Martin Werner of DD3 Capital on the Codere / $DDMX SPAC deal
Here’s my conversation with Martin Werner on DDMX / Codere. You can find my podcast prep tweets here, and you can follow the podcast on Spotify, iTunes, or most other podcast players, as well as on YouTube if you prefer video! And please be sure to rate / review the podcast if you enjoy it, or subscribe to this substack to get all new podcasts and transcripts delivered right to your inbox!
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Transcript begins below.
Andrew Walker: All right. Hello! And welcome to the Yet Another Value Podcast. I'm your host, Andrew Walker. And with me today, I'm excited to have Martin Werner.
Martin is the founder of DD3 Capital and he is the CEO of the SPAC that we're going to be talking about today. The ticker there is DDMX. Martin, how's it going?
Martin Werner: Great, Andrew. Nice to be with you.
Andrew: Hey. Great to have you here. Let me start this podcast the way I do every podcast. First, with the disclaimer, just remind everybody that nothing on here is investing advice. Martin is the CEO of the SPAC that we're going to be talking about, so he's got a vested interest in this company. But everybody should just remember, please do your own diligence, nothing's investing advice.
The second way I start every podcast is with the pitch for you, my guest. This is going to be a really simple pitch. Your first SPAC merged into Betterware. The ticker there is BWMX. I believe, for a while, it was the most successful SPAC in the history of the SPAC markets. I looked it up yesterday, just the common is the 18th or 17th most successful SPAC of all time. SPAC comes with a unit, a warrant, and stock.
Your units were a little more generous than a lot of other SPACs, so your SPAC is still one of the top 10 or top 5 performing SPACs of all time. Given that background, and I've got tons of friends who think Betterware today is still a very interesting company, we might talk about it a little at the end, but given that background, it's kind of kin to venture capital investing. If somebody hits one grand slam, you at least want to see what they're doing for the next one because there can be a little bit of repeated effects.
Given that background, I'm excited to have you on to talk about your second SPAC, DDMX, which is merging with Codere Online. I'll stop there and flip it over to you. How did you find Codere Online? What's the pitch? What did you see that made you want to take this public as your second SPAC?
Martin: Well, Andrew, when we placed our second SPAC, which was early December of last year, we hit the ground running. We've already done one SPAC. We knew what we wanted. We wanted a company that had high growth, preferably with a tech angle.
We were very close to doing a deal with a FinTech company in the lending space in Mexico. I spent my Christmas vacation talking to those guys every day. In the end, the deal didn't go through, so we didn't sign the LOI in January. We started looking at our pipe. The opportunity to look at Codere Online came up.
Codere Online is connected to the Codere Group. The Codere Group has a big retail presence in Spain, Italy, and Latin America in casinos. Because of COVID, the casinos were closed, they had no cash, so they couldn't find their online platform which was growing rapidly and needed cash. They ran a process to find a partner, and we participated.
And they liked the fit with us, the fact that they wanted to operate, and they wanted the minority investor, that we were the right partner. Mexico is a big country for them. I knew many of their partners in Mexico, so it was a very good fit. We very quickly, signed an LOI, worked on the BCA, and we got a deal that we think is very attractive for investors, and that will work well in Nasdaq.
Andrew: Perfect. Let's go back. I want to talk about you, you're the second SPAC sponsor we've had on and I spend a lot of time in the SPAC world. I just think the whole way of SPAC comes together and merges with the company is interesting. Let's talk about the process for merging with Codere, and then we can dive a little with Codere.
The first thing, when I was reading through your proxy, I think the first thing that jumped out to me is, I hadn't seen this disclose. I've seen every SPAC discloses, "Hey, we reached out to 15 companies and signed an LOI with 7." But your background made clear, "Hey, we reached out. There were 3 companies we were thinking about." And you even list the reasons, you mentioned one of them, but you even listed the reasons for each 3. You say, "These were great companies, but the second company reached out. It just wasn't public company ready. The third company reached out," I can't remember. You gave the reasons why you couldn't merge with them.
Actually, I'll stop there, and then we can go to Codere, but could you just talk a little bit about what the process was and why you turned down these first 3 companies?
Martin: I mean, our background is in banking. I ran the Mexico office of Goldman Sachs for 16 years. My partner, Jorge, co-founder of DD3, was also a banker for 20 years, and he was also a private equity investor with a big Brazilian PE Firm. We understand these processes and we know how to very quickly look at companies when we have the right data.
Initially, we were very enthusiastic about the FinTech space. It was a space that our partners in the pipe wanted to look at, and we found a company that, even today, is looking and doing the SPAC deal in Mexico. We like the team there. The company was probably too early stage. To be honest, in the FinTech space, the lending side is probably the more risky [crosstalk] because people are really focused on payments more than lending, but lending also works. We looked at that, we learned a lot. As I said, we were very close to getting a deal done, but in the end, deals are complicated. Things didn't work out. It wasn't the right fit at that time because of what they needed, and they needed an immediate injection of capital leeway. We passed on that one.
Then, we had a pharma company we're looking at, too. That was a very interesting company, very different, more on value play. A very big company in Mexico. In that case, the issue was valuation because that company was in a space that's called branded generics. So, branded generics, you can have very high valuations or very low, because they could be more branded or more generics.
Andrew: I'm laughing because I know the space. I used to be at Bain and I covered healthcare and I know this space very well.
