425: Strive & Semler Merge to Form Bitcoin Treasury Giant

Strive, Inc. and Semler Scientific, Inc. announce an all-stock merger to create the first combined Bitcoin Treasury company with over 10,000 Bitcoin.

Summary

• Strive, Inc. and Semler Scientific, Inc. are merging in an all-stock transaction, forming the first merger of two publicly listed Bitcoin Treasury companies.
• The combined entity will operate as a major Treasury company, holding more than 10,000 Bitcoin on its balance sheet.
• The strategic rationale includes driving down the cost of running a Bitcoin Treasury company through combined scale.
• The merger aims to reimagine Semler Scientific's operating business, giving it a broader mandate in preventative healthcare, leveraging expertise from Strive's co-founder Vivek Ramaswamy and other board members.
• Bitcoin Treasury companies utilize strategies like digital credit and carry trades, accessing leverage (perpetual preferred equity) unavailable to individual investors, to potentially outperform Bitcoin over the long run, albeit with increased volatility.

Sentiment

Score: 7

Explanation: The filing presents a strategically positive outlook on the merger and the long-term potential of Bitcoin Treasury companies, emphasizing growth and cost reduction. However, it acknowledges significant inherent market volatility and integration risks, tempering the overall sentiment.

Positives

• The merger creates the first combined Bitcoin Treasury company, establishing a significant player in the digital asset space.
• Combining scale is expected to drive down the operational costs of running a Bitcoin Treasury company.
• The new entity will hold over 10,000 Bitcoin, positioning it as a major holder of the digital asset.
• The merger provides access to unique financial instruments like perpetual preferred equity, which can enable strategies to potentially outperform Bitcoin itself over the long term.
• Semler Scientific's operating business will gain a broader mandate in preventative healthcare, potentially unlocking new growth avenues and leveraging expertise from Strive's leadership.
• Historical examples like Microstrategy and Metaplanet demonstrate that Bitcoin Treasury strategies can lead to long-term outperformance over Bitcoin.

Negatives

• Bitcoin Treasury companies inherently involve 'volatility on volatility,' meaning their performance can be more extreme than Bitcoin alone.
• The crypto market is subject to significant short-term volatility, as evidenced by a recent $20 billion crypto liquidation event due to a Binance hack, impacting liquidity and causing downward momentum.
• Broader macro weakness in equity markets is currently filtering through to the crypto space, adding to market pressures.
• Critics, such as Jim Chanos, have expressed skepticism about the financial strategies employed by Bitcoin Treasury companies, labeling them as 'financial gibberish' at times.

Risks

• The merger agreement between Strive and Semler Scientific could be terminated due to various events, changes, or circumstances.
• The proposed transaction may not close as expected or at all if conditions to closing are not met or satisfied in a timely manner.
• The combined company, Strive, or Semler Scientific may face legal proceedings, the outcome of which could be adverse.
• Anticipated benefits of the proposed transaction, including cost savings and strategic gains, may not be realized as expected or at all.
• Risks are associated with the implementation of Bitcoin treasury strategies and the inherent volatility and regulatory landscape of Bitcoin and other digital assets.
• General economic and market conditions, interest and exchange rates, monetary policy, and changes in laws and regulations could negatively impact the combined company.
• The integration of the two companies may prove more difficult, time-consuming, or costly than anticipated.
• The proposed transaction may be more expensive or take longer to complete than expected due to unforeseen factors or events.
• Management's attention may be diverted from ongoing business operations and opportunities during the merger process.
• Strive's issuance of additional shares of its Class A common stock in connection with the proposed transaction will cause dilution for existing shareholders.
• There is a potential for adverse reactions from Strive's or Semler Scientific's customers, or changes to business or employee relationships, resulting from the announcement or completion of the merger.
• Changes in Strive's or Semler Scientific's share price before closing could impact the transaction's value.
• Unknown or unpredictable factors could harm the results of Strive, Semler Scientific, or the combined company.

