Mobile gaming company Skillz is the next market deal from SPAC team that took DraftKings public

Mobile-gaming company Skillz announced Wednesday that it will go public through a merger with Flying Eagle Acquisition Corporation, led by executives of the same blank-check company that brought DraftKings to the public market earlier this year.

Mobile games account for about one-third of the gaming market’s total global revenue — a percentage that’s estimated to reach 41% by the end of the year and value the market at around $150 billion by 2025. Skillz, which ranked No. 31 on the 2019 CNBC Disruptor 50 list, is part of that growth curve. Last year, the company grew its revenue run rate from $100 million to $400 million.

Today, Skillz touts 40 million registered users and more than 30,000 registered developers on its gaming platform, which is on pace to run 2 billion tournaments before the end of the year. Those tournaments feature online games such as solitaire, mahjong, and sports-related mobile titles. Users can compete in both informal and formal tournaments to earn cash prizes, so even amateurs can get a taste of the competitive gaming scene.

“We were planning on being ready to go public at the end of Q4, but the SPAC route allows us to go to market a little bit faster and also allows us to select the best financial partners through the pipe that we set up with Wellington, Fidelity, Franklin Templeton and Neuberger Berman, among others,” said Skillz founder and CEO Andrew Paradise earlier Wednesday on CNBC’s “Squawk on the Street.”

The company has raised $159 million in funding from those institutional investors ahead of its debut.

Pending shareholder approval, Skillz would begin trading on the New York Stock Exchange before the end of the year in a deal that values the San Francisco-based start-up at $3.5 billion. 

Last week, the New York Stock Exchange won the approval from regulators to allow companies to issue a new type of direct listing, creating a cheaper alternative to the traditional initial public offering. The approval allows companies to simultaneously go public and raise cash from public market investors, rather than being restricted to allowing existing private shareholders alone to sell stock to public investors.

After its acquisition, DraftKings made its debut on the Nasdaq following widespread cancellations of live sporting events, including March Madness and the NBA Finals, at the outset of the Covid-19 pandemic in the U.S.

But what followed was a significant shift in consumer behavior for online sports betting and digital gaming, which investors have remained largely bullish on, despite coronavirus cases being down across most of the country as states continue to reopen their economies. DraftKings has seen its valuation surge from about $3 billion to more than $13 billion since April, and on Wednesday, it announced that Michael Jordan was joining as a board advisor.

The NYSE approval also comes as a record number of companies have turned to SPACs, or special purpose acquisition companies, as a backdoor way to be listed on exchanges this year. A SPAC is a blank-check company, such as Flying Eagle Acquisition Corporation, that’s formed to raise funds to finance a merger or acquisition within a certain time frame, typically two years. The target firm will be taken public through the acquisition.

Still, some believe that the SPAC market may be getting too frothy, including DraftKings’ CEO.

“Hopefully the market settles down a little bit there,” DraftKings CEO Jason Robins told CNBC’s A View from the Top. “I think there are a lot of SPACs now. Some will do well and some won’t. For the right companies, SPACs are great vehicles, but it’s not a fit for everybody. It’s not a fit for every company.”

In recent weeks, hedge fund manager Bill Ackman, Oakland Athletics general manager Billy Beane, former Trump administration economic adviser Gary Cohn and former speaker of the United States House of Representatives Paul Ryan, were among the notable names to back SPACs. 

“When you think of the different parameters for how you want to set up your company post-public, being able to pick meaningful investors like the ones I named … is something that’s really exciting for us and something that’s unique with a SPAC,” Paradise told CNBC’s David Faber.

“I think one of the exciting things about going public is showing everyone the results of the business, showing everyone how this business has been created and the future of entertainment,” the Skillz CEO said. “When you think about these interactive devices and their proliferation across the planet — the smartphone, the tablet — mobile gaming is interactive content built for interactive devices. That’s why it’s the future of entertainment.”

Skillz is a two-time CNBC Disruptor 50 company, and the second company in the list’s eight year history to go public through a SPAC. DraftKings was the first Disruptor 50 company to go public through a SPAC earlier this year.