Martin: Of course, they said, they were more branded because they were more generics. So, in the end, we couldn't get to the valuation. That's a fantastic company. Eventually, would love to take it public so we look at that company. And then, of course, because we have a pipe that is pre-committed in SPAC number two. We did the initial analysis, but before signing anything, we always went to our partners. We went to Baron and MG and was a great process. We discussed with them the opportunities before signing an LOI. So, we keep them up to date. But we do a very kind of scientific approach and we create a model for the company. We look at comparables. We look at how they trade. We run the numbers and then we checked the tires, in the way of calling people that we know that know the space. We have new information, but just trying to become very quickly get up to date on the space. See how that could train in Nasdaq if they have the growth, the technology, the team, the numbers. We can do that in two weeks for a company. So, we did that for the FinTech company, for the Pharma company. We had an opportunity in the low-cost airline space that was super attractive. But in the end, they preferred to go for the regular IPO. But very quickly, we look at many other companies.
We do it all the time. And then, because the industry is not just a SPAC sponsor, it's a financial firm in Mexico that has crazy science special opportunity funds. We do M&A. So, we're constantly talking to investors and entrepreneurs so we're in the flows, and that creates a lot of opportunities for the SPAC. We're looking at something that maybe they come to see us for something else and say, "Hey guys, the SPAC will be great for you, guys. What do you think about that?" So, we're always talking to investors, companies, and people. But anyway, we look at a number of companies before, we do a very thorough process. We involve our partners and we make decisions jointly. In the end, I think that once we saw the Codere Online opportunity, we liked it. We thought that we have a fantastic deal and the company kind of checked all the boxes that we need for a SPAC to work in Nasdaq and be a successful stock.
Andrew: Perfect. I'll just log in two or things, and then we're gonna go to Codere. The first is I've learned about SPACs extensively on the blog. We invest in SPACs all the time. I think one of the things you said with DD3, you're not just a SPAC sponsor, you're involved in companies in a lot of ways. I think, when you're looking for SPAC sponsors, you want someone who - the only way they're ever going to get paid is not, "Oh, we need to get this SPAC deal done." You want someone who's talking to a hundred companies and saying, "Hey, you guys should do a merger." "Oh, you know what's right?" For you, specifically, a SPAC is right because if you're one of the kinds of generic just like, launching a SPAC, they're going to get the worst SPAC deals. They're going to get the bottom drags and it's not gonna work. So, I like that about you guys.
You guys were also kind of interesting. Baron Funds was your partner in the PIPE Data Forward Purchase Agreement. You mentioned that when you were looking at deals, your goal span, you get feedback, you talk to them and that's unique. There are companies, there are plenty of SPACs, not all of them, but there are quite a few who do have kind of forward purchase agreements with people. But I haven't heard of them working as a partner with you guys. So, could you just explain how that relationship came about and how do you work with them? And then, we'll dive heavily into Codere.
Martin: I think, that we learn a lot in the Betterware deal, Andrew. It was a very, very difficult deal to close because it was very hard to raise PIPE money. We had no PIPE money. And then, the COVID pandemic started as we were closing. Also, it was at the time when Mexico just went in a way political transition; from a party, from the center to a party more on the left. And then, all the private sector was very worried about the new president. So, they were all thinking about how do I send money outside of Mexico, not invest more in Mexico? So, it was very hard to raise money locally. And then, when we did the roadshow in the US, I said, "Hey, this is a Mexican company. Who are your Mexican investors?" But it was like, again, that it was very hard to converge. We had one family office that was writing a big check, and then, a week before closing, they told us, "Hey guys, you know, COVID came, we cannot commit, we're out." At that point, we lever DD3 and we put out the money because we believe in Betterware - we saw the company was strong, had a strong cash flows that eventually, will pay the loan and soon will work.
We back with our money - the company in a big way. It was a very small IPO because we just had close to $30 Million to IPO the company. It was a very tough process. After that, once we close Betterware, we said, "We're never going to do a SPAC again, never." After a few months, things started looking better. The company was doing great. We probably learned a lot and we said, "Okay, let's do another one."
When we did the other one. The first thing we said is that the key weakness of our first one was the lack of capital that's pre-committed. We said, this time we're only going to launch it if we have a PIPE pre-committed, I mean, pre-committed subject to the company we find. We went out and with the help of the bank doing the SPAC, we approached US investors, some Mexican investors. We wanted one US investor and one Mexican investor so that the problem we had with Betterware was going to be over, so we had both legs. We found a great US investor, which is, of course, Baron Capital. We love those guys, they're super smart, they know most paces, they understand growth companies - that was an excellent partner. And then, in Mexico, we knew this firm in Monterey that was a multi-family office and asset manager, MG Capital, very smart guys. They're also our partners in Betterware. We went to them. They like the ideas, both of them partnered with us, with the four purchase agreements. That was a big, big difference. The way we like to treat our partners in the way that we would like to be treated if we were doing an FPA.
We would like to be in the kitchen looking at the deal, not in the dining room waiting for the turkey to arrive. You want them to say, "Hey, this is what we're looking at. You like this one, that one." We did some preview work. We didn't want to waste their time. But whenever we had an opportunity that we thought, at this stage, was serious, we will prepare an investment memo and we will have a call with them and we discuss it. They will say, "Hey, we may like this at this valuation. This, we don't like. This sector, we don't invest in." There was one sector that we want to invest in, the barangay said, "Forget it. We're not going to do that. That's the sector we don't invest in." That was a process that we did. We all like the Codere Online opportunity and went through it. But even though we reached an LOI very quickly, we look at a lot of opportunities for that.
Andrew: Fantastic.
Martin: As I said we're close to signing another one, close to New Year's.
