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Gordon Pointe Acquisition And HOF Village: Possible 140% Upside Potential By 2023
Jul. 2, 2020 2:11 PM ET|3 comments | About: Gordon Pointe Acquisition Corp. (GPAQ), Includes: GPAQU
Anh Hoang
Anh Hoang
Long only, Deep Value, special situations, growth at reasonable price
Global Hidden Gems Portfolio
(2,661 followers)
Summary
Gordon Pointe is a blank check company, which is led by experienced management in the financial service and technology industry.
HOF Village is considered the unique platform with a sports stadium, resorts, and direct access to a large sports content base, thanks to the partnership with Pro Football Hall of Fame.
If HOF Village could deliver $44 million in adjusted EBITDA, the combined company could be worth $660 million, 140% upside from the current merger valuation.
Gordon Pointe Acquisition (NASDAQ:GPAQ) (HOFV), a special purpose acquisition company (SPAC), entered a business combination agreement with Hall of Fame (HOF) Village in September 2019. The two companies have spent more than nine months to negotiate and finalize the merger. We believe that the merger represents a good upside potential for Gordon Pointe's shareholders.
Management team has decades of experience in financial service and technology industries
What we like about Gordon Pointe is its experienced management team with high insider ownership. Gordon Pointe is led by chairman & CEO James Dolan. James Dolan has more than 40 years of experience in various industries, including financial services and technology. Previously, he was a senior executive for Federated Investors, a multi-billion-dollar global asset manager, for 19 years. He had also founded a SaaS company and sold it to a public listed FinTech company. Currently, James Dolan is sitting on the board of several financial service corporations, including TriState Capital Holdings and Plan Member Financial Corporation. Gordon Pointe's CFO is Douglas Hein, who has been working with James Dolan for more than 25 years during the time in Federated Investors, AccessData, and Voyager. James Dolan, directly and indirectly, holds more than 27.3% of the total shares outstanding in Gordon Pointe. Other large shareholders include AQR Capital Management, an investment firm with a $143 billion asset under management and Mizuho Financial Group.
HOF Village merger could create a lot of upside potential
HOF Village is one of the leading sports, entertainment, and content development companies. It is currently developing 200-acre mixed-use land in Canton, Ohio. This area is considered the ideal place for HOF Village because half of all NFL franchises are located within an eight-hour drive. There are around 32 million people living within a five-hour drive. Moreover, there are many direct flights to Canton from big airports in New York, Washington, D.C., Chicago, Atlanta, Tampa, and Texas.
Source: Gordon Pointe's presentation
HOF Village is considered a unique platform that has a sports stadium and resorts, and direct content access to original Pro Football content. It is expected to be the top tourist destination, attracting millions of visitors per year. It has three phases of development. Phase I is a $250 million investment to build Tom Benson HOF Stadium and National Youth Football & Sports Complex, which has been put into operation. Phase II, which is estimated to be completed by 2022, needs $268 million investment to build a waterpark, a hotel, an office building, and a convention center. Phase III, which is expected to be in operation from 2025 onwards, would have a luxury hotel and a multi-family housing.
Source: Gordon Pointe's presentation
The ongoing COVID-19 pandemic has affected many live sports events globally, including HOF Village's event. Recently, the Pro Football Hall of Fame Enshrinement Festival has been postponed to the beginning of August 2020. Although COVID-19 has adverse effects on HOF offline events, we like HOF Village due to its access to substantial original content base, via its partnership with The Pro Football Hall of Fame. With 40 million documents, 6 million photos, and 200 hours of historical videos, HOF Village could serve multiple media formats for primetime television, family shows, and kids programming. Moreover, HOF Village is discussing with legislators and strategic partners to form E-sports/Fantasy and Gaming, which could be another driver of HOF Village's potential growth.
By 2023, HOF Village expects to generate $131.4 million in revenue after completing its Phase II development. The three most significant revenue contributing segments would be waterparks (23%), stadium (21%), and sponsorships (19%).
Source: Gordon Pointe's presentation
Its adjusted EBITDA is expected to be around $44 million, with the EBITDA margin of 33.5%. By 2025, after completing phase III, HOF Village run rate EBITDA should come in at $100 million. With a 15x EV/EBITDA valuation, HOF Village should be worth $1.5 billion by 2025. By 2023, the 10x EBITDA valuation could translate into a $660 million valuation.
The merger structure would lead to a debt-free company, with a 40%/60% ownership split. Current GPAQ's founders and shareholders would own 40%, while existing HOF Village's shareholders would own 60% of the combined company. When the deal was announced in September 2019, GPAQ's cash in trust was $110.5 million. As a consequence, the deal valued HOF Village at only $276.25 million, just 10% higher than the original investment in Phase I development. Thus, the combined company could be worth 2.4x the current merger valuation in the next three years.
Potential risks
HOF Village generates most of its revenue from live events and festivals. As a result, the lockdown will have negative effects on the company's operating results. If the COVID-19 situation keeps getting worse, many festivals, including the Pro Football Hall of Fame Enshrinement Festival, might be delayed further, possibly to the next year. Moreover, the development of Phase II and Phase III might be delayed as well. As a result, HOF Village might not deliver the revenue and EBITDA target, resulting in lower valuation as projected.
Conclusion
The merger would create a lot of upside potential, thanks to HOF Village's vast development land for entertainment & sports, and its direct access to great Pro Football content in various media types. The expected post-transaction debt-free balance sheet would enable the combined company to raise more financing for more capital expenditures at cheap rates. If HOF Village could generate $44 million in adjusted EBITDA by 2023, it could give shareholders a potential 140% return in the next three years.
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