425: Alchemy SPAC to Merge with Cartiga in $540M Deal

Alchemy Investments Acquisition Corp 1 (ALCY) has entered into a definitive business combination agreement to take litigation finance platform Cartiga, LLC public, valuing Cartiga at $540 million.

Summary

• Alchemy Investments Acquisition Corp 1 (ALCY), a SPAC, is combining with Cartiga, LLC, a data-driven asset management platform specializing in legal claims and law firms.
• The transaction values Cartiga's equity interests at $540,000,000.
• Upon closing, ALCY will re-domicile from the Cayman Islands to Delaware, merge into Alchemy Acquisition Holdings, Inc. (Pubco), which will then be renamed Cartiga Holdings, Inc.
• A wholly-owned subsidiary of Pubco will merge into Cartiga, LLC, with Cartiga surviving as OpCo and becoming a wholly-owned subsidiary of the newly named Cartiga Holdings, Inc. (New Cartiga).
• The combined company will operate under an Up-C structure, allowing existing Cartiga equity holders to retain partnership-classified ownership in OpCo, while former ALCY shareholders will hold stock in the publicly traded C-corporation, Pubco.
• The new board of directors for New Cartiga will consist of no more than seven directors, with Cartiga designating six and Alchemy DeepTech Capital, LLC designating one.
• Key executive appointments for New Cartiga include Samuel Wathen as President and CEO, Michael Bogansky as Executive Vice President and CFO, James Brady as Executive Vice President and Head of Commercial Funding, and Ryan Melcher as Executive Vice President, General Counsel & Corporate Secretary.
• The business combination is subject to customary closing conditions, including obtaining necessary shareholder and member approvals, regulatory clearances, and Nasdaq listing approval.
• A minimum of $40,000,000 in Available Closing Buyer Cash is required for closing. If this condition is waived by Cartiga and the cash is less than $40M, the Sponsor (Alchemy DeepTech Capital LLC) will forfeit a portion of its shares on a tiered schedule.
• A Tax Receivable Agreement (TRA) will be established, where Pubco will pay TRA Holders 85% of the cash tax benefits realized from tax basis adjustments and imputed interest resulting from future exchanges of OpCo Units.
• An Exchange Agreement will grant Cartiga Members the right to exchange their OpCo Units and Class B Shares for Pubco Class A Common Stock or cash, at Pubco's option.
• A Shareholders Agreement will define governance and consent rights for Melodeon LBS GP, LLC (Melodeon) and the Arizona State Retirement System (ASRS), including director nomination rights based on ownership thresholds.

Sentiment

Score: 8

Explanation: The filing announces a strategic business combination that is presented with a highly positive outlook, emphasizing growth opportunities, technological advantages, and strong management. The tone is optimistic about future prospects and market positioning.

Positives

• The transaction provides Cartiga with access to public markets, enabling it to leverage its data platform and market distribution to accelerate growth.
• The business combination is expected to bolster strategic acquisition opportunities for Cartiga, allowing it to expand its product suite and deepen partnerships with law firms.
• Cartiga boasts a 20+ year investment track record and a proprietary database of over 250,000 individual litigation-linked asset fundings across 8,000+ lawyers and law firms.
• Cartiga has invested over $20 million in IT and product development since 2020, positioning it as a tech-forward platform.
• The company has deployed more than $1.6 billion in legal sector investments, participating in matters generating over $20 billion in estimated settlement values.
• The Up-C structure allows existing Cartiga equity holders to maintain their tax-efficient partnership ownership in OpCo.

Negatives

• The filing does not explicitly state any negatives, but potential downsides could arise from the risks outlined, such as failure to meet minimum cash requirements or integration challenges.

Risks

• The occurrence of any event, change, or other circumstances that could give rise to the termination of the Business Combination Agreement.
• The outcome of any legal proceedings that may be instituted against Alchemy or Cartiga following the announcement of the Business Combination.
• The inability to complete the proposed Business Combination due to failure to obtain shareholder or member approvals, regulatory approvals, or satisfy other closing conditions.
• The failure to meet the minimum cash requirement of $40,000,000 due to Alchemy shareholder redemptions and the failure to obtain replacement financing.
• The inability to obtain or maintain the listing of securities on Nasdaq following the proposed Business Combination.
• The risk that the proposed Business Combination disrupts current plans and operations as a result of the announcement and consummation of the transaction.
• The ability to recognize the anticipated benefits of the proposed Business Combination, which may be affected by competition, Cartiga's ability to grow and manage growth profitably, and retain key employees.
• Costs related to the proposed Business Combination could be higher than anticipated.
• Changes in applicable laws or regulations could adversely affect the combined company.
• Alchemy or Cartiga may be adversely affected by other economic, business, and/or competitive factors.
• Risks relating to the uncertainty of the projected financial information with respect to Pubco.
• Risks related to the organic and inorganic growth of Cartiga's business and the timing of expected business milestones.
• The amount of redemption requests made by Alchemy's shareholders could impact available cash.
• Payments under the Tax Receivable Agreement could be substantial and may be accelerated upon certain events, potentially impacting liquidity.
• The change of control provisions in the Tax Receivable Agreement may result in interests of TRA Parties differing from those of other Pubco Class A Common Stock holders.