Andrew: So, what source[?] in Codere Online, sticking with your process; you guys, if I'm remembering the proxy correctly, in January you signed the LOI, or maybe it was the reach out. It was either Janu- [crosstalk]
Martin: In January, we signed an NDA.
Andrew: NDA. And the initial talks were $250-$300 Million in enterprise value. And then the talks- you don't announce the deal 'til June. But when you do announce the deal, the valuation's 300 Million, so you're kind of spot on. So, it's about six months of work from start to finish. So, valuation doesn't change. What are you guys discussing and kind of finalizing in that five or six months from the NDA to announcing the deal?
Martin: The key is the LOI. The LOI was signed, I think the end of February, early March. The LOI already had the valuation. We signed the LOI; but then from the LOI to the BCA, the Business Combination Agreement; the LOI is not binding. The BCA is binding. It's a lot of legal work, more than transactional work.
The basics of the transaction are in the LOI; but the BCA has a lot more stuff about the board, about many other things. And it's a big legal document. We spend a lot of time working on the BCA, that's why it took us so long to get to the announcement because that was when we signed a binding document.
Andrew: So, when you guys signed the LOI in late February-March, you guys were pretty buttoned-up. You all we're ready to go. Assuming in due diligence, no huge legal issues or anything popped up. You were all ready to go. That's interesting because I've heard other SPAC sponsorships talk to me, "I'll read these proxies. I'll talk to them." And they'll have put out seven LOIs or something. They'll be like, "Oh, you know, the LOI, it's just a way to keep going with deals. It's not binding." Obviously is not binding 'til the BCA's announced. But they kind of look at it as- it's a handshake. You shake everyone's hand with an LOI. Just get in there.
Martin: To be honest, Mexico is a different market and Latin America. In the U.S. there are much many more SPACs. The way we work, when we signed an LOI we're super serious. We sign it with you, and even though it may not have exclusivity, that's the way we would approach it. Because also, we do a lot of work, in terms of the due diligence, the number. We don't run a firm with 200 people, we have 25 people at DD3. The team dives into the company. When we sign the LOI is to get the BCA done. We don't like signing many LOIs and having many. I mean, we have a pipeline and if the deal doesn't work, we'll go to another one. But once we commit, we commit to getting it done.
So, we're all working hard on that target and we're focused on getting the BCA done. [crosstalk] We approach it.
Andrew: All right. I think we've done all the background of the SPAC and everything. Let's turn to the company itself, Codere Online; Online gaming, LatAm. Are they the largest online gaming company in Spain? Is that right? Am I remembering that right from the code?
Martin: I think they have a significant market share in Spain and I think probably the largest, but they have like, you know, 20-25% market share in online gaming in Spain, and they're very big also on the retail side in Spain.
Andrew: Yep. Yep. So, their online gaming Spain, Mexico, they're going to go further into some lighting and companies. But, what attracts you to Codere Online specifically?
Martin: I think there are four (4) key things that we like about Codere Online immediately. First of all, is a high growth sector. Online gaming in Latin America is in the early innings, and then it's also a sector that has a lot of use of technology. It's online. So, it's technology-driven raises the economy of scale. No costs come down as you increase the mass of users, of your platform. And we know that in the Nasdaq Market, they want high-growth companies with the tech angle. So, that fits the bill.
The second thing is the team. I mean, the team that runs Codere Online is a team that they hire from Israel who shared read the CEO is a guy that has more than 15 years experience in the online gaming sector. The whole team has worked with him in gaming, so, they understand the sector and it's a complex sector. And these are, you know, a lot of technology, the marketing, the onboarding of clients and retention of clients. It's very sophisticated. So, the team is excellent and we like the team.
Then, the third issue is the connection to the retail stores. Because having a retail footprint, which is huge in the case of Codere, they are really big in Spain, big in Argentina, big in Mexico. They are in Panama and Colombia. So, the best clients that you can have are the only channel clients. They play more, so, we have a base of millions of clients from the retail stores that we can tap and we can bring them to the online platform. So, we're focused on doing that. We're going to be more focused on that. So, that brings the best clients for us. That's a great connection to have.
And then finally, the valuation I think that you know, we're acquiring the company at 2.3 times 2022 revenues. I mean, if you look at the U.S. Comps, they like the median of 7, but DraftKings is normal 10 times revenue 2022, and then if you look at Europe, companies with almost no growth, and we'll be growing at 40, 50% in here next year, 30%, barely after that. Companies with no growth trade that average of three. So, we think the valuation is attractive. So, those four things were the key things that we saw that gave us confidence. This is something that's going to work on us.
Andrew: Yeah. And just one other thing you mentioned in there, the Omni-Channel. I thought that was something really interesting because I've looked at Pan and I've looked at some of the others I guess I don't think Pan was in your deck, but obviously, Pan with parcels is a competitor. DraftKings is probably the better comp for you on the US side. But one thing Pan has said before is they're like, "Hey, we've got all these local, got all these regional casinos that give us in the long term, that gives us such a huge edge over someone like DraftKings who doesn't own the casinos." Exactly what you're saying, Omni-Channel, the best customer you can get, the lowest customer acquisition cost is somebody who's in your physical casino. You hit them with an ad, you get them to download your app, you get them. It's the lowest cost way you can get somebody and I thought that was interesting. Spain [crosstalk]
Martin: He's on the lowest coast, Andrew. They are the ones who gamble more. So, their average ticker is higher. They're super, super powerful.
