On the 23andMe and VGAC Merger

On the 4th February 2021 23andMe and VG Acquisition Corp announced that they will merge, bringing 23andMe into the public.

As VGAC is already tradable in the public market, the shares have skyrocketed to 19 USD. But this is crazy…

Why this is crazy?

First you should know that the initiators of a SPAC commonly have additional rights to e.g. buy additional shares. They also mostly pay 10 USD per share. I don’t go more into detail here, but I want to talk about the shareholders which buy VGAC at the current 19 USD price WITHOUT additional rights like the initiators.

If you look at the Investor Presentation these VGAC shareholders will only get 11 % of the combined company! BUT the market cap of VGAC at 19.05 USD is 876.30 Mn!

So if you buy VGAC at 19 USD you don’t get 23andMe at a $3.5 billion valuation like Vigrin and the other investors — Nooo, you buy at a way higher price. 19 USD per VGAC share, 11 % of VGAC go into 23andMe would result into a nearly 8 billion valuation.

To put it into comparison: At 19 USD per share you nearly buy at a valuation (8 billion) at which the institutional investors bought Ancestry ($4.7 billion) and 23andMe ($3.5 billion) combined.

Also: 23andMe had declining revenue in the past years and does only make around 200 million revenue.

You buy a business at a valuation at 8 billion which makes only around 200 million revenue.

Summary

If you want to buy 23andMe you should wait till the merger is done because the current VGAC market cap is way too high considering existing VGAC shareholders will only get a little part of the combined company.

A alternative investment Idea could be OraSure Technologies Inc — these are the producers of the diagnostic testing kits which are used by 23andMe and Ancestry. Current market cap only 989,83 Mio USD, the sales have declined from 181,74 Mio in 2018 to 154,60 Mio in 2019 but looks like a fair or even cheap valuation to me.

Originally published at https://blog.m5e.de.

Software Developer and Investor from Germany. Writing about Software, Tech and Investments.

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