TL;DR: I was hoping someone could look at my math to confirm if I have valued this GWAC merger correctly. As I see it, the trading price of $12.35 is 5x 2024 Revenues and 7x 2024 EBITDA for the new company. That seems real compelling, but I want to be sure I am doing this right.
For those who do not know, Good Works Acquisition Corp announced today that it would be merging with Cipher Bitcoin Mining in order to bring the company public. If you go to the link below, you can read the SEC filing, and at the bottom is the presentation that I am pulling a lot of this data from.
Anyways, trying to understand what you are buying here is like trying to get a straight talk of costs from a used car sales person. So I decided I would try to break it down, so that we can have a conversation about it. Here are the details as I see them:
Trust Size: $170MM
Market Cap: $265MM
Today’s Close: $12.35
So here is the first interesting thing. You are paying $1.56 for each dollar in the fund. If it were liquidated, you’d get around $.64 for every dollar. You are paying that premium because you think the CEO of the fund will get you into the ground floor of a great company at a great price. Well, let’s see what they say:
Formed Company Valuation: $2B + $500MM cash = $2,500MM market cap
SPAC Equity: 7.5%
Valuation of GWAC Stake: $188MM
Cap/Valuation Stake: 1.41x
So that looks pretty good, the CEO gets you a bit more than a dollar of equity in the new company. But we are still paying $1.41 for $1 of company. That could make sense if the company has extreme growth. And as we all know Bitcoin is the craze these days, so maybe it is worth it. When that company goes public in 2Q-21, will it be valued at $2.5B? Or will it skyrocket? This requires us to look at the company’s financial projections which are, I’m sure, COMPLETELY TRUSTWORTHY. Nevertheless, the company’s revenue of course depends on the value of Bitcoin at any given year. The company gave multiple scenarios, and I am going with their medium conservative one which assumes an average of $20k/BTC in 2021 ramping up to $50k/BTC in 2025. It is noteworthy that we have already hit $50k this year, but the volatility of bitcoin makes this scenario plausible.
Estimated 2024 Rev: $714MM
Estimated 2024 EBITDA: $502MM
P/S @2.5BB: 4 ————- w/ 1.4x premium for SPAC: 5
P/EBITDA @ 2.5BB: 7 —— w/ 1.4x Premium for SPAC: 7
So by my read, even paying that premium for the SPAC shares, we are getting a pretty decent valuation- again assuming you believe the revenue estimates of the new company. Any thoughts?
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