Andrew: So, Spain is Codere's most mature market as you said, maybe they're not the largest but they're up there. They're one of the largest significant market shares in Spain. And if I'm correct right now, even on margin in Spain is around 20% on obviously the whole company is losing money because they're investing a lot into marketing and stuff. But, Spain has a positive margin like that is cash flow positive. That is proof of concept right there. Am I thinking about that correctly?
Martin: Yes. Definitely. Yeah.
Andrew: And what's the Spanish market kind of growing up for Codere?
Martin: The Spanish Market is a mature market. And the Spanish Market is undergoing a transition right now because the government came out with very strong regulations, regarding the marketing of online gaming. So, that came out this year. And actually, we had to update our numbers easier because the impact of that on the short-term was harder on Codere because you couldn't do a lot of promotions. Also in Spain, we had the third quarter was down and now things are normalizing. We think that these changes are good for us in the medium to long term because many new players will get out of the market because it's going to be very tough to do marketing. I don't have a retail presence, a big market share. So in the long term, in fact, we're already in the fourth quarter, gaining market share in Spain. So, the long term is going to be a market that's going to be dominated by fewer players because of the restrictions on come on publicity, but that started this year, but it's a more mature market that grows like the GDP.
Andrew: And then Mexico, obviously you guys are going to enter a lot of other markets but it seems like Mexico's kind of the big emerging market that you guys are attacking right now. Am I thinking about that correctly?
Martin: I think in Latin America we are already operating in three markets: Mexico, Colombia, and Panama. Mexico is by far the largest, and also in Mexico, Codere has a very big retail presence. So Mexico, let's say is the easiest and closest growth opportunity. And then if Mexican Market has one player that has an 85% market share, so that is unsustainable. There's no market in the world when one player has 85%. So the question is, who's going to gain market share from them?
Andrew: Yeah. I was about to ask, you guys mentioned this on the call. It's Caliente and you all said; 85, 90%.
Martin: Caliente has done a great job, it's a fantastic platform. But, I mean we in fact the team from Caliente used to work for motion another company. Their technological platform is the same one as we have. We both use Playtech in Mexico as our provider of technology. So, we have a product that has all the capabilities. They also have retail, we have retail but we think that we're where the best position player. Now with the resources from this SPAC, can mean to go head-to-head with Caliente and we market share in Mexico.
Andrew: How did they get to 85 or 90%? Because as you said, "I've never heard of somebody having that high of market share across the country."
Martin: I mean, I think that they've done a great job. I mean you have to give them that. They've done a great job. They invest a lot of money in marketing. They're super aggressive. They're everywhere in the sports scene. They're everywhere in Mexico so they have done a fantastic job. They were the early movers so they did everything right. They move first, but they have a dominant share today.
Andrew: Perfect. So, just looking at projections, you mentioned earlier that this year might be a little wonky because there's COVID reopening and Spain, you guys are getting, the regulations are changing, which was a headwind to Q3. But, as with all specs, you guys published projections for the next couple of years and years back deals. One of the things that jumped out to me was the projections, I think they go out to 2024 if I'm remembering correctly. I don't have the slides right next to me, but the projections call for accelerating growth over the next three years versus what you guys have done over the past couple of years. Again the past couple of years, regulation changes, COVID headwinds, all that sort of stuff. But what gives you confidence that there's going to be accelerating growth at Codere like what's kind of driving that?
Martin: The growth is not accelerating. This year's going to be like ballpark a hundred million dollars in revenues; net gaming revenues. Next year, we are about 150 and then the year after that, we are at 200. So, with 50% growth in 2022, and then 33% growth in 2023. So, the rate of growth decelerated, but we go high next year because we have all the resources from this SPAC. So, we do aggressively marketing aggressively in tech and then we are in the projections that we show in the presentation.
There's one new market that we enter, which is very big, which is the city of Buenos Aires. Buenos Aires, it's the third-largest city in Latin America. So, we have the license for the city already and we are about to get the green light to start operating. It could either be the 1st of December or early January, but we're ready to go. And then as many big cities, the city of Buenos Aires is surrounded by what is called the province of Buenos Aires. And we're also in close discussions with a license for the province so that will be huge because the province of Buenos Aires, is working Codere retail has their largest retail price in Argentina. So the city, plaza, and the province is a huge market.
So, the city projections are already in the numbers, but we don't have the province. And then other provinces in Argentina would probably come in. We're talking to the Brazilian government. It looks like they're going to regulate online gaming very soon. And another benefit of the retail Andrew is that the retail company has a long-standing presence in all these markets and they've been talking to the regulators for years. So, when something opens up, they know that because and they trust them, they've been around for years.
You're also way ahead with the regulators to get these licenses. And, we only operate in countries where we have the full license because there are, you know, there are other places in gaming that operate remotely from other locations in the country without being regulated. We are a fully regulated, fully licensed player in the country that we are. And we're looking at new countries. So, if Brazil opens up or the rest of Argentina, we were talking to the state of Puerto Rico for example, for a license. All these are not in the projections. Any of these is another geography, another push. So, that the projections are very conservative and do not include any new market with the exception of the City of Buenos Aires where already has a license, and is almost about to start.
Andrew: So, the projections I'm looking at right now, $400 million in 2027 revenues. The projection that's six countries. Spain, Mexico, Colombia, Panama, Italy. And I shouldn't have said countries because the City of Buenos Aires is in there. So, with the $400 million revenue, I think you guys have a projection it was like slide 25 in the deck. I think it's projecting 20% EBITDA margins in the long term once you kind of hit, that's 400 million study feet. Can you walk me through 400 million revenue, what is the financial statement going to look like if you guys hit that $400 million revenue to get to 20% EBITDA margins?
