A Silicon Valley cloud-computing large has made an unusual guess to head off any potential investor stampede from a “blank check” company it’s backing — particularly, by volunteering to pay a premium for it, The Post has discovered.
Twilio — whose networks energy telephone calls and textual content messaging for apps like Airbnb and Facebook’s WhatsApp — introduced this week it has entered right into a merger settlement to make investments between $500 million and $750 million in M3-Brigade Acquisition Corp II.
As a part of the deal, M3-Brigade — a so-called special-purpose acquisition company, or SPAC — mentioned it has struck an settlement to purchase Syniverse, a company that connects messaging providers to wi-fi platforms that’s owned by private-equity large Carlyle Group, at a $2.85 billion valuation.
The deal comes as SPACs — basically swimming pools of money that may take corporations public comparatively rapidly by merging with them — more and more are getting slammed by shareholder redemptions as regulators tighten their scrutiny of the offers. Earlier this week, hedge-fund tycoon Bill Ackman noticed his hedge fund sued over a failed try to purchase a stake in Universal Music Group with the largest SPAC ever launched.
In an offbeat try to buck that development, insiders say San Francisco-based Twilio in its deal to take Syniverse public is successfully shopping for in at $11 a share. That’s a 10-percent premium to the usual, $10-a-share price that has been provided to the remainder of the SPAC’s investors — and it’s additionally a premium that wasn’t talked about in the Monday press launch that introduced the deal.
“You can find all the public information we are providing in the public filing we filed yesterday,” a Twilio spokesman mentioned on Wednesday, declining to remark additional.
Paying the premium will quantity to an upfront hit for Twilio of between $50 million to $75 million. Twilio executives are protecting quiet about it in order not to alarm the company’s investors, in accordance to one supply shut to the scenario.
Nevertheless, executives at Twilio, which went public in 2016 and whose market capitalization now exceeds $60 billion, additionally imagine the upside in the deal far outweighs the fee. By taking a right away haircut, they’re hoping they can provide M3-Brigade SPAC shareholders the arrogance not to redeem their stock and to stabilize the SPAC’s share price, sources mentioned.
M3-Brigade shares on Wednesday closed at $9.81.
“This will be an eye opener for sure,” SPACInsider Founder Kristi Marvin informed The Post after studying about Twilio’s premium.
Since SPACs started to fall out of favor this summer time, Marvin mentioned she doesn’t know of every other publicly traded strategic investor in a SPAC that has agreed to pay a premium to a SPAC’s $10-a-share money worth price.
Meanwhile, the SPAC’s sponsor, Brigade Capital Management, did what it might this week to unfold the information about Twilio’s topped-off funding — which got here in the type of a non-public placement in public fairness, or PIPE — to the SPAC’s shareholders on a Tuesday investor name.
“There’s over half a billion dollars of common equity at an approximate average price of $11 per share,” Brigade companion Matt Perkel mentioned on the Tuesday name, a duplicate of which was obtained by The Post. “We are very confident this deal is a great value for our shareholders at a near 10 percent discount to the PIPE price.”
M3-Bridgade needs to hold redemptions at beneath 10 p.c, the shareholder mentioned, which might buck the present development.
In the primary quarter, the typical slice of SPAC shareholders who redeemed their shares after an settlement to purchase a company was signed and earlier than it closed was a manageable 9.4 p.c, Marvin says. That rose to 26 p.c for offers closed in the second quarter. Now, for the 34 offers closed in the third quarter the typical redemption rate has rocketed to 46 p.c, she says.
When SPAC shareholders redeem in massive numbers, there may be much less money for the goal company, and the SPAC share price often falls. SPACs that closed offers in the third quarter at the moment are buying and selling at a median price of $9.28 a share, Marvin mentioned.
In addition to regulatory scrutiny, SPACs are usually not buying and selling properly due to COVID pandemic and inflation fears, in accordance to Marvin.
M3-Brigade had a verbal settlement in March to purchase Syniverse however to get Twilio and Carlyle Group-owned Syniverse to signal a merger settlement in this challenged SPAC surroundings required creativity, sources mentioned.
Nevertheless, “In this market, this Twilio deal is so outside the norm, it might make shareholders suspicious,” Marvin mentioned.