Appraisal Litigation I

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Closed

Recently funded

Accepting $50,000 - $250,000 investments

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Accepting $50,000 - $250,000 investments

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.

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
  • It is believed that the acquirer took advantage of market conditions and economic uncertainty during the COVID-19 pandemic to submit a bid to acquire the company at a significantly depressed price that is not reflective of its fair value now that the economy has begun to recover. The assumptions underlying the projections used by the acquirer to justify the acquisition price back in 2020 are considered to be unrealistic and detrimental to the minority shareholders being “bought out.”

  • The acquirer consists of several large investment funds and other publicly-traded companies with billions of dollars in cash available to close the transaction. Coupled with the company’s strategic fit within the acquirer's existing operations, it is expected that the acquisition will close and that the acquirer will be able to pay the minority shareholders at an increased share price that is expected to be determined by the upcoming lawsuit.

  • Given the conflicted nature of the acquisition, it is expected that the courts will rule in the minority share group’s favor and determine that the acquisition price is below fair value to the detriment of this group.

  • In typical appraisal rights litigations, the courts have determined that acquirers who have been accused of acquiring a company for less than fair value must pay interest on the value of the plaintiffs’ shares during the course of the litigation. To minimize interest costs, acquirers typically make a large payment to plaintiffs early on in the process. As such, it is expected that 90% of an investor's investment will be repaid within six months of the acquisition closing. Remaining principal and returns, which could be achieved by a settlement or favorable court ruling, are expected to be repaid at the completion of the litigation process.

  • In order to participate in the appraisal rights litigation, Yieldstreet expects to purchase shares in the acquiree at prices below the slated acquisition price. Even if the courts reject the originator’s challenge and determine the previously agreed upon deal price was fair, Yieldstreet stands to earn the difference between purchase price and the acquisition price, which will be applied to help cover a portion, if not all, of the cost of litigation.

  • The originator currently has over $650M in AUM and has invested in over two dozen appraisal litigations across eight countries since 2015. The average realized return on these investments in the subject jurisdiction has been over 20%.

Essentials

Please refer the Private Placement Memorandum in the Resources section for more details about this offering.

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

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

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

Slide 1 of 3
  • 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.