Martin: I think, the key to getting there is that not only will we continue running Mexico. We're going to grow in Colombia and Panama. We'll grow in Argentina and I think that you know, we will start entering a couple of new countries, but with their resources from the SPAC and the technology. We feel very confident that the numbers I said before are conservative numbers.
Andrew: Okay, perfect. And then you mentioned going into new countries, a couple of times. I think one of the unique things with this SPAC was you guys are saying, "Hey, we've got the PIPE. Right? We've got the PIPE which will deliver $70 or $75 million or something in guaranteed cash." And you guys have said we've based this entire transaction on, only the PIPE money coming in, right? If there are hundred percent redemptions, this transaction is based on only the PIPE money. Hopefully, I think this SPAC has 125 million in cash hopefully, there are no redemptions. If we get the 125 million in cash we're going to use that to fuel growth. So, if no one redeems; everybody here goes, you know, nothing the best advice. Actually, I won't even say that. But if no one redeems the SPAC, what is the company going to do with that extra $125 million?
Martin: Okay. If we have the additional money, I think that we let accelerate some investors. Hopefully, will try to open new markets faster. So for example, if Brazil opens up, you can open up Brazil with $30 million or you can open up Brazil with 50 so you can use more money, grow more rapidly. So, I think that you would allow us to enter some markets faster and also probably to do some technology upgrade sooner.
Andrew: Got you. It's just about if you guys get the extra 125 million; going faster, new countries more marketing, and grabbing more players.
Martin: And, also the possibility to buy something.
Andrew: Yes. What would the company be looking to buy if they were looking to go inorganic growth? Would it just be the leading player in a new country? Are you guys going to look to, you know, we've seen DraftKings has gone and buy, I think it'd be too large for you. But DraftKings has gone and bought their player management system. They've gone and bought the Sportsbook that's giving them all the sports lines in that text. What would Codere be looking to buy if...
Martin: I think that we could go to a geographical we're looking to come in and buy a player that's already there, that has a strong presence that allows us to kind of ride on a plane, know that was already in. We can operate it and put it on our platform and we can add another country. Or maybe we can add another player that it's in the country we're already in that we can have, you know, a bigger market share. So, we look at both; new markets and existing markets.
Andrew: One of the new markets that you guys talk about and I know this is, I don't want to say moonshot, but it's on the more aggressive end of the spectrum. But there's a full slide voted in there to the target is expanding into the US. And I thought that was interesting, and it was the one thing in the deck where I read it. I was like, "Oh that doesn't fit my mental model of something that would be doable," but I'll present my pushbacks, but I want to ask you like why do you think Codere has a chance or has a right to win a little bit of share inside of the US?
Martin: I think that the US market is phase two. I think that phase one is what we're in right now because Buenos Aires that's what's in the projections. Phase two is Latin America; Brazil, Puerto Rico, Chile, Uruguay, Peru. There are many countries that we can go into Latin America. And those are the markets that we know where the retail franchise is already present, so we have a lot going on. I think that phase three is the US. And the US is really because the Hispanic population likes Latin American works. We've connected those ports, we sponsor many teams, we have a lot of presents. So, it's really anchoring the Hispanic presence in the US and the fact that you know, people from Mexico like to play, you know, look at Mexican soccer. People from Central America will look at Central American soccer and stuff like that. So, we have that product. We know the sports and we can help generate engagement.. That will be the angle to go to the US, but as I said that's phase three.
Andrew: Yeah, I don't want to fight too much pushback on that because as you're saying it's phase three, but I guess in my head like I haven't seen, not that I'm a gaming expert at all. But I haven't seen a niche gaming product attract a significant market share. And when I look at it, I don't know. Like if you're a serious soccer fan. It doesn't seem like you're underserved by the offerings that a DraftKings or a BetMGM or anything is offering right now. Also, it seems like we're in a land grab mode right now by the time you guys kind of launched the US product, it seemed like a lot of the land grab would have been taken. One of the things I like about you guys is, these emerging markets that they're just about to come online, you're going to use the cash to go win that land grab right now. You've got the retail market so you can be first. If you're coming into the US market in 2024, 2025, it seems like a lot of that land grab would already have been taken up.
Martin: I mean as I said, that's really like the third phase of the growth; so it's nothing that we're working on right now. We've been approached by a couple of media companies in the US that are focusing on the Hispanic market that wanted to talk to us, [crosstalk] surprisingly. But so far, you know, we're focused on the market where we are and the next phase. We're not talking about that, but we've been approaching that because these guys want the connection to gaming, many teams also want gaming connections. I mean, the space will grow definitely everywhere; I mean, and it will change. But I think that if we have a strong presence in Latin America, given that you have like 40 million Hispanics living in the US connected to Latin America; certainly, there's something to be done the question of how you will feed that. I mean, you know, we look at that, if we are still independent company because the other thing that we look at Codere is that we could acquire some things but we can also be acquired. Because if you look at Latin America today, I mean, there are very few gaming companies with a multi-country approach.
Codere Online provides you with two countries in Europe, Spain, and Italy and then you have already four in Latin American, more are coming. So in one company, you have all these markets where you're already there. And then you have the Omni-Channel connection. I think it will be interesting to see whether we are the acquire or we're being acquired.
