Security Matters snapped up at 15x premium: Merger and NASDAQ listing in sight

Blockchain and anti-counterfeit technology company Security Matters (ASX: SMX) more than doubled its valuation on Tuesday after plans to merge with a Nasdaq listed SPAC (special purpose acquisition company).

The deal with Nasdaq-listed Lionheart III values the combined entity at US$360, which reflects a pre-money valuation of Security Matters of US$200m.

The merger is poised to increase the company’s value by more than 15 times based on Monday’s close. Even after a 170% rally on Tuesday, there’s still more than 5 times the upside. 

Security Matters CEO Haggai Alon told The Australian Financial Review that the business has been undervalued by local investors and a Nasdaq listing would attract a more favourable valuation and better liquidity.

"We are on the precipice of commercialising our technology across a number of large global markets – from gold to food and wine, to fashion, rubber and plastics – and the valuation reflects that,” said Alon.

To Alon’s point, Security Matters shares spent almost 4 years trading sideways around the 30 cent levels, occasionally rallying to highs of 50 cents and dips below 20 cents.

The stock struggled for liquidity and investor interest, with the last 20 days volume (excluding today) averaging approximately 56,500 shares or $5,600. 

Security Matters share price chart (Source: TradingView)

Redemptions highly likely

There will be a merger, within the merger, as Security Matter's and its publicly listed Irish company, Empatan PLC, will come together as SMX Public Company Limited.

Local shareholders will be entitled to one share in the new company for every 10.2 shares they own.

If investors don't like the deal, they can pull out, redeeming their shares for cash.

Assuming there are no redemptions, SMX shareholders will own approximately 55.5% of the combined company.

SPACs were an immensely popular way to list, often providing companies with higher valuations, less dilution, greater speed to capital and lower fees.

Though, volatile market conditions and higher interest rates have seen just US$12bn new US SPAC issuances so far this year, compared to US$163 in 2021.

If a large percentage of shareholders choose to exercise their redemption rights, then this could drastically reduce the cash proceeds of the combined company.

For now, Security Matters expects the combined Group to have a post-transaction cash balance of US$116m.