(Bloomberg) — Syniverse Technologies LLC and M3-Brigade Acquisition II Corp. called off their $2.85 billion merger as investors opted to return their shares for cash, making the deal the latest casualty of record redemption rates.
The blank-check company said in a statement Wednesday that the number of shareholders redeeming their stock for cash would’ve exceeded the minimum amount of capital needed for closing the deal. M3-Brigade will now seek a different target to take public while Syniverse remains closely held.
The special-purpose acquisition company and the Carlyle Group Inc.-backed mobile services business had struck the deal to merge in August. The pact had a roster of well-known investors including Oak Hill Advisors and Brigade Capital Management as well as plans for an investment from Twilio Inc.
“Although the parties collaboratively sought potential solutions in anticipation of high redemptions as a result of the recent turbulence in capital markets and growth stocks, these same conditions prevented the parties from reaching agreement on modifying the transaction terms,” Don Morgan, chief investment officer of Brigade Capital, said in the statement.
M3-Brigade shares were unchanged at $9.75 at 1:46 p.m. on Wednesday, though the effects of the scrapped plan were felt in the warrant market as the securities tied to the stock plummeted 39% to 36 cents.
With an increasing number of SPACs trading below the value of the cash held in the trust, usually $10 per share or more, the act of redemption can be expected. Holders are opting to exchange their common shares for the principal investment plus accrued interest, an aspect of SPACs that limit investor risk and enable holders to dump losing bets.
However, the recent surge of investors opting to swap out their stock for cash has impacted deals and weighed on the industry as a whole. Redemptions leave the newly public company with less cash from the deal and their rise comes after SPAC mania hit its peak hit this time last year.
Redemption rates have skyrocketed since August and sit at 78% on average this month, 10-times what was seen a year ago, data from Boardroom Alpha show. Many companies have opted to find additional cash to help soften the hit from higher redemptions, however, M3-Brigade and Syniverse weren’t able to find a common ground, Morgan said.
M3-Brigade raised $400 million data in its initial public offering in March of last year and has until March 2023 to close a deal.
