Parent stock crashed: Investors refuse to buy SPAC merger

High volatility in stock trading Parent information security Continues, this time heading south. The parent stock plunged about 40% in a huge turnover on Sunday morning, after the company reported that the Ministry of Defense had disqualified its subsidiary, Cuppoint Technologies, from winning the tender. The company stressed that the disqualification and cancellation of the tender “may affect the company’s results in 2022”.

The father later issued a clarification notice, in which it was alleged, among other things, that the cancellation of the tender was technical and that CuPoint intends to submit a bid in the new tender, if it is published. The company explained this by saying that the tender is not related to the parent company’s cyber security products, and that its scope is only about NIS 800,000, so that in fact its cancellation will not have a significant effect on its revenues this year. Following the clarification, the decline in the stock moderated to about 25% “only” in the afternoon, but at the close it fell by 35%.

The parent provides cyber solutions as part of cloud computing or servers, as well as a reduced cyber protection solution for IoT (the “Internet of Things”). The company was merged in 2021 into an ALD company traded on the Tel Aviv Stock Exchange.

The planned merger for SPAC – 6 times its current market value

The sharp drop in the stock earlier this week comes in the wake of last week’s dramatic report that parent security is set to merge with Wall Street-listed SPAC. SPAC companies are inactive companies that raise money from the public in order to acquire an existing company within a limited time. For private companies this is an alternative way to reach the public market, and in the case of the parent, which is already trading in Tel Aviv, the merger will allow it to reach trading on Wall Street, and later intends to delete its shares from trading in Tel Aviv.

If the move is successful, the company is expected to merge with the American SPAC Mount Rainer at a value of $ 1.28 billion before cash (NIS 4.1 billion) – more than 6 times its current market value (after the declines on Sunday) which stands at about NIS 570 million.

According to the company’s report, the SPAC fund has $ 172 million earmarked for the parent (an amount that could decrease in the event that investors prefer to redeem the investment rather than participate in the merger), and in addition it issues a $ 50 million PIPE to institutional investors from Israel.

However, local investors probably cast great doubt on the success of the merger, as on the day of the announcement the parent share in Tel Aviv rose by only 13%, on Thursday it has already fallen by 11%, and with the fall on Sunday the stock completes a 28% collapse last week.

“It’s good for investors to move trading to a more suitable market”

The parent CEO, Eyal Moshe, said in a conversation with Globes last week that “our tremendous growth in recent years indicates that the market and our customers believe in the company’s vision, its leadership and especially in its unique platform.”

Asked about the huge gap between the company’s value in Tel Aviv and its estimated value for the merger with SPAC, Moshe said that “according to comparison data of similar companies in the US, in the same field of activity and with similar revenues and growth rates, they are traded at multiples of 14 on revenues, and we trade in Tel Aviv at a multiplier of 3. We think we will better represent the investors if we transfer the trading to a market that is more suitable for the type of activity. ”

Moshe was asked if the company did not fear the cooling of the SPAC market, and said that “we looked at the world of spacks closely, and from our analysis it seems that there are very good companies that have merged, but came in with very high multipliers.

“At the end the market balances with reasonable multipliers; we enter with a revenue multiplier of less than 10. SPAC’s tool is a good financial tool, and we want to use it,” he concluded.

By Editor

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