, based on Circle’s 2023 revenue projection of $886 million. But that in turn requires hitting a breakneck compound annual top-line growth rate of 177%.

If that isn’t challenge enough, governments and securities watchdogs could yet make Circle’s life difficult. The regulation of so-called stablecoins like USD Coin is a moving target, and heavy-handed treatment would probably deter clients who don’t already operate in the blockchain world. Meanwhile digital currencies issued by central banks could offer equally cheap payments with minimal risk. Diamond’s investment in Circle takes aim at bankers, but they may not be too worried yet.

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