Andrew: Martin, you're speaking my language and in the SPAC world, Golden Nugget Online, very similar right there. I would say it's not complete ops apples, but it's very similar to Codere Online. Sorry, right? Golden Nugget, regional casinos, Golden Nugget Online goes public through its SPAC. It's public for six-nine months. And then is it Pan who's buying them? It was Pan buying them right now, but somebody looks at them and says, "Hey, they've got the online presence. They've got the connection to the physical retail. Obviously, they don't own the physical retail, but they got the connection will just go buy them" And that's the perfect bolts on them. For you guys, they're online in multiple countries, a really large presence in Spain, a growing presence in Mexico, lots of land grabs. Go buy them, you get the physical connection without actually having to own the physical stores. It makes sense as a bolts-on for a lot of people.
Martin: Agree.
Andrew: There you go. Let's talk, you know, one thing I look at SPACs a lot. And one thing I always think about is, "Hey, you know, my big worry with SPACs is the winner's curse," right? Anybody who's ever been in an auction where you're buying a company, or any type of auction, right? The winner's curse where, you're the one who wins the auction, and then you immediately look around and say, "Oh, I paid $10 and everybody else offered $8. I just paid $2 too much. I won the auction, but I lost." When you're in a SPAC, you don't have any operating synergies, any of that. You guys are merging with Codere and I just want to talk about why did Codere, the retail company that will maintain a significant equity stake in this? You still have the connection, but why did they choose, I know they said on the call that they never considered an IPO. But why do they choose to go with you guys? Why was the SPAC the right route? Why is DDMX not subject to the winner's curse that I just described?
Martin: Because they wanted a partner that was the right partner, that was going to be helpful, but was not going to want to operate the business. And the other all in the process that they run, we were the only SPAC. The other alternatives were private equity firms or a strategic. So, strategics were out because they wanted to run the business and they want to run the business. They know how to run these businesses. And then the firms usually, need to be much more involved in the running of the business because that's what they sell to their investors. We bring miracle expertise and these guys knew how to run the business. They hire their teams from Israel to run it. They've been there for a couple of years.
The question was getting the resources and then how to manage as a public company. We can provide them with capital. We have financial expertise. We are very connected in Mexico where is their T growth market so we can help them? We knew their Mexican partners because they have Mexican companies yet, which is your retail partner. I think that we click all the right boxes. And we know because we know of other offers, we were not the higher offer.
Andrew: Interesting. What was the highest offer?
Martin: I think it was between 30 and 50% above our offer.
Andrew: Wow. Okay.
Martin: Remember this was February of this year when gaming is still booming today, but it was like, you know, crazy in February.
Andrew: Pan, you just said, Pan's stock was $120 per share and I think it's $80 per share now. This will be very softball, I don't want to lock this up too easy for you, but I would guess the fact that you guys were a LatAm-focused SPAC. And as we said at the beginning, you guys could guarantee, "Hey, we have this forward purchase agreement. No matter what we're going to deliver $70 million." I would get you were the only SPAC in there, but I would guess that was a key selling point that no matter what they had, a minimum amount of cash that was coming in from the steel.
Martin: Yeah. I mean, the minimum gross that's crucial and also they like the fact that one of our two key investors was Baron Funds. The items that give them.
Andrew: Yeah, they want that Tesla valuation.
Martin: Yeah, we all do.
Andrew: I think we've covered a lot in Codere. I did have a couple of other questions, but I think we've covered the majority of them. I want to get some Betterware questions in, but the focus of this podcast obviously Codere, is there anything we didn't talk about that you're excited about with Codere or any risk that you think the market is concerned about that you kind of think the market is wrong that you want to address before we turn it over maybe to Betterware.
Martin: I think that we are very- we think that Codere is a great investment as I mentioned to you, it clicks all the boxes. It's a high-growth company in a high-growth sector. He has an excellent management team. We have the Omni-Channel connection and we have the right valuation. We are excited and we hope that we can hit up with the park-like we did with Betterware.
Andrew: Perfect. And just for listeners, you've got the meeting coming up. What is the meeting, what's the timeline, and everything for listeners? You're kind of thinking about that.
Martin: The meeting is on November 16. Well, November 16 is when people have to tell you where they redeem or not. And then the meeting will happen between November 18th and November 20th, and shortly after that, the stock will start trading as Codere Online.
Andrew: Perfect. Perfect. Let's turn over to Betterware Mexico. Again, this is one of the best performing SPACs of all time. You're still on the board there. I've got friends, my buddy Jeremy Raper, who I believe will be coming on the podcast again, in the very near future, is still very involved, very bullish on this. I've kind of been following it out, the corner of my eye. I think this stock, weak earnings. I've got lots of things on it. I just want to turn it over to you, how are feeling about Betterware right now, what's the outlook there?
Martin: I think, what's going on with Betterware is that Betterware was the company that during COVID grew by three times. The program that we had for the next five years was compressed into one year. People got used to seeing numbers that were 100, 200% growth in a quarter compared to last year. That was crazy! And they did a great job operationally because these guys, Betterware is a company that sells home organizational goods like for your bathroom, for cleaning, for the house. And the average ticket of what we sell is around five to ten dollars and they have a distribution network of what they call this Associates of one more than a million women all over Mexico, mainly women that are buyers and sellers of our products.
This platform went from around 400,000 women pre-COVID to 1.2 million women. Because many women with COVID were not working anymore. They wanted to do something. They started being active with Betterware. What's happening now after COVID is that, some of these women are going back to their regular jobs. Some are keeping the Betterware selling, you know on the side, but some cannot do it. The house, the work. Our churn is higher than normal. Churn is usually around 2.5 to 3% per month in this group of women. And right now we are north of forth and it's coming down, but it's very high because you have the COVID transition.
