Yet Another Value Podcast - Martin Werner of DD3 Capital on the Codere / DDMX SPAC deal

Episode Date: November 2, 2021

Martin Werner, co-founding partner of DD3 Capital, discusses DDMX's deal to deSPAC with Codere Online. Key topics include what DDMX was looking for in a deal, how DDMX worked with their partners in structuring their deal, and why DDMX thinks Codere Online's omnichannel presence gives them a leg up in attacking and winning Latam markets. Towards the end, Martin discusses how he's looking at Betterware (BWMX, which was DD3's first SPAC) and what DD3 will be looking at in their SPAC going forward.Chapters0:00 Intro1:45 What DDMX was looking for in a deal3:10 DDMX's proxy and the companies they passed on8:30 DDMX's forward purchase agreement with Baron Funds12:35 What happened between contacting Codere in January and signing the BCA in June?15:15 What attracted DDMX to Codere online?18:40 Codere's Spanish market share and outlook21:55 Discussing Codere's projections and the assumptions behind them25:05 Codere's longer term projection and financials26:00 How lower redemptions will allow Codere to accelerate growth28:00 Codere's phase 3 plans to move into the U.S. market31:35 Similarities between Codere Online and Golden Nugget Online32:30 Why DDMX isn't subject to the winner's curse35:30 Wrapping up the Codere discussion36:35 Betterware (BWMX) discussion39:55 Breaking down the distributor churn at BWMX44:10 Comparing BWMX's post-COVID slowdown to cable46:30 BWMX near term headwinds48:05 What DD3 looks when deSPACing companies

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? Hey, great Andrew. Nice to be with you. Hey, great to have you here. Let me start this podcast the way I do every podcast. First, with a disclaimer, just remind everybody that nothing on here is investing advice. Martin is obviously 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. And the second way I started every podcast is with the pitch for you, my guest,

this is actually going to be a really simple, really simple pitch. Your first SPAC merged into Betterware, the ticker there is BWMX. I believe for a while it was literally the most successful SPAC in the history of the stack markets. I looked it up yesterday. Just the common is the 8 or 17th most successful SPAC of all time. And then your units, you know, a SPAC comes with a unit, a warrant and a stock. Your units were a little more generous than a lot of other SPAC. So your SPAC is still one of the top 10 or top five performing SPACs of all time. You know, 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,

you know, it's kind of akin 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 repeat effect. So given that background, I'm really excited to have you on to talk about your second SPAC, DDMX, which is merging with Code Air Online. So I'll stop there and flip it over to you. How did you find Code Air Online? What's the pitch? What did you see that made you want to take this public as your second SPAC? Well, Andrew, we, when we placed our second SPAC, which was early December of last year, I mean, 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 on 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, and we started looking at our pipe. And then the opportunity to look at Kodere Online came up. You know, Kodere Online is connected to the Kodere Group.

The Kodere Group has a big retail presence in Spain, Italy, and Latin America in casinos. And they, 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. So they run a process to find a partner, and we participated, and they really like the feed with us, the fact that they wanted to operate and they wanted a 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, you know, sign an LOI. We work on the BCA and we got a deal that we think is very attractive for investors and that will work well in

NASDAQ. Perfect. Let's go back. And I want to talk about just, you know, you're actually the second SPAC sponsor we've had on. And I think I spent a lot of time in the SPAC world. And I just think the whole way of SPAC comes together and merges with the company is interesting. So let's talk about the process for merging with code air, and then we can dive a little bit with code air. 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, you know, every spec discloses, hey, we reached out to 15 companies and signed a LOI with seven. But your background really made clear, hey, we reached out. There were three companies we were thinking about. And you even list the reasons.

You mentioned one of them, but you even list the reasons for each three. You say, these were great companies, but, you know, I think it was the second company reached out. It just wasn't public company ready. The third company you reached out. I can't remember. But you gave the reasons why you couldn't merge with them. And then in early January, actually, I'll stop there and then we can go to Code Era. But could you just talk a little bit about what the process was and why you turned down these kind of first three companies? I mean, we, our background is in banking. I ran the Mexico office of Goldman Sachs for 16 years. My partner, Jorge, co-founder of D3, was also a banker for 20 years. And he was also a private equity investor with a big Brazilian

company. So we understand these processes and we know how to very quickly look at companies when we have the right data. So initially we were very enthusiastic about the fintech space and it was a space that our partners in the pipe wanted to look at. And we find a company that even today is looking at doing a SPAC deal in Mexico. We really like the team there. The company was probably too early stage. And to be honest, on the fintech space, the lending side is probably the more risky because people are really focused on payments more than more than lending but lending also works so so we look at that we learn a lot as I said we were very close to getting a deal done but in the end you know deals are complicated things didn't work out it wasn't the right feet at

