Grindr: low free float disguises an unpopular Spac matchup

At first glance, Grindr’s powerful public debut marked a rare bright spot for the struggling Spac market. The LGBTQ dating app soared more than 200 per cent on its first day of trading last week after it closed its merger with a blank-cheque company. That is no small feat given the rout in technology stocks at the moment.

But like users who put the most flattering photos of themselves on dating apps, Grindr’s own eye-catching performance requires viewing with a healthy dose of scepticism.

For starters, roughly 98 per cent of investors in Tiga Acquisition Corp, Grindr’s Spac merger partner, opted to redeem their stake rather than participate in the deal. That means there were only about 500,000 shares left for trading. A thin float can result in big price swings for the stock.

No surprise, Grindr’s shares triggered 17 trading halts for volatility on Friday. The wild swings continued on Monday with the stock dropping 31 per cent.

Investors in Tiga had plenty of reasons to swipe left on Grindr. Spac mergers that did complete this year have plunged. These have an average loss of about 49 per cent for the first nine months of the year, according to Spac Research. Compare that to the S&P index, which lost 25 per cent over the period. Rival online dating apps Match Group and Bumble have shed 66 per cent and 37 per cent of their values this year.

Also, Grindr’s rich valuation hardly endeared itself to investors. Under the terms of the merger announced in May, Grindr was given an implied enterprise value of $2.1bn, or 14 times 2021 revenue. Match and Bumble both trade on just 5.5 times. Grindr will need to generate plenty of revenue growth to find a suitable match for its high valuation.

A new tax on stock buybacks which could be applied to Spacs provides extra incentive to redeem any funds before the tax comes into force in January. Against this backdrop, investors who have asked Spac sponsors to return their money in full, with a bit of interest on top, look smart.