Overview
Invest in shares of a non-U.S. professional and human resource-related company that is publicly-traded on a major U.S. exchange, and has agreed to be acquired by an investor group. The acquisition is expected to close in 2021 and at a price significantly below what a coalition of minority shareholders believes to be its fair value. A position in the acquiree will be established and a formal litigation seeking recourse for what is believed to be an underpriced acquisition is expected to be filed in the company’s jurisdiction once the merger is final.
The acquiring investor group is comprised of several parties, including a group of investors who own the majority of the acquiree’s shares. This dynamic has the potential to create a conflict of interest and the originator believes the minority shareholders are being forced to sell their shares at an unfair price. In addition, the acquisition was first announced and agreed upon during the depths of the COVID-19 pandemic, which may have caused a temporary decrease in the acquiree’s market value. Since then, the global economy has rebounded, demand for the services that company provides has increased and share prices of the company’s primary competitors have increased, factors that are arguably not accounted for in the company’s share price (which the originator believes is inherently bound by the announced acquisition price).
The offering has an initial term of up to 36 months. Investors are expected to receive a target net annualized return of 16-18%. Due to the nature of the appraisal litigation process, approximately 90% of investor principal may be returned within six months of the acquisition closing. Remaining principal and returns are expected to be repaid at the completion of the litigation process.
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Important notes
• Eligible investors must verify that they are Qualified Purchasers. This offering is not available to pension plans, defined benefit plans, defined contribution plans, retirement plans, IRAs, 401(k) and 403(b) funds, and funds comprised of these plans and funds.
Highlights
Acquisition dynamics
Cashed-up acquirer
Liability fact pattern
First payment
Limited downside
Originator experience
Essentials
Please refer the Private Placement Memorandum in the Resources section for more details about this offering.
Please refer the Private Placement Memorandum in the Resources section for more details about this offering.
Capital structure
Capital structure
Where may some of the Fund’s investments lie in terms of priority?
Yieldstreet will own publicly-traded shares of the target company, along with other common shareholders.
Cash flow
Cash flow
How do I get paid?
The lawsuit is not tied to a formal payment schedule, therefore, investors can expect to receive distributions as certain events occur. Due to the nature of the appraisal rights litigation process, approximately 90% of investor principal may be returned within six months of the acquisition closing, which is scheduled for late fall 2021. Remaining principal and anticipated returns are expected to be paid at the completion of the litigation process, which is projected to take up to 3 years. The final amount that is awarded to investors will either be determined via a settlement with the acquirer prior to trial or at trial by the judge and will be net of all fees, including a $40,000 technology fee paid to Yieldstreet.
As proceeds are received by the Fund, management fees are first deducted and then capital contributions are returned to investors. Next, the remaining proceeds are paid to investors up to an 8% return (Investor Preferred Return) on invested capital (which accrues on an annualized basis). Additional remaining proceeds are paid to the Fund Manager (YS Catch Up) until it has received an amount equal to 20% of all returns (which is calculated net of invested capital and paid management fees), and then all remaining proceeds (Profit Sharing) are split between investors and the Fund Manager on an 80%/20% basis. Please also refer to the accompanying chart and the Private Placement Memorandum.
Assets
Assets
What is the asset underlying the transaction?
Yieldstreet will purchase shares in the acquiree and there is currently a binding agreement from the acquirer to acquire all shares at an agreed-upon price, expected by the end of 2021. The originator and Yieldstreet intend to commence litigation following the close of the acquisition in order to achieve the fair value for its shares, believed to be a 24% premium to the acquisition price. The acquirer may settle with the originator at a mutually agreed-upon share price prior to or during trial, and if not, a judge will determine a fair value share price in court. While it is unlikely, it is possible that the judge may determine the fair value share price to be below the acquisition price, which could result in a loss to investors. Yieldstreet also retains the option to cancel its litigation and accept the deal price within 20 days of acquisition closing should this be in the best interest of Yieldstreet investors.
Returns & management fees
Ann'l management fee
2%
Target net ann'l return
16-18%
Share of excess profits
80%
Schedule
Payment schedule
Event based
Term
Date
Term
36 months
Structure
Tax document
K-1
Offering structure
SPV
Expenses
First year expense
$300
Annual flat expense
$200
Docs
Content
Investing in private markets and alternatives, such as this offering, is speculative and involves a risk of loss, and those investors who cannot afford to lose their entire investment should not invest. Returns are not guaranteed.
2 Represents an average net realized internal rate of return (IRR) with respect to all matured investments in your portfolio, utilizing the effective dates and amounts to and from the investments and net of management fees and all other expenses charged to the investments. Past performance is not a reliable indicator of future results and should not be relied upon as the basis for making an investment decision. All securities involve risk and may result in significant losses, including the loss of principal invested.[read more]