Future Outlook

The proposed business combination is expected to position Cartiga to leverage its data platform and market distribution to accelerate growth, expand its product suite, and deepen its capital and service-based partnerships with law firms. The combined company anticipates recognizing scale from prior technology investments and utilizing public currency to drive growth and acquire complementary businesses.

Management Comments

• Mr. Mattia Tomba, Co-CEO of Alchemy, stated that Alchemy specializes in unlocking under-explored private-credit opportunities and delivering capital solutions, and believes Cartiga is exceptionally well situated to capitalize on growing opportunities in the legal services sector.
• Mr. Sam Wathen, Cartiga's CEO, remarked that accessing the public markets in partnership with Alchemy will enable them to leverage their data platform and market distribution to accelerate growth, expand their product suite, and deepen capital and service-based partnerships with law firms.

Industry Context

The announcement highlights the growing opportunities within the legal services sector, a market exceeding $300 billion and representing approximately 1.4% of GDP, which has historically been underpenetrated by traditional sources of capital. Cartiga's focus on data-driven, tech-forward asset management in litigation finance positions it to capitalize on this trend by providing capital and services to law firms and their clients.

Comparison to Industry Standards

• The filing does not provide specific comparable companies, projects, or results to global benchmarks. It emphasizes Cartiga's 20+ years of investment experience and proprietary data as competitive advantages within the litigation finance sector.

Management Changes

Corporate Governance

Legal Proceedings

• The Company and its subsidiaries are not subject to any material Action pending or threatened, nor any continuing order, consent decree, settlement agreement, or investigation by any Governmental Authority, except as would not have a Company Material Adverse Effect.

Related Party Transactions

• A Tax Receivable Agreement (TRA) will be entered into between Pubco and certain Cartiga Members (TRA Holders), where Pubco will pay 85% of cash tax benefits realized from tax basis adjustments and imputed interest.
• A Shareholders Agreement will be entered into between Pubco, Cartiga, Melodeon LBS GP, LLC (Melodeon), and the Arizona State Retirement System (ASRS), outlining governance and consent rights based on their respective ownership levels.
• The Support and Non-Redemption Agreement involves Alchemy, Pubco, certain Alchemy shareholders (including the Sponsor), Cartiga, and Alchemy's directors and officers, committing them to vote in favor of the transaction and not redeem shares.
• The Support Agreement involves Alchemy, Pubco, Cartiga, and certain Cartiga equity holders, committing them to vote in favor of the transaction.

Stakeholder Impact

• Shareholders of Alchemy (ALCY) will become shareholders of the combined public entity, Cartiga Holdings, Inc., and will vote on the business combination and domestication.
• Existing Cartiga members will become equity holders in OpCo and Pubco, retaining partnership-classified ownership in OpCo for tax purposes and having exchange rights for Pubco Class A Common Stock.
• Employees and management of Cartiga will continue with the combined company, with key executives appointed to leadership roles in New Cartiga.
• The Sponsor (Alchemy DeepTech Capital LLC) has specific share forfeiture conditions tied to the Available Closing Buyer Cash, impacting its ownership stake.
• Melodeon LBS GP, LLC and the Arizona State Retirement System (ASRS) will have significant governance and consent rights, reflecting their substantial investment and influence.

Next Steps

• Alchemy will prepare and file a Registration Statement on Form S-4, including a preliminary proxy statement/prospectus, with the SEC.
• Alchemy will call an extraordinary general meeting of its shareholders to vote on the domestication, the business combination, and other related proposals.
• Cartiga will seek irrevocable written consent from its members for the approval and adoption of the Business Combination Agreement and the transactions.
• The parties will work to satisfy customary closing conditions, including regulatory approvals and Nasdaq listing approval for the combined entity.
• Upon closing, Pubco will change its name to Cartiga Holdings, Inc., and new officers will be appointed.
• The parties will enter into additional agreements at closing, including an Amended and Restated Registration Rights Agreement, a Second Amended and Restated Limited Liability Company Agreement for OpCo, a Tax Receivable Agreement, an Exchange Agreement, and a Shareholders Agreement.
• Cartiga will deliver PCAOB Audited Financials no later than the filing date of the Registration Statement.

Key Dates

Keywords

Litigation Finance, SPAC Merger, Cartiga, Alchemy Investments Acquisition Corp 1, Legal Claims Investment, Asset Management Platform, Up-C Structure, SEC Filing, Corporate Governance, Tax Receivable Agreement, Nasdaq Listing