The popular global social trading platform recently moved to list its shares in the US stock market through a merger with a special purpose acquisition company (SPAC) backed by financial industry veteran Betsy Cohen in a deal that is valuing the popular broker at around $10.4 billion.
The deal includes a capital injection of around $650 million for the Israel-based platform as part of a private placement that counted with the participation of major investment funds including SoftBank’s Vision Fund, Fidelity Management Research, and Third Point LLC participated.
A merger of this sort would allow eToro to list its shares in the American market without having to go through the traditional listing procedures required by exchanges to launch an initial public offering (IPO).
Meanwhile, the proceeds of this latest funding round will further strengthen the firm’s cash reserves to keep growing and expanding its reach. Currently, eToro serves more than 20 million investors around the world.
Through eToro’s platform, investors can get exposure to a wide range of financial assets either directly or via contracts for differences (CFDs).
Its most popular investment products include individual stocks, stock indexes, commodities, and cryptocurrencies like Bitcoin (BTC), Ethereum (ETH), and others.
How does a SPAC-backed IPO works?
Special purpose acquisition companies, also known as SPACs, have become quite popular among well-reputed individual investors from Wall Street and other corners of the financial world, allowing them to raise capital through what is known as a “blank-check” company.
These investors use their reputation and credibility to raise money from individuals and institutions and they typically aim to merge with private companies like eToro that are seeking to launch their shares on the open market, allowing them to avoid the listing procedures required to achieve that purpose.
In practice, the deal works as a merger in which the two companies – the SPAC and the acquired target – combine their assets to become one entity and, as a result, a newly-formed company emerges.
In the case of eToro, the SPAC that will be promoting the deal would be FinTech Acquisition Corp. V (FTCV), a venture-backed by Betsy Cohen, a well-known figure from the US financial industry who served as the Chief Executive Officer of The Bancorp Bank.
Why has eToro become so popular among investors?
One can hardly argue that eToro has become a popular platform among retail investors. Yet, what makes this broker so appealing? Well, there are multiple features that make eToro stand out above the crowd.
First, the firm offers an innovative approach to investing and trading known as social trading, which involves using collective wisdom in the form of a social-media-like platform to help investors in building their portfolios.
Through a feature known as CopyTrading®, users can easily mirror the portfolio of other successful investors within the platform, while eToro lets users filter and analyze how the performance of these third parties has been achieved by disclosing their individual holdings, past performance, risk score, and other similar variables to help individuals in picking the traders that they believe have the best chance to deliver a positive outcome in the coming feature.
Meanwhile, the firm has also introduced innovative instruments to its platform as is the case of cryptocurrencies, which has contributed to this broker’s appeal as not many formal stock exchanges have given investors the opportunity to get exposure to the popular digital currency until eToro arrived.
Moreover, investors can also apply for a margin account to place leveraged trades, which means that they can borrow money from eToro to possibly boost the size of their positions.
Finally, as a trading platform, eToro offers access to charting tools, basic fundamental information on the stocks available within the platform, and a tracker that allows investors to see how market sentiment looks like for each individual instrument offered within the interface.
Can you invest in eToro?
Once the merger is completed, which is expected to occur this year, Fintech’s FTCV will trade under a new ticker symbol – TORO – although there are no assurances that the deal will come through.
For now, speculators who believe that the merger will face no obstacles can get exposure to eToro by buying FTCV shares directly in the open market.
However, if the deal falls apart, those who buy FTCV now will only be owning a portion of the SPAC’s assets rather than a portion of eToro.