More than a decade after his tenure in Silicon Valley, Ron Johnson is still quick to recall his time at Apple and name his famous mentor.
“I learned from many, but the strongest lessons I learned came from working at Apple with Steve Jobs,” he said last year. “He taught me that if you deliver the highest quality imaginable, you will always have a great business.”
Chosen by Apple co-founder in 2000 after a successful run at discount retailer Target, Johnson is widely credited with creating the concept of the Apple Store, the gadget maker’s hugely successful brick-and-mortar retail game.
But Johnson’s most recent attempt to regain his former retail magic ended in a debacle emblematic of the broader boom and bust of specialty acquisition firms (spacs).
Enjoy Technology was valued at $1.1 billion when it went public via a spac in October, luring investors with a vision of “commerce at home” that offered busy consumers the opportunity to own an Apple Store to have a similar experience in their living room.
Now, just eight months after the shares started trading, that high valuation has all but been erased. Rather than becoming the next Apple, or even Airbnb or Uber — other disruptors Johnson singled out for inspiration — Enjoy hastily filed for Chapter 11 bankruptcy on Thursday.
Johnson once boasted that “the Enjoy mobile store does everything you can do in a store, but better.” Now with less than $1 million in cash, the retailer has asked the U.S. federal court overseeing the case to approve a $55 million loan to allow it to process payroll this week can pay for its 1,700 employees.
For the former Apple exec, the bankruptcy has dashed hopes that Enjoy would offer redress after a disastrous stint at JCPenney, where Johnson was installed by activist investor Bill Ackman in 2011 to reinvent the Central American department store.
Enjoy’s breakneck fall from IPO to bankruptcy is not an isolated case. The retailer joins a growing list of companies listed on Spacs that are now on the brink of bankruptcy. Last month, automaker Electric Last Mile Solutions also filed for bankruptcy, just a year after going public at a $1.4 billion valuation.
The market for spacs boomed in 2020 and 2021 as legions of day traders and other ordinary investors began trying their luck at more speculative companies. These “blank check” vehicles, which raise money through an IPO and use the money to look for a private company to merge with, offered an attractive alternative for money-burning startups that would struggle to get through the stricter listings come classic IPO process.
But few have managed to live up to the hype of their brave supporters. According to data from Spac Research, less than 10 percent of companies listed on Spacs as of January 2020 are trading at or above their IPO price.
And with funding for early-stage speculative companies drying up quickly, Enjoy likely won’t be the last of the recent Spac wave to file for bankruptcy.
Blue chip supporter
Ordinary investors in Enjoy stock, now on the brink of collapse, could be forgiven for taking solace from the company’s illustrious backers.
Since Johnson founded the retailer in 2014, Enjoy has raised $400 million in venture capital from Silicon Valley stars like Andreessen Horowitz and Kleiner Perkins, according to PitchBook data.
Marquee Raine Acquisition Corporation — the Spac vehicle that took the company public — was also run by two blue-chip investors.
Joe Ricketts, whose family owns the Chicago Cubs baseball team, and merchant bank Raine Group raised $375 million in December 2020 just as the Spac market was heating up. Raine’s clients include companies like SoftBank, which recently managed the Chelsea Football Club auction where the Ricketts were bidders.
In March 2021, Marquee Raine and Enjoy announced a deal that valued the company at $1.1 billion. The transaction was expected to raise $450 million in fresh cash, including proceeds from the Spac IPO, and $80 million from institutional investors.
While Marquee Raine initially told investors it was likely to merge with a sports or entertainment company, his supporters argued the opportunity was too tempting to pass up.
“We believe that Enjoy is one of the most innovative and transformative consumer and technology companies we have seen,” said Brett Varsov of Raine at the time of the merger announcement. “Ron has built a great team, the company continues to grow and develop incredibly well, and the opportunities for the future are immense.”
The investor presentation of the deal propagated Enjoy’s big ambitions. While the company had just $60 million in sales in 2020, Johnson predicted its revenue would surpass $1 billion in 2025, accompanied by an operating profit margin of 30 percent.
Enjoy had 2,000 employees and 700 mobile stores — essentially delivery vans that were delivered to customers’ homes after ordering a gadget, typically an iPhone. While its key partners have been major telcos — AT&T in the US, BT in the UK, and Rogers Communications in Canada — Enjoy said it would eventually enter other end-markets totaling more than $1 trillion, including luxury goods, fitness, and Cars .
According to Johnson, Enjoy’s powerful back-end technology was the secret of its success. “Powered by machine learning and analytics, Enjoy’s algorithm and proprietary technology optimizes the customer experience in real time to track inventory and improve efficiency,” he said last year.
While the slides stated that Enjoy was “in a category of one,” Marquee Raine also touted peers like Uber, Peloton, and Carvana to support its $1 billion valuation.
But as the merger neared its completion date in fall 2021, the dizzying enthusiasm for Spacs began to fizzle out.
While the stock market as a whole remained strong, Spac investors began to become more sophisticated. Repayment rates — the amount of money Spac shareholders withdraw when it comes time to vote on a transaction — had risen to about 60 percent by the time Enjoy and Marquee Raine closed the deal.
Of the $375 million raised by the Marquee Raine vehicle, less than $60 million remained after Spac shareholders exercised their right to a refund.
Marquee Raine had agreed to a so-called “backstop” agreement, under which the Ricketts family, along with Johnson, agreed to plug part of the money hole from the repayments. According to securities documents, the couple raised $56 million of their own money to help close the deal.
Enjoy’s first conference call in November gave a hint of what would become the company’s downfall.
“Unfortunately, the supply of key smartphones was significantly lower than planned in the fourth quarter and will negatively impact our fourth quarter financial results,” Johnson said, as it reported quarterly revenue of less than $20 million and an operating loss of more than reported $40 million.
Some doubted that the underlying economics of the business could ever work.
“Enjoy takes two of the most costly aspects of customer retention — flawless last-mile delivery and customer service — and delivers it in a way that’s free to the customer,” said Terry Esper, professor of logistics at Ohio University State University. “It seems that this is probably just too expensive to offer on a large scale.”
Enjoy fell 25 percent short of its 2021 revenue target of $109 million, just months after it reiterated it was still achievable. Results in early 2022 only got worse. By the end of March, the company’s cash position had dwindled to just $37 million, and by the time it filed for bankruptcy it was virtually zero. As the business wound up, Enjoy lost two consecutive chief financial officers and added two board members who specialized in financially troubled situations.
In court filings, Enjoy said it was caught in a perfect storm of economic and market headwinds: Big redemptions by Spac investors limited available cash balance and then supply chain crunch and labor shortages prevented it from meeting its sales targets.
Enjoy is now on the verge of being acquired by Asurion — a provider of insurance and repair services for electronic equipment headquartered far from Silicon Valley in Nashville, Tennessee — after the company provided a $55 million loan to to keep the company running during its bankruptcy.
As part of the bankruptcy, a $10 million loan that Johnson personally provided to Enjoy earlier this year will be stripped of its security against the company’s assets. It marks a crushing end for a retail connoisseur once famous for reinventing the American shopping experience.
Johnson, Ricketts and Raine declined to comment.