that time because of what they needed so and they need an immediate injection of capital anyway so we we pass on that one and then we had a pharma company we're looking at two that was a very interesting company, very different, more 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 is a very like, I mean, you can have very high valuations or very low because they could be more branded or more generic. I'm laughing because I know the space, I used to be at Bain and I covered healthcare and I know the space very well. So of course they thought there were more branded. We thought they were more generic. So in the end, you know, we couldn't get to the

valuation. That's a fantastic company. Eventually we would love to take it public. So we look at that company. And then, of course, because we have a pipe that is precommitted in SPAC number two, you know, we did the initial analysis, but before signing anything, we always went to our partners. So we went to Bauer and to MG and that was really a great process. So 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. I mean, we create a model for the company. We look at comparables.

We look how they trade. And we run the numbers. And then we check the tires in the way of calling people we know that know the space, we are giving information, but just trying to become very quickly, get up to date on the space, see how that could trade in NASDAQ, if they have the growth, the technology, the team, the numbers. so we can do that in two weeks for a company, no? So we did that, you know, 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 prefer to go for their regular IPO, no? But very quickly, and we look at many other companies. So we do that all the time, and then because DD3 is not just a SPAC sponsor, it's a financial firm in Mexico that has credit fans, 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 so we're looking at something that maybe they come to see us or something else we say hey guys SPAC will be great for you guys will you think

about that yeah so we're always talking to investors to companies and to 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 so so in the end I think that you know once we saw the code online opportunity we really like it. And we thought and we think that we have a fantastic deal and the company kind of checks all the boxes that we need for a SPAC to work in NASA can be a successful stock. Perfect. And I'll just lob in two more things. And then we're going to go to Coderre. The first is, you know, I've written about SPACs extensively on the blog. We invest in SPACs all the time. And I think one of the things you said with DD3, you know, you're not just a SPAC sponsor.

You're involved in companies in a lot of ways. Like 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 know, you want someone who's talking to 100 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 kind of generic, just like launching a spec, they're going to get the worst spec deals. There's not, you know, they're going to get the bottom drags and it's not really going to work.

So I like that about you guys. You guys were also kind of interesting. Barron Funds was your partner in the Pipe Data forward purchase agreement. And you mentioned that when you were looking at deals, you'd go to them, you'd get feedback, you talk to them. And that's unique. There are companies that 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 really heard of them working as a partner with you guys. So could you just explain how that relationship came about and how you work with them and then we'll dive really heavily into Code Air?

Yeah, I mean, I think that, you know, we learn a lot in the better deal, Andrew. I mean, it was a very, very difficult deal to close because it was very hard to raise pipe money. We had really no pipe money. And then the COVID pandemic started as we were closing. And then also it was at the time when Mexico just went, you know, a 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 road show in the U.S., they said, hey, this is a Mexican company. Who are your Mexican investors? So it was like a game that it was very hard to converge. So we had one family office that was writing a big check. And then a week before closing, they told us, hey, guys, COVID came. We cannot commit. We're out.

So at that point, you know, we levered DD3 and we put out the money because we'd be living better where. We saw the company was a strong company, We had strong cash flows that eventually we will pay the loan and it was going to work. So 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. And it was a very tough process. So after that, once we close better where we said we're never going to do us back again, never.

After a few months, things started looking better. The company was doing great. You know, we felt we learned a lot. said, okay, let's do another one. So 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. Yep. But we said, this time, we're only going to launch it if we have a pipe pre-committed. I mean, pre-committed subject to liking the company we find, of course, no?

So we went out and with the help of our, the bank doing the SPAC, we approached U.S. investors and Mexican investors, and we wanted one U.S. investor, and we wanted one U.S. investor, one Mexican investor so that the game we, the problem we had with Betterware was going to be over. So we had both legs. So we found a great U.S. investor, which is, of course, Barron Capital. We love those guys. They're super smart. They know most Paces. They understand growth companies. So that was an excellent partner. And then in Mexico, we knew this firm in Monterey that was a multifamily office, an asset manager, MG Capital, very smart guys. They're also our partners in Betterware. So we went to them. They liked the ideas. So both of them partnered with us,

with the for purchase agreement. So that was a big difference. And the way we like to tweet our partners is the way that we would like to be treated if we were doing an FBA. So we would like to be in the kitchen looking at the deal, not in the dining room waiting for the turkey to arrive.

