Billionaire Branson's SPAC deals have cost him dearly

Virgin Group founder Richard Branson had almost $2 billion tied up in global stock markets a year or so ago, largely from several cash-burning US companies listed through blank-check firms.

Steep slumps in those US stocks have since cut their collective value by as much as 95%, and now, with Nationwide Building Society’s announced all-cash takeover of Virgin Money UK Plc, the publicly traded component of Branson’s wealth will soon nearly vanish.

Overall, Branson’s sinking stock holdings have resulted in his net worth falling by roughly half since mid-2022 to about $3 billion, according to the Bloomberg Billionaires Index, underscoring how the post-pandemic economy is ravaging one of Britain’s biggest self-made fortunes. Outside his Virgin Money stake, which is worth roughly £413 million ($520 million) based on the terms of Nationwide’s offer, his disclosed publicly traded holdings total less than $75 million.

“It’s hard in these times when things go wrong,” said Claire Madden, managing partner of London-based private equity firm Connection Capital. Branson’s empire “had a big jolt from the side through Covid.” 

Branson’s fading stock assets limit his options to inject cash into his sprawling empire as parts of it still struggle to recover from the pandemic, which forced the 73-year-old British billionaire to leverage his listed holdings to prop up closely held Virgin businesses.

Branson sold more than $1 billion of shares in 2020 and 2021 in Virgin Galactic Holdings Inc., his space-tourism company that merged months before the Covid-19 outbreak with a blank-check firm founded by Chamath Palihapitiya.

Those sales helped finance a £1.2 billion rescue package for airline Virgin Atlantic, a flagship business among the more than three-dozen companies in Branson’s closely held empire. Virgin Group also helped put £50 million last year into its namesake gym club chain to speed up its recovery from the pandemic.

A representative for London-based Virgin Group, which doesn’t report consolidated financials, declined to comment.

Branson’s fortune peaked at almost $8 billion in early 2021 as record-low interest rates fueled a pandemic bull market. Virgin Galactic’s stock climbed nearly 400% during the run up and eventually comprised almost half his total net worth.

Shares of the Las Cruces, New Mexico-based company have since slumped about 98% from their 2021 peak after grappling with in-flight issues and financial results that fell short of Wall Street expectations. Shares of other listed firms arising from Branson’s dealings with special purpose acquisition companies – or SPACs – have fared even worse.

Satellite-services firm Virgin Orbit Holdings Inc. fell into bankruptcy last year, less than 18 months after completing a merger with blank-check firm NextGen Acquisition Corp II. Shares of genetics-testing company 23andMe Holding Co. and e-commerce firm Grove Collaborative Holdings have also slumped more than 90% since merging with Virgin Group’s own SPACs as recently as 2022.

The De-SPAC Index, a basket of companies that completed their tie-ups, has fallen more than 20% this year as many firms struggle to become profitable amid higher financing costs. That compares with the nearly 10% rally in the S&P 500 Index.

After founding Virgin Money in 1995, Branson upped his bet in 2011 by leading a £747 million deal to buy UK lender Northern Rock from the British government following the bank’s collapse in the early stages of the global financial crisis.

Seven years later, Branson more than doubled his original £50 million investment when Clydesdale Bank agreed to acquire Virgin Money to form the UK’s sixth-largest lender in a £1.7 billion takeover. He retained a roughly 13% stake in the merged business.

“We were ready for a new challenge,” Branson said in a November blog post about starting Virgin Money. “It was a chance to change a stagnant industry.”

MALLORCA HOTEL

Nationwide and Virgin Money are now set to overtake NatWest Group Plc as Britain’s second-largest provider of home loans behind only Lloyds Banking Group Plc. The deal is expected to be completed in the fourth quarter.

Other Virgin Group assets are also propping up Branson’s fortune even as his SPAC bets drag it down.

His holding company owns a five-star hotel in Mallorca, where real estate prices have recently surged, while his airline has outlined plans for returning to profit this year. Virgin Group has also launched new divisions in the hotel and cruise-ship sectors, while its venture arm previously made early-stage investments in companies including Pinterest Inc., Block Inc. and Wise Plc.

Virgin Group’s licensing arm, meanwhile, is receiving more income than before the pandemic, giving it an estimated value of about $1 billion and making it Branson’s biggest individual asset, according to Bloomberg’s wealth index. 

That unit is set to keep receiving income through Virgin Money for years after the Nationwide deal closes, underscoring how some of the his most conventional deals – not loss-making SPAC firms – are now powering his empire.

“You can only do those non-profit-generating sort of businesses to a certain extent,” Madden said. “It’s about making money at the end of the day.”