What the company has been doing greatly is that, for example, in the last quarter; we lost close to like 450,000 in our Associates, but we gained close to that. They're amazingly increasing the surface. As soon as the churn rate which is trending down already comes back to normal, then we're going to start growing again. But the problem is that you know, you don't see it in the numbers yet and this transition to becoming so much larger. I think that people don't know where the long-term role of the company is.
The fact that you're seeing like more stability in the numbers now and you know because sales were up like 4%; any down was below what people expected but still, 700 million pesos, the dividend is very strong. I think that what you have right now is that, after that huge growth, people need to understand better where the long-term growth of the company is. And we're seeing that. The company still has fantastic fundamentals, but that's the transition and that's why the market has penalized us because they were expecting higher numbers and the numbers are still pretty good, but not as high as the market expected.
Andrew: Let me ask again. I am no expert in Betterware. I've only followed out the corner of my eye because it's one of the best performance SPACs all the time, but my friends to follow. But it's just a very silly question. Obviously, churn for the distributor is very high right now, but I would guess that the distributor sure churning is probably a little bit lower value than your Codere distributors.
If you had somebody who joined because they were home during COVID and they were just looking for something to do and now they're turning us to go back to work first. I guess that's a lower sales rep. Obviously, more sales rep is generally better, but I guess it's a lower quality sales rep, who's you know, fewer sales, less value, less lifetime value. Am I thinking about that correctly or am I off a little bit?
Martin: I think that in general, they do a part of the core expertise of the Betterware team in managing this huge sales group. They're good at training men, motivating them. Betterware has a reward program for associates where the link to your sales, you get points. And with the points, you get prizes that are like furniture and appliances.
Many of these women because they want to contribute to the houses, saying I'm selling, I'm buying Betterware products but this year, I want to get like the dining room table. I'm going to get the dining room and that's my contribution to the house. There's a lot of hard work and pride of these women of contributing to the house, or maybe a new TV, or a new washing machine.
So, the prize component, the way they manage the points program, the motivation, the meetings with the workforce; I mean, the CEO of the company and the rest Campos travels two days a week. And everywhere he goes, he just goes to meet the Salesforce. He meets all these women that are the associate base and distributors. He's talking to them. He's looking at the way to finance these programs. Finance the products that we sell. He also gets a lot of feedback about the products. "Hey, we love this one. Why don't you change this one to that?"
These guys are good at what they do because if you look at the numbers, I mean just to understand and put it in perspective, Andrew; these guys did roughly around $40 million in 2019 as PvdA. They did a hundred in 2020 and they will do north of 150 this year. I mean going from 40 to 150 is huge.
I was in Guadalajara two days ago for the board meeting. I mean, these guys distribute half a million boxes per week. You know, what is that half a million boxes per week. I mean, it's a huge logistical operation and they triple the size. They've been able to do all that, grow the workforce, grow the logistics. And now they are focusing on improving the products. They used to have a catalog every six weeks. Now, we're going to monthly catalogs. They used to have only 10% of new products per catalog. We're going to 30%.
They're doing a lot of things. They're improving like the app, so and e-commerce. There are a lot of things going on in the company that gives us confidence that the growth is going to be there and the company is going to grow at 10 to 15% per year, post this transition. But because the numbers have does this huge jump is very hard right now to understand. And because of the problem of the higher churning associates, the market doesn't know exactly where these girls will come out.
I think that this is gonna take a few quarters for people to understand that it's still a fantastic company. The growth is there because still the market share we have in Mexico and the houses we reached; we reach 20% of the houses. They want to go to 40% and they want to get there in the next four years. I think there's a lot of growth in Mexico. There are many. And then the diffusion challenge that we have is super powerful. I mean, we have 1.2 million women connected to us. We could do a lot of things with them.
We're starting a telephony program where we're selling mobile phones, where we can do many other things. I think that this is a very powerful company, super well-run. Andres is a great CEO/chairman and we founded the company. He understands direct selling used to work at Tupperware for many years, running the Americas. This is a fantastic company that just did five years in one year. That's a lot. And now people need to understand where the girls will be. But and then the dividend yield is 7% today. So, we pay a 7% dividend. We're a growing company. I think that it's a fantastic stock. I love the story. I love the stock.
Andrew: Yeah. You think with a height of growth is a little bit slower than maybe the market thought because you're coming off COVID, which pulled forward five years. Obviously, this is a little bit different, but I mean, I follow Herbalife a little bit. You see it over there which has similar trends or just the cable companies, which are some of my favorite companies. 2020 was the best year ever because everybody was locked down at home. And anyone who didn't have cable or had yes, I was like, "I just got upgrade. I got to do everything over Zoom."
And now you're seeing the company sell-off because they're saying, "Hey, we can't match our 2020 growth rate. We're still growing. You know, we're still growing, we're still profitable." All this sort of stuff, but the market is slamming them. And it's kind of like, yeah, they're not COVID recovery place anymore, but it doesn't mean they're not growing. It doesn't mean they're not doing great. And I just think, again, I'm not an expert on Betterware, but with the cable companies, with a lot of these, I think the market has shot much too quickly and maybe rewarded the COVID reopening plays a little too aggressively, but that's just my feeling.
Martin: I think this is very similar, right. I really like the way you compare it. It is a company that had these. I mean, and mean the cable companies didn't grow by 300%. So, yeah, [crosstalk]
Andrew: I wish they had, but it wasn't even close.
Martin: This is cable companies on steroids. And the companies maintaining the three times because we're just not growing faster now, but we're keeping what we have which is huge. So now, we're just recalibrating the growth and as I told you the key's a churn, I mean the churn became much higher.