No? So you really want them to say, hey, this is what we're looking at you, like this one, that one. So we did some preview work so we didn't want to waste their time. But whenever we had an opportunity that we thought it was kind of

at the stage where it was serious, we will prepare an investor memo and we will have a call with them and we discuss it. And they will say, hey, we may like this at this valuation, this we don't like, this sector we don't invest in. You know, there was one sector that we wanted to invest that the baron guy said, forget it. We're not going to do that, no? That's a sector we don't invest in.

So that was the process that we did. And, you know, we all liked the Coderre online opportunity and we went through it. But even though we reach an LOI very quickly, we look at a lot of opportunities before that. Fantastic. As I said, we're close to signing another one, you know, close to New Year's. So let's turn your code air online. So sticking with the deal process, so you guys, if I'm remembering the proxy correctly, in January, you signed L-O-I, or maybe it was the reach-up. In January, we signed an NDA.

And the initial talks were $250 to $300 million in enterprise value. And then the talks, you don't announce the deal until June. But when you do announce the deal, the valuation's $300 billion, so you're kind of spot on. So it's about six months of work from start to finish. So valuation doesn't really change. What are you guys discussing and kind of finalizing in that five or six months from the NDA to announcing the deal? The key is the LOI. So the LOI was signed, I think, end of February, early March. Yep. And the LOI already had the valuation. Yep. So we signed the LOI, but then from the LOI to the BCA, the business combination agreement, the LOI is non-binding. The BCA is binding.

So it's a lot of legal work more than like a transactional work. Like the basic 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. So we really spend a lot of time working on the BCA. Okay. So that's why it took us so long to get to the announcement, because that was when we signed the binding document.

So when you guys signed LOI in late February, early March, you guys were pretty buttoned up. y'all were ready to go, like assuming in due diligence, no huge legal issues or anything popped up, y'all are ready to go. That's interesting because I've heard other spec sponsors who've talked to me, you know, 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 really just a way to keep going with deals. It's not binding to, obviously it's not binding until 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 to get in there. To be honest, I mean, also Mexico is a different market. and Latin America, in the U.S. there are much, many more SPACs. I mean, the way we work, when we sign an LOI, we're super serious. And we sign it with you. And even though it may not have an exclusivity, that's the way we approach it. Because also, we do a lot of work in terms of, you know, the due diligence, the numbers. So, and we have our, we, we, we, we, we, we, we, we, we, we, we, we, we, we, we, we, we, the team really dives into the company. So, when we sign the LOI is to get the BCA down. 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 get it done. So we're all really working hard on that target. And we're really focused on getting the BCA done. Great. All right. Well, I approach it. I think we've done all the background of the SPAC and everything.

Let's turn to the company itself, Codair Online, Online Gaming, Latam. I believe they're the, are they the largest online gaming company in Spain? Is that right? Am I remembering that right from the call? I think they have a significant market share in Spain. I think probably the largest, but they have like 20, 25% market sharing online gaming in Spain and they're very big also on the retail side in Spain. Yep, yep.

So they're online gaming, Spain, Mexico, they're going to go further into some Latin Am companies. But what attracts you to Coder Online specifically? I think there are four key things that we like about Codero Online immediately. First of all, it's 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, race economical scale, no cost come down as you increase a mass of users of your platform.

And we know that in the NASAC market, they want high-growth companies with a tech angle. So that fit really the build. The second thing is the team. I mean, the team that runs Covader Online is a team that they hire from Israel. Mosheedre, the CEO, is a guy that has more than 50. years experience in the online gaming sector. The whole team has worked with him in gaming. So they really understand the sector and it's a complex sector. I mean, these are, you know, a lot of technology, the marketing, the onboarding of clients, the retention of clients.

It's very sophisticated. So the team is an excellent team and we really like the team. Then the third issue is the connection to the retail stores. Because having the retail footprint, which is huge in the case of Coveta, they're really big in Spain, big in Argentina, big in Mexico. in Panama, they're in Colombia. So the best clients that you can have are the omni-channel clients. Like, 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 really focused on doing that, but we're going to be even more focus on that. So that brings the best clients for us. So that's a great connection to have. And then finally, the valuation. I think that we're acquiring the company

at 2.3 times 2022 revenues. I mean, if you look at the U.S. comps, they're like median in seven, but Drafkinz is north of 10-time revenue 2022. And then if you look at Europe, companies with almost no growth and we'll be growing at, you know, 40, 50% a year, next year, 30% there after that, companies with no growth trade at average of three or north of three. So we think the valuation is really attractive. So those four things were the key things that we saw that, you know, gave us confidence and this is something that's really going to work on NASAC. 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

