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Bullish on SPACs?
Or, how to sell 164,000 bitcoins
Bullish had announced its intention to go public in May. At the time, I noted that the company's capitalization, coming largely in the form of a big bitcoin position, was ill-suited to its stated aim of establishing a market-making business: it requires selling a lot of BTC first.
Bullish's investors are using a SPAC structure to cash out of their BTC position. With this new announcement we can see how that works.
Bullish's investor materials show that of the 164k BTC that was initially put into the company, it still holds 142k. That position would have fetched $10 billion if it could have been liquidated when it was announced a few weeks ago, but is worth closer to $5 billion now:
The pro forma financial statements show the SPAC transaction closing with a $1.6 billion cash position on Bullish's books. That's $600 million in cash from SPAC investors, $300 million from PIPE (private investment in public equity) financing. The other $700 million in cash must be on Bullish's books already. Perhaps it comes from selling 22k in BTC. That would imply an average price of about $32k per BTC, not unreasonable over the last few weeks. If that's correct, then these T accounts summarize Bullish's deal so far:
The next step is for Bullish to merge with the SPAC, Far Peak. The merged company brings in the $900 million in cash from SPAC and PIPE investors, as well as all of Bullish's assets. Those investors, as well as Bullish's existing equity holders, get shares in the new listed company:
Bullish equity holders will exit the transaction with an allocation of shares priced at $10. The number of those shares will depend on the valuations that are applied when the transaction closes. The two key variables are the price of bitcoins and the enterprise value. The investor materials suppose an enterprise value of $2.5 billion and BTC at $34k. That works out to about $8 billion, or 800 million shares, to the equity holders at the time of listing, or about 5,000 shares per bitcoin of their initial investment (i.e. 800M/164k ≈ 5k).
If the deal then generates enough interest to push the price of the newly listed shares up, investors can sell those shares for cash. A share price of $7 would amount to $35k per BTC, equal to today's BTC price. A share price of $12 would amount to $60k per BTC, equal to the top of the market.
Bullish will then be left with the job of building a business around automated-market making. It will have to start by selling more of its inventory of bitcoins to build up the Bullish Treasury, which the company plans to invest in its own automated market-making instruments. I'll get into that in a future post.