RE:RE:RE:Details?A dilutive acquisition bears no disadvantage over a non-dilutive one, all else being equal (i.e., the value of the transaction). Think of the two scenarios:
- In the case of a dilutive, share-based acquisition (e.g. this one), each shareholder holds a smaller piece of the pie afterwards, but the pie becomes bigger (i.e., there’s a net increase in the company's value)
- In the case of a non-dilutive, cash-based acquisition, each shareholder holds the same piece of the pie afterwards, but the pie is no bigger either (i.e., one form of value – cash – has simply been exchanged for another - the aqcusition).
So, all else being equal (i.e., the value of the transaction), potentially the stock-based transaction may be better. It puts shares, instead of cash, in the hands of the management, incentivising them. Also, with G&G acting in their own best interest, it seems they considered the shares as likely more valuable in the future than the cash equivalent. Note that, according to the press release, in fact, they valued them at 0.73 – a ~38% premium over today’s closing price (a transaction value was likely struck when the stock actually was 0.73). So really, by today’s closing price, 48North is actually paying only $13M for G&G (0.53 * 24,567,534shares = $13M). To me that seems like an amazing price! Consider that G&G had $10M equity financing in June. That means that someone valued just a portion of G&G (i.e., the portion of shares that they obtained) at $10M back then, long before G&G had executed further on their business plan. Presumably there was other seed money, sweat equity, etc. by founders. So, to obtain the company for $13M after much of the execution risk is gone (e.g., obtaining their recent license) seems remarkable to me. For a company with ~$81M value/market cap to acquire a company with greater capacity for just $13M – wow! I can only surmise that private companies such as G&G are in tough positions, without access to capital, and see acquisition at discount versus their public peers as their best path forward. Now, not only will the combined company, including G&G, benefit from available capital, G&G's shareholders also benefit by obtaining shares that trade in a liquid market.
BTW, Likewise for the private placement financing (although I haven’t been able to find what value that was/will be at):
- In the case of dilutive, share-based financing (e.g., this one), each shareholder holds a smaller piece of the pie afterwards, but the pie gets bigger (e.g., by $10M in this case).
- In the case of non-dilutive, debt-based financing, the shareholder holds the same piece of the pie afterwards, but the pie is no bigger either (the cash that’s made available is offset by bank debt).
Anecdotally, this can be observed in their share price, which has increased from 0.45 to 0.53 since the press release. This considers that there will be dilution/more shares, but also an increase in the size of the pie that results in a net increase in the value per share.
Cheers