Penn and I've looked at some of the other, I guess, I don't think Penn was in your deck, but obviously Penn with Barstoles as a competitor. Draft Kings is probably the better comp for you on the U.S. side. But one of the things Penn has said before is they're like, hey, we've got all these local, we've got all these regional casinos. That gives us in the long term. That gives us such a huge edge over someone like Draft Kings who doesn't actually own the casinos. Exactly what you're saying, Omnichannel, 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 actually the lowest cost way you can get somebody. And yeah, I thought that was really

interesting. Spain is the lowest coast, Andrew. They are the ones who gamble more. So their average ticket is higher. So the combo is super, super powerful. So Spain is Coderre'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 share in Spain. And if I'm correct right now, the EBITDA 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 view on a margin. Like that is cash flow positive. That is proof of concept right there. Am I thinking about that correctly? Yes, definitely. Yeah. And what's the Spanish market kind of growing at for Coderre?

The Spanish market is a mature market. And the Spanish market is undergoing its transition right now because the government came out with very strong regulations regarding the marketing of online gaming. Yep. So that came out this year. And actually, We had to update our numbers this year because the impact of that on the short term was harder on Kodere because you couldn't do a lot of promotions. So in Spain, we actually had the third quarter was down and now things are normalizing. And 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 of the, it's going to be very tough to do marketing. Yeah. But we have the 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 long term, it's going to be a market that's going to be dominated by fewer players because of the restrictions on publicity. But that really started this year. But it's a more mature market that grows like with GDP. And then Mexico, obviously you guys are going to go through a lot of, you guys are going to enter a lot of other markets, but it seems like Mexico is kind of the big emerging market that you guys are attacking right now.

Am I thinking about that correctly? I think in Latin America, we are already operating in three markets, Mexico, Colombia, and Panama, but Mexico is very far the largest. And also in Mexico, Coderre has a very big retail presence. So Mexico, let's say, is the easiest and closest growth opportunity. And then the 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? Yeah, I was about to ask you, you guys mentioned this on the call. It's Caliente and y'all said 85, 90% market. Yeah, Caliente. I mean, it's done a great job. It's a fantastic platform. But I mean,

we, in fact, the team from Caliente used to work for Mosh in another company. Okay. Their technological platform is the same one as we have. We both use Playtech in as our, you know, provider of technology. So we, we have a product that has all the capabilities. We have the, I mean, they also have retail. We have retail. But we think that we're the best position player now with the resources from the SPAC coming in to really go head to head with Caliente and win market share in Mexico. 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. I mean, I think that they've done a great job. I mean, you have to be in 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 team. They're everywhere in Mexico.

So they've done a fantastic job. They were, I mean, so they, and they were the early movers. So they did everything right. They move first, but they have a dominant share today. Perfect. And then I, okay, so just looking at projections, you mentioned earlier that the, you know, this year might be a little wonky because there's COVID reopening in Spain. You guys are getting, the regulations are changing, which was a headwind to Q3. But, you know, as with all SPACs, you guys published projections for the next couple years and your SPAC deals. One of the things that jumped out to me was the projections for, 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 actually call. for accelerating growth over the next three years versus, you know, what you guys have done over the past couple years. And obviously, again, past couple years, regulation changes, COVID headwinds, all that sort of stuff. But what gives you confidence that there's going to be

accelerating growth at Kodair? Like, what's kind of driving that? Yeah, the growth is on accelerating. I mean, the growth is we are to, this year is 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 it's 50% growth in 2022 and then 33% growth in 23. So the rate of growth decelerates, but we really go high next year because we have all the resources from the SPAC, so we do aggressively in 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. Yep. Buenos Aires is 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 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 to get a license for the province. So that would be huge because the province of Buenos Aires is where Coderre retail has their largest retail presence in Argentina.

So the city plus 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 will 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 longstanding, you know, presence in all these markets. And they've been talking to the regulators for years. So when something opens up, they really know.

them because, and they trust them. They've been around for years. So you're really 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 place 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 or we're talking to the state of Puerto Rico, for example, for a license, all these is not in the projections. So any of these is another geography, another push.

