A Silicon Valley cloud-computing giant has made an unusual bet to head off any prospective investor stampede from a “blank check” company it’s backing — namely, by volunteering to pay a premium for it, The Post has learned.
Twilio — whose networks power phone calls and text messaging for apps like Airbnb and Facebook’s WhatsApp — announced this week it has entered into a merger agreement to invest between $500 million and $750 million in M3-Brigade Acquisition Corp II.
As part of the deal, M3-Brigade — a so-called special-purpose acquisition company, or SPAC — said it has struck an agreement to buy Syniverse, a company that connects messaging services to wireless platforms that’s owned by private-equity giant Carlyle Group, at a $2.85 billion valuation.
The deal comes as SPACs — essentially pools of money that can take companies public relatively quickly by merging with them — increasingly are getting slammed by shareholder redemptions as regulators tighten their scrutiny of the deals. Earlier this week, hedge-fund tycoon Bill Ackman saw his hedge fund sued over a failed attempt to buy a stake in Universal Music Group with the biggest SPAC ever launched.
In an offbeat attempt to buck that trend, insiders say San Francisco-based Twilio in its deal to take Syniverse public is effectively buying in at $11 a share. That’s a 10-percent premium to the standard, $10-a-share price that has been offered to the rest of the SPAC’s investors — and it’s also a premium that wasn’t mentioned in the Monday press release that announced the deal.
“You can find all the public information we are providing in the public filing we filed yesterday,” a Twilio spokesman said on Wednesday, declining to comment further.
Paying the premium will amount to an upfront hit for Twilio of between $50 million to $75 million. Twilio executives are keeping quiet about it so as not to alarm the company’s investors, according to one source close to the situation.
Nevertheless, executives at Twilio, which went public in 2016 and whose market capitalization now exceeds $60 billion, also believe the upside in the deal far outweighs the cost. By taking an immediate haircut, they are hoping they can give M3-Brigade SPAC shareholders the confidence not to redeem their stock and to stabilize the SPAC’s share price, sources said.
M3-Brigade shares on Wednesday closed at $9.81.
“This will be an eye opener for sure,” SPACInsider Founder Kristi Marvin told The Post after learning about Twilio’s premium.
Since SPACs began to fall out of favor this summer, Marvin said she does not know of any other publicly traded strategic investor in a SPAC that has agreed to pay a premium to a SPAC’s $10-a-share cash value price.
Meanwhile, the SPAC’s sponsor, Brigade Capital Management, did what it could this week to spread the news about Twilio’s topped-off investment — which came in the form of a private placement in public equity, or PIPE — to the SPAC’s shareholders on a Tuesday investor call.
“There’s over half a billion dollars of common equity at an approximate average price of $11 per share,” Brigade partner Matt Perkel said on the Tuesday call, a copy 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 wants to keep redemptions at under 10 percent, the shareholder said, which would buck the current trend.
In the first quarter, the average slice of SPAC shareholders who redeemed their shares after an agreement to buy a company was signed and before it closed was a manageable 9.4 percent, Marvin says. That rose to 26 percent for deals closed in the second quarter. Now, for the 34 deals closed in the third quarter the average redemption rate has rocketed to 46 percent, she says.
When SPAC shareholders redeem in big numbers, there is less money for the target company, and the SPAC share price usually falls. SPACs that closed deals in the third quarter are now trading at an average price of $9.28 a share, Marvin said.
In addition to regulatory scrutiny, SPACs are not trading well due to COVID pandemic and inflation fears, according to Marvin.
M3-Brigade had a verbal agreement in March to buy Syniverse but to get Twilio and Carlyle Group-owned Syniverse to sign a merger agreement in this challenged SPAC environment required creativity, sources said.
Nevertheless, “In this market, this Twilio deal is so outside the norm, it might make shareholders suspicious,” Marvin said.
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