Because some women just went back to their jobs and they cannot do the Betterware on the side. But we're hiring a lot. We're recruiting a lot of new associates. So, the recruiting is doing great. The only thing is that once the churn goes back to normal, and we keep the recruiting, then we get the growth back. People will start to understand and they need to see the first quarter, which is going to be better because the year always closes stronger. And then next year is going to be better.
Then the other thing that is happening is that we are a new public company with this SPAC in March of last year. People have seen a few quarters. They also need to understand that there is some seasonality to the quarters. Like the first one is very strong, second and third a slightly slower, the fourth comes back. They also need to get to that.
Andrew: You also trade in the US and you reported pesos. I think the dividend is paid out in pesos obviously comes in dollars, but it's paid out in pesos. So I think you've got a little bit of a this SPAC, hi to COVID, all these issues, Mexican finances. I just think there are little bits of headwinds that though you'll get over it eventually, there's just a little bit of extra headwind there that [crosstalk]
Martin: And then as I said, in a few quarters, people will understand the growth better. It will be more comfortable. The dividend is super strong, even though it's in pesos, it's 7%. It's great indeed. And the company is growing because the company is a growing company. Then, there are a lot of new things in the pipeline that is going to make this company way much better. But those things, and for now, I cannot talk about them right now.
Andrew: Let me ask one other question on Betterware and then we'll kind of wrap this up. You mentioned the dividend a couple of times, which that's great. But my company's always think we share repurchases are more tax efficient. They can be dialed up and down a little bit easier, investors don't get pissed off. If you dial back a share repurchase is if you kind of dividend. You've mentioned the trades at a pretty value must hold this sort of stock. Why not go with a share repurchase instead of a dividend here?
Martin: I think that the dividend will stay because it's a long-term policy of the company. We generate, we have great cash flow. The best proof of the cash flow is paying the dividends. I think that there's nothing like getting a dividend. I think that in technical terms every purchase is equivalent, but getting those dividends is something that we've done and that stockholders appreciate and it's at the core of what the founders believed. But on top of that, we can do repurchases and we have already approved it at the board. So, the company could start doing some repurchases. And that card is already there and it probably would start to be used in the near future.
Andrew: Let me ask one more question, just about DD3. Stock 1, Betterware, growth company but you know, households, consumer distribute all that. SPAC 2, Codere Online, Online gaming, gambling, obviously growth company there as well. But aside from the word growth, Betterware and Codere, are pretty much on two other ends of the spectrum. At some point hopefully, you guys are going to launch a third SPAC. Is there any overarching theme that's connecting these guys? Is it just growth or with the third SPAC, you mentioned branded generics, which is a little bit more of a value play? Are you guys just open to wherever the world takes you?
Martin: First of all, the third SPAC is ready to go. As soon as we close Codere, we launch our third SPAC. Because we understand the SPAC business. We like it and want to continue doing SPACs.
In terms of the companies will bring to market, I think the most important thing that we look for because we put a lot of our capital in the SPACs is we want to generate great returns to our investors.
Andrew: That's what everyone wants to hear.
Martin: The key thing is returns, okay? After that, then we understand that for stocks to work in Nasdaq. You need to have high growth. We look for growth. I mean, I mean we could do a value play and we look at one and it could work, but that value play had 20%, 25% growth. It wasn't only the only value but we think that growth is the key. That was in the Nasdaq Market wants growth and we want to generate very strong growth and then more and more we're looking to Tech.
Even in what we do at DD3. If I would tell you the biggest mistake that Jorge, my partner, and I made when we started DD3 is not onboarding the tech guy from day one. It took us two-three years to get. Today we have a great technology guy with us, Patch, he's fantastic. And we're using tech for everything and we're learning a lot and we're involved in that. I think that you know, we want growth and we want tech. And that's what we're looking for.
Andrew: Perfect. Perfect. And obviously, it's always going to be a lot in focus. I'm assuming.
Martin: Yeah, of course. And also particularly in Mexico, we are base. The ratio of SPACs to opportunities is in favor of SPACs. Because there are another three or four SPACs in Mexico, but compared to the size of the country hundred million people, a million 1.2; trillion-dollar economy. I think that in today's ratio, there are many opportunities more than SPACs. We are not like in the US today there are too many SPACs and their competition. In Mexico, we will find an opportunity, we're not competing with another SPAC. We might compete with a traditional IPO, with a private equity firm, but not with another SPAC.
Andrew: And again, not to be too much softball, but I'm not aware of any other SPACs that have successfully closed a Latin American deal. I could be off. I'm saying that off the top of my head, but after Codere closes, you guys will have done two of them. I mean, that's a great proof of concept. If I was a company selling I'm very aware of the risks of SPACs going to the close and going and saying, "Hey we had 200 million in trust, but we only have $4 million left after redemption." Like you guys can go and say, "Hey, we've successfully closed two of them. Look at our track record, there's going to be cash at the back end." If I was selling and I would probably sell to you guys at a much better price than some fly-by-night SPAC, who doesn't have that track record.
Martin: We're focused on meeting the track record, and we want to build it for the targets. But as I said before, the key thing for us is that we want to generate high returns for our investors, and we'll build our capital into the SPACs.
Andrew: Perfect. Martin, I'm going to wrap it up here unless you have anything else?
Martin: Thank you very much for the opportunity, Andrew. Very nice meeting you.
Andrew: Hey, thank you so much for coming on. I'm looking forward to your closing in mid-November. I'm looking forward to SPAC three and looking forward to chatting soon.
Martin: Great. Me too. Thank you very much, Andrew.
[END]