So the projections are very conservative and do not include any new market with the exception of the city of Buenos Aires. We're already have a license and are almost about to start. So the projections, I'm looking at right now, $400 million in 2007 revenue is 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. Six countries. So with the $400 million in 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 400 million study. Can you walk me through 400 million revenue? What is the financial statement going to look like if you guys hit that $400 million of revenue to get to 20% EBITDA margins? I mean, I think the key to get there is that not only we will continue running in Mexico, going to grow in Colombia, in Panama, we'll grow in Argentina. And I think that, you know, we will start entering a couple of new countries. But with the resources from the SPAC and the

technology, we feel very confident that the numbers I said before are really conservative number. 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 of 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's 100% redemptions, this transaction is based on only the pipe money. If, you know, hopefully, I think the spec has $125 million in cash. Hopefully there's 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's a best advice. So I actually, I won't even say that. But if no one redeems the fat, what is the company going to do with that extra $125 million? Okay, if we have the additional money, I think that we'll accelerate some investments. And then that, you know, hopefully we'll try to open new markets faster. So, for example, if Brazil really opens up, you can open up Brazil with $30 million or you can open up Brazil with $50. So you can use more money and go more rapidly. So I think that it will allow us to enter some markets faster and also probably to do

some technology upgrades sooner. Gotcha, got you. So it's really just about, if you guys get the extra $125 million, going faster, new countries, more marketing, grabbing more players. And also the possibility to buy something. Yep. What would you, what would the company be looking to buy if they were looking to go in organic growth? Would it just be the leading player in a new country? Are you guys going to look to, you know, we've seen Draft Kings has gone and buy. I don't, I think it'd be too large for you, but Draft Kings has gone and bought their player management system. They've gone and bought the sports book that's giving them all the sports lines and that's. time so. What would Coderre be looking to buy? I think that we could go to a geography

we're looking to come in and buy a player that's already there that has a strong presence that allow us to kind of plug and play, you know, that we're already in, we can upgrade it and put in our platform and we can add another country. Or maybe we can add a smaller player that is in a 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. One of the new markets that you guys talked 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 devoted in there to the target is actually expanding into the U.S. And I thought that was really interesting.

I thought that was interesting. And it was the one thing in the deck where I read it and I was like, oh, that doesn't fit my mental model of something that would be really doable. But I'll present my pushbacks. But I want to ask you, like, why do you think Coderre has a chance or has a right to win a little bit of share inside of the U.S.? I think that the U.S. market is a phase two. I think that phase one is where we're in right now into the city of Buenos Aires. That wasn't the projections.

Phase two is Latin America. It's Brazil. It's Puerto Rico. It's Chile, Uruguay, Peru. There are many countries where 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 of going on.

I think that phase three is the U.S. And the U.S. is really because the Hispanic population likes Latin American sports. and we're connected to those sports. We sponsor many teams. We have a lot of presence. So it's really anchoring the Hispanic person in the U.S. and the fact that, you know, people from Mexico like to play, you know, look at Mexican soccer,

people from, you know, Central America want to look at Central American soccer and stuff like that. So we have that product. We know the sports and we can generate the engagement. So that would be the angle to go to the U.S. But as I said, that's phase three. Yeah. I don't want to provide 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 like a niche gaming product really attract 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 draft Kings or a bet MGM or anything is offering right now. And also, it seems like we're in a land grab mode right now by the time you guys kind of launched the U.S. product that seemed like a lot of the land grab would have been taken. Like one of the things I like about you guys is these emerging markets, 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 U.S. market in 2024, 2025, it seems like a lot of that land grab would already have been taken up. I mean, as I said, that's really like the third phase of the growth. So it's nothing that we're really working on right now.

We've been approached by a couple of media companies in the U.S. that are focused on the Hispanic market that wanted to talk to us. Oh, interesting. But so far, you know, we're really focused on the markets where we are and the next phase. So we're not talking about that. But we've been approached on that because these guys want the connection to gaming. Many teams also want connections to gaming. So, I mean, we don't know how 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, even that you have like 40 million Hispanics living in the U.S. 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're still an independent company, because the other thing that you have, that we look when we look at Coderre is that we could acquire some things, but we could also be acquired, no? Because if you look at Latin America today, I mean, there are very few gaming companies with a multi-country approach. So Codere online provides you with two countries in Europe, Spain and Italy, and then you have already foreign Latin America and more are coming. So in one company, you have all these markets where you're already there, and then you have the only channel connection. Yep. So I think, you know, it's also, you know, it would be interesting to see whether we are the acquired or we're being acquired. Martin, you're speaking my language. And, you know,

