According to the Sports Business Journal, the US M&A specialist may block the merger between the North American esports organization FaZe Clan and BRPM.
Last October, the club announced its listing on the NASDAQ with an estimated value of $1 billion through a merger with BRPM. However, recent amendments to the merger filing have exposed potentially detrimental problems with FaZe Clan's business. As a result, the deal could fall through, while the club risks big financial problems.
The latest turn of events could be costly for FaZe Clan and other stakeholders, as the club is facing bankruptcy given the club's financials. Recent events have not only driven FaZe Clan's post-merger market capitalization below the $1 billion mark, but have also reduced expected merger revenue by at least $73 million, questionable at best.
According to FaZe Clan's initial plans, the merger was supposed to be completed sometime in the first quarter of 2022. While the organization has gone ahead and introduced a Board of Directors that will take over after the merger, FaZe Clan is still a private company.
FaZe Clan management developed a financial projection that BRPM used to value the company and based on the original merger filing in September. The BRPM amendment to the merger filing showed that FaZe Clan's actual financial performance last year deviated significantly from this forecast.
While the company's revenue and gross margin slightly outperformed expectations, FaZe Clan's bottom line came in well below forecasts. At the same time, the organization forecast EBITDA (earnings before interest, taxes, depreciation and amortization) of $19 million, but recorded EBITDA of $28,741 million.
Aside from the lack of financial targets, the delay in the BRPM merger process demonstrates the major problem facing FaZe Clan. The company based its business strategy and financial projections on the assumption that the merger will be completed by December 31st. Thus gaining access to at least 75% of BRPM's $173 million trust account revenue and a planned investment of $118 million in or around September 2021 to fund a growth strategy.
Instead, FaZe Clan's audited financial statements have now cast significant doubt on its ability to continue as a going concern, meaning it must generate enough revenue and raise additional funds to stay afloat.
In addition to failing to achieve its 2021 guidance, FaZe Clan also acknowledged that it expects its actual results in 2022 and beyond to be materially different from its guidance.