Future Outlook

The combined company anticipates that its Bitcoin Treasury strategy, leveraging access to perpetual preferred equity and carry trades, can outperform Bitcoin itself over the long run. Management emphasizes a 'zoom out' mentality, noting that Bitcoin has not had a single negative four-year return period in its entire history, suggesting long-term viability for both Bitcoin and Bitcoin Treasury companies despite short-term volatility.

Management Comments

• "It's actually the first merger of two Bitcoin Treasury companies."
• "When you actually combine the scale, it actually drives down the cost of running a Bitcoin Treasury company."
• "A Bitcoin Treasury company has access to leverage, perpetual preferred equity that has no margins, not callable, that is not accessible to you as an individual, to a fund, and so that carry trade can outperform Bitcoin itself over the long run."
• "Over the long run, these strategies can work, but their volatility on volatility."
• "If Strategy was gibberish, then even if Strategy's valuation collapsed to the value of their Bitcoin, or even 20% under their Bitcoin, since they've implemented the strategy, they would have still outperformed Bitcoin itself by multiple x's."
• "Over the last week, there was a large, massive crypto liquidation. That was a $20 billion dollar liquidation. It was multiple times larger than the FTX liquidation, and that was around a hack in Binance, around a stable coin that had cascading liquidations."
• "There is not a single four year period in bitcoins entire history... where there's been a single negative period of return over that time."
• "In the short term, it's obviously a volatile market, and that's a market where you need conviction and education."

Industry Context

This merger signifies a growing trend of publicly traded companies adopting Bitcoin Treasury strategies, aiming to leverage Bitcoin's long-term appreciation potential while seeking to outperform direct Bitcoin holdings through financial engineering. The discussion highlights the inherent volatility of the crypto market, referencing a recent significant liquidation event, but also underscores the long-term bullish sentiment among proponents of Bitcoin and Bitcoin Treasury companies, positioning them as a distinct investment vehicle compared to direct Bitcoin ownership.

Comparison to Industry Standards

• The strategy of Bitcoin Treasury companies is compared to Microstrategy, which has demonstrated periods of drastic outperformance over Bitcoin, particularly since 2020, despite periods of underperformance in 2022 and 2023.
• Metaplanet is also cited as another company that has successfully implemented an 'all in' Bitcoin Treasury strategy, showing long-term outperformance over Bitcoin.
• The filing suggests that these companies, through their strategies, have achieved 'pretty unreversible' long-term outperformance compared to simply holding Bitcoin.

Stakeholder Impact

• Shareholders of Strive will experience dilution due to the issuance of additional Class A common stock for the all-stock merger.
• Shareholders of both companies are expected to benefit from the potential for reduced operational costs and strategic growth in the combined entity.
• Employees of both companies may be impacted by the integration process, which could be difficult, time-consuming, or costly.
• Customers of Semler Scientific's operating business may see changes as the business adopts a broader mandate in preventative healthcare.

Next Steps

• Strive intends to file a Registration Statement on Form S-4 with the SEC to register the Class A common stock to be issued in connection with the proposed transaction.
• The Registration Statement will include an Information Statement/Proxy Statement/Prospectus, which will be sent to Semler Scientific stockholders.
• Semler Scientific stockholders will be asked to approve the proposed transaction.

Key Dates

Recommendation

The proposed all-stock merger creates a significant Bitcoin Treasury entity with potential for scale and strategic growth in preventative healthcare. However, the strategy involves 'volatility on volatility' in a highly speculative asset class, and significant integration risks are present. A 'hold' recommendation allows investors to observe the execution of the merger and the performance of the combined entity in a volatile market, while acknowledging the long-term strategic vision.

Keywords

Bitcoin, Merger, Treasury Company, Crypto, Digital Assets, Strive, Semler Scientific, Preventative Healthcare, SEC Filing