in the SPAC world, Golden Nugget Online, they very similar, right? I would say it's obviously not complete Apple's Apples, but it's very similar to the Codair Online story, right? Golden Nugget, regional casinos, Golden Nugget online goes public through a SPAC. It's public for six, nine months. And then it's Penn who's buying them. I think Penn, maybe, yeah, it was Penn who's, buying them right now. But somebody looks at them and says, hey, they've got the online present. They've got the connection to the physical retail. Obviously, they don't own the physical retail, but they've got the connection. We'll just go buy them. And that's the perfect baltone. And for you guys, they're online in multiple countries, really large presidents in Spain,

growing peasants in Mexico, lots of land grab. Go buy them. You get the physical connection without actually having to own the physical stores. It makes sense as a Baltan for a lot of a lot of people. Agree. 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 pay $10 and everybody else offered $8. So I just paid $2 too much. I won the auction, but I actually lost. When you're in a SPAC, you don't really have any operating synergies, any of that. So you guys are merging with Coderre, and I just want to talk about, like, why did Coderre the retail company who will maintain a significant equity stake in this, who still has the connection to it, 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 this back the right route? Why is DDMX not subject to the winner's curse that I just described?

Because they wanted a partner that was the right partner that was going to be helpful, but it was not going to, want to operate the business. And the other, in the process that they ran, we were the only SPAC. The other alternatives were private equity firms or strategic. So strategics were out because they wanted to run the business and they want to run business. They know how to run these businesses. And then P.E firms usually, they need to be much more involved in the running of the business because that's what they sell to their investors, no? We bring operational expertise. We help. And these guys, they knew how to run the business. They hired this team from Israel. to run it. They've been there for a couple of years. So the question was getting the resources

and then how to manage as a public company. So we can provide them with capital. We have financial expertise. We are, you know, very connected in Mexico where it's their key growth markets so we can help them. We knew their Mexican partners because they have a Mexican company, CIA, which is their partner in retail. So I think that we click all the right boxes. So, and we know, because we know of other offers, we were not the higher offer. interesting what was the highest offer at i think it was between 30 and 50 percent above our offer wow okay yeah remember this was february of this year when gaming was i mean it's still booming today but it was like you know crazy in february pen just to bring pen stock was a hundred twenty

dollars per share and i think it's 80 dollars per share now so yeah i don't this will be very softball i don't want to lob this up too easy for you but i would guess the fact that that you guys were a Latam-focused spec. 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 spec 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 this deal. Yeah, I mean, the minimum crush was crucial.

And also, they really like the fact that one of our two key investors was Barron funds. They highly respected them. Yeah, they want that Tesla valuation. Yeah, we all do. Look, I think we've covered a lot on Coderre. I did have a couple 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 is obviously Coderre. Is there anything we didn't talk about that you're really excited about with Coderre or any

risk that you think the market is really concerned about that you kind of think the market is wrong that you want to address before we turn it over, maybe it's a betterware? I mean, I think that we are very, you know, we think the Codera. is a great investment. As I mentioned to you, we think it clicks all the boxes. It's a high growth company in a high growing sector. He has an excellent management team. We have the only channel connection, sorry, and we have the right valuation. So we're really excited, and we hope that we can hit out of the park like we do better work. Perfect. And just for listeners, what is the, I know, but you've got the meeting coming up. What is the meeting? What's the

timeline and everything for listeners? The meeting is November 16. And then that's the day when people have to, the November 16th is when people have to tell you where they redeem or not. And then the meeting will happen between November 18 and November 20th. And shortly after that, the stock will start trading as Codary Online. Perfect. Perfect. Let's turn over to Betterware Mexico. Again, this is one of the best reforming spas of all time. You are, 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. So I've kind of been falling out the corner of my eye. I think the stock, you know, weak earnings, I've got lots

of things on it. So I just want to turn it over to you. How are you feeling about Betterware right now? You know, what's the outlook there? I mean, I think what's going on with Betterware is that better was a company that during COVID grew by three times. Yeah. Three months. So the program that we had for the next five years was compressing one year. So people got used to see numbers that was 100, 200% growth in a quarter compared to last year. That was crazy. And they did a great job operationally because, you know, these guys, what better was a company that sells home organizational goods,

like for your bathroom, for cleaning, for the house, no? And the average ticket of what we sell is around $5 to $10. And they have a distribution network of, you know, what they call these associates of one more than a million women all over Mexico, mainly women that, you know, are buyers and sellers of our products. So, so this platform went from around 400,000 women pre-COVID to 1.2 million women. Because many women with COVID, they were not working anymore. They wanted to do something.

So they started being active with better wear. What happened after, what's happening now after COVID is that some of these women are going back to their regular jobs. So some are keeping the betterware selling, you know, on the side, but some cannot do it, no? The house, the work. So our churn is higher than normal. Churn is usually around 2.5, 3% per month in this group of women. And right now we are north of fourth and it's coming down. But it's very high because you have the COVID transition. Yep. What the company has been doing greatly is that, for example, in the last quarter, we lost close to

like, you know, 450,000, you know, associates. But we gain close to that. So they're really, you know, increasing the sales is an amazing way. 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 is becoming so much larger. I think that people, they don't know where the long-term growth of the company is. So the fact that you're seeing like more stability in the numbers now. And, you know, because sales were up like 4%. Evida was below what people expected, but still, you know, 700 million pesos, the dividend is very strong. I think that what you have right now is that, you know, 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, you know, they were expecting higher numbers, and the numbers are still pretty good, but not as high as the market expected. Let me ask, and again, I am no expert on bedware. I've only followed out the corner of my eye because it's one of the best performance facts all the time, a bunch of my friends still follow it. But just a very silly question. Obviously, churn for the distributors is very high right now. But I would guess that the distributors who are churning are probably a little bit lower value than your core distributors. You know, 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 the workforce. I guess that's a lower sales rep. Obviously, more sales rep is generally better, but I guess that's a lower quality sales rep who's, you know, less sales, less value, less lifetime value. Am I thinking about that correctly or am I

off a little bit? I mean, I think that in general, they do a fun. Part of the core expertise of the better work team is managing this huge, you know, sales group. So they're really good at training them, motivating them. They have a better way has a reward program for for associates where linked to your sales, you get points. And with the points, you get prices that are like furniture and appliances. So many of these women, because they want to contribute to the house, they say, not only I'm selling and buying betterware products, but this year I want to get like the dining room table. So I'm going to get the dining room and that's my contribution to the house. So there's a lot of like a lot of hard work and pride of these women of, you know,

contributing to the house or maybe a new TV or a new washing machine. And so the price component, the way they manage the points program, the motivation, the meetings with the workforce. I mean, the CEO of the company andres Campos travels two days a week. And everywhere he goes, he just goes to meets the sales force, no? So he meets all these women that that are the associate base, the distributors. He's talking to them. He's looking at the way to finesse these programs. Finesse 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? So these guys are really, really good at what they do. Because if you look at the numbers, I mean, just to understand

and put it in perspective, you know, Andrew, these guys did roughly around $40 million in 2019 as EVDA. They did 100 in 2020 and they will do north of 150 this year. So, I mean, going to 40 to 150 is huge. I mean, 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's that? Half a million boxes per week. I mean, it's a huge logistical operation.

And they triple the size. So they've been able to do all that, grow the workforce, grow the logistics. And now they're really focusing on improving the products. I mean, they used to have a catalog every six weeks. Now we're going to monthly catalogs. They used to have like only 10% of new products per catalog. We're going to 30%. So they're doing a lot of things.

They're really improving like the app and e-commerce. So 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 this huge jump, it's very hard right now to understand. And because of the problem of the higher churning associates, The market really doesn't know exactly where these growth will come out. So I think that this is going to take, you know, a few quarters for people to understand that it's still a fantastic company. You know, the growth is there.

I mean, because still the market share we have in Mexico and the houses we reach, we reach 20% of the houses. They want to go to 40% and they want to get there in the next four years, no? So I think there's a lot of growth in Mexico. There are many, and then the distribution channel that we have is super powerful. I mean, we have, you know, 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, but we can do many other things, no?

So I think that this is a very powerful company, super well-run, you know, and this is a great CEO, you know, our chairman, Louis founded the company. He really understands direct selling. He used to work at Topperware for many years, running the Americas. So this is a fantastic company that just did five years in one year. So that's a lot. And now people need to understand where the growth. will be. And then the dividend yield is 7% today. So we pay a 7% dividend. We're a growing company.

I mean, I think that it's a fantastic stock. I love the story. I love the stock. Yeah. And it's just your thing with, hey, the growth is a little bit slower than maybe the market thought because you're coming off COVID, which pulled four or 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 DSL was like, I just got to upgrade. I've 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. We're still growing. We're still profitable, all this sort of stuff. But the market is just slamming them. And it's kind of like, yeah, they're not COVID recovery plays anymore, but it doesn't mean they're not growing. It doesn't mean they're not doing great. And I just think, you know, 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 feel. I think this is very similar.

I really like the way you compare it. It's a company that had this. I mean, the cable companies didn't grow by 300%. No, no. I wish they had, but it wasn't even close. This is the cable company, some steroids. And the company is 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 is a churn. I mean, the churn became much higher. So we, because some women just went back to their jobs and they cannot do the better we're on the side. So, 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 a churn goes back to normal and we keep the recruiting,

then we'll get the growth back. Yep. So people will start to understand. And they need to see the fourth quarter, which is going to be better because the year always closes stronger. And then next year is going to be better. And then the other thing that is happening is that we are a new public company. We despack in March of last year, no? So people have seen a few quarters. They also need to understand that there's some, you know, seasonality to the quarters. Like the first one is very strong, second and third

is slightly slower. The four comes back. So they also need to get to that. You also, you trade in the U.S. and you report in you report in pesos. I think the dividend is paid out in paces. Obviously, it comes in dollars, but it's paid out in PESA. So I think you've got a little bit of despaq, you know, high to COVID, all these issues, Mexican financials. I just think there's little bits of headwinds that you'll get over it eventually, but there's just a little bit of extra headwind there. And then as I said, I think in a few quarters, people will understand the growth better. People will be more comfortable. The dividend is super strong. Even though it's in pesos is 7%. It's a great dividend. And the company is going to grow it because

the company is a growing company, and then there are a lot of new things in the pipeline that are going to make this company be way much better. But those things, unfortunately, I cannot talk about them right now. Let me ask one other question on Betterware, and then we'll kind of wrap this up. You know, you mentioned the dividend a couple times, which that's great, but my companies, I always think share repurchases are more tax efficient. They can be dialed up and down a little bit easier. Investors don't get as pissed off if you dial back to share repurchases if you cut a dividend. You've mentioned the trades at a pretty value multiple, all this sort of stuff.

Why not go with a share repurchase instead of a dividend here? No, 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. So I think that there's nothing like getting a dividend. I think that in technical terms, a repurchase is equivalent, but getting those dividends is something that we've done and that stockholders appreciate that it's at the core of what the founders believe.

But on top of that, we can do repurchases. And we have already, you know, approve it at the board. So the company could start doing some repurchases, and that's, that, that's, that card is already there. And it probably would start to be used in the near future. Let me ask one more question just about DD3. You know, SPAC 1, betterware, growth company. But, you know, households, consumer distribute, all that.

SPAC 2, Code Air, online, online gaming, gambling, obviously growth company there. as well, but aside from the word growth, I can't think of, you know, Betterware and Coderre are pretty much on two other ends of 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 spec, 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? I mean, first of all, the third SPAC is ready to go. As soon as we close Cordelia, we launch our third SPAC because we understand the SPAC business, we like it, and we want to continue doing SPACs. In terms of the companies

we 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. That's what everyone wants to hear. The key thing is returns, okay? So after that, then we understand that for stocks to work in NASDAQ, you need to have high growth. So we look for growth. 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. So it wasn't only value. But we think that growth is the key.

We think the NASDAQ market wants growth. And we want to generate very strong growth. And then more and more, we're looking into tech. Even in what we do at DD3, if I would tell you the biggest mistake that Jorge and 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 involving in that. So I think that, you know, we want growth and we want tech. And that's what we're looking for. Perfect. Perfect.

And obviously, it's always going to be a lot of am focused, I'm assuming. Yeah, of course. And also, particularly in Mexico, where we are based, 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, 100 million people, you know, a million, 1.2, you know, trillion dollar economy. I mean, I think that today the ratio, there are many opportunities

more than SPACs. So we are not like in the US today, there are too many SPACs and there are competition. In Mexico, when we 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. And not to give, again, not to be too much softball, but I'm not really aware of any other spas that have successfully closed a Latin American deal. I could be off. I mean, I'm saying that off the top of my head, but after Coder closes, you guys will have done two of them. that's great proof of concept. If I was a company selling, you know, I'm very aware of the risks of spas 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, like there's going to be cash at the back end. If I was selling, 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. I mean, we're really focused on building the track record and we want to build it for the targets. But as I said before, I mean, the key thing for us is that we want to generate high returns for our investors and we put a lot of our capital into the SPACs. Perfect.

Martin Verner, I'm going to wrap it up here unless you have anything else. No, thank you very much for the opportunity, Andrew. Very nice meeting you. Hey, thank you so much for coming on. I'm looking forward to the deal closing in mid-November. I'm looking forward to SPAC 3 and looking forward to chatting soon. Great, me too. Thank you very much, Andrew.