425: Strive Acquires Semler Scientific in Bitcoin-Backed Deal

Strive, Inc. announced the acquisition of Semler Scientific, leveraging Bitcoin on the balance sheet and planning a potential spin-off of Semler's healthcare business.

Summary

• Strive, Inc. is acquiring Semler Scientific, Inc. in a transaction where each share of Semler Scientific (SMLR) will receive 21.05 shares of Strive (ASST).
• The transaction is described as "institutionally complex" and mathematically "accretive" to Strive in terms of Bitcoin per share.
• Eric Semler, from Semler Scientific, will join Strive's board of directors as a result of the transaction.
• Strive intends to explore opportunities to potentially spin off Semler's healthcare business, leveraging the expertise of Vivek, a large Strive shareholder active in biotech and healthcare.
• Strive plans to issue perpetual preferred equity in 2025, which is expected to improve its credit quality and the overall profile of the entity.
• The cost to borrow Strive's stock (ASST) is 600% annually, which significantly impacts potential arbitrage strategies related to the merger.
• The deal highlights Bitcoin's role in enabling new financial structures and providing "significant optionality" for navigating the future, with management viewing the current period as "phase one" of Bitcoin adoption.
• Discussions also touched on concerns regarding the segregation of Bitcoin holdings at custodians and the growing, complex Bitcoin derivatives markets, with an anticipation of significant market volatility.

Sentiment

Score: 8

Explanation: The filing conveys a highly optimistic and bullish sentiment regarding the strategic acquisition, the role of Bitcoin in corporate finance, and future growth opportunities. Management expresses excitement about new financial structures and the 'phase one' of Bitcoin adoption, despite acknowledging market complexities and volatility.

Positives

• The acquisition is mathematically accretive to Strive in terms of Bitcoin per share, indicating a positive financial impact.
• Semler Scientific's strategic decision to put Bitcoin on its balance sheet enabled its strong position for this acquisition, serving as a case study for other companies.
• Strive plans to issue perpetual preferred equity in 2025, which is expected to improve its credit quality and the overall entity's profile.
• The transaction is viewed as a "proof concept" for new financial structures backed by Bitcoin, suggesting innovative approaches to corporate finance.
• The potential spin-off of Semler's healthcare business could unlock value, leveraging a large Strive shareholder's expertise in the sector.
• Bitcoin is seen as providing "significant optionality" for navigating future business challenges and opportunities.

Negatives

• The transaction is described as "institutionally complex," requiring extensive due diligence and mathematical analysis.
• The cost to borrow Strive's stock (ASST) is exceptionally high at 600% annually, complicating arbitrage and indicating high short interest or limited supply.
• Concerns were raised about the segregation of Bitcoin holdings at custodians, with a speaker suggesting potential large losses in case of custodian bankruptcy if Bitcoin is not segregated (though this was disputed by Jeff Walton for Strive's holdings).
• The growing Bitcoin derivatives market raises questions about the sufficiency of the underlying spot market, with suggestions of potential "fraudulent market" dynamics or "weird things going on."
• Anticipated significant market volatility in the coming years is expected.

Risks

• The proposed transaction may not close as expected or at all if closing conditions are not met on a timely basis.
• Legal proceedings could be instituted against Strive, Semler Scientific, or the combined company, potentially impacting results.
• The anticipated benefits of the proposed transaction, including cost savings and strategic gains, may not be realized as expected, particularly due to risks associated with Bitcoin treasury strategies and digital assets.
• General economic and market conditions, interest and exchange rates, monetary policy, and regulatory changes could cause actual results to differ materially.
• The integration of the two companies may prove more difficult, time-consuming, or costly than anticipated.
• The transaction itself may be more expensive or take longer to complete than expected due to unforeseen factors.
• Management's attention may be diverted from ongoing business operations and other opportunities during the merger process.
• Dilution could occur from Strive's issuance of additional shares of its Class A common stock in connection with the transaction.
• Potential adverse reactions from customers or changes to business or employee relationships could arise from the announcement or completion of the proposed transaction.
• Changes in Strive's or Semler Scientific's share price before closing could impact the transaction's value.
• Risks associated with holding Bitcoin in institutional products include social engineering attacks and the human element of controlling coins at an exchange.
• The possibility of a "fraudulent market" in Bitcoin derivatives if the underlying spot market is insufficient to support it.

Future Outlook

Strive intends to issue perpetual preferred equity in 2025 to enhance its credit quality and overall entity profile. The company also plans to explore spinning off Semler's healthcare business. Management believes the market is in "phase one" of Bitcoin adoption, anticipating significant volatility but also new financial structures and opportunities enabled by Bitcoin.

Management Comments

• "This is a like a proof concept, right? We've now got the first one done, and we've got some ideas of what that could look like in the future." Jeff Walton on the acquisition.
• "Mathematically, this is an accretive transaction to Strive, and there are several dynamics at play." Jeff Walton on the acquisition.
• "We really view Bitcoin as a hurdle rate, and that's kind of our that is our North Star." Jeff Walton on Strive's strategy.
• "We're so early in the adoption curve, it's hard not to be bullish on this stuff." Jeff Walton on Bitcoin.
• "There are 498 slots open in the S&P 500 to hold Bitcoin on your balance sheet. And we're, we're gunning for one of those." Jeff Walton on Strive's ambition.
• "This is just the beginning, and a lot of excitement about the future. So we're getting creative, we're using a lot of math, and we're really putting our banker colleagues and our lawyer colleagues to the test." Jeff Walton on future plans.

Industry Context

The filing discusses the evolving landscape of finance with Bitcoin integration, highlighting how companies like Semler are leveraging Bitcoin on their balance sheets to gain strategic advantages. It touches upon the complexities of Bitcoin derivatives markets and the challenges of institutional adoption, contrasting traditional finance (TradFi) with the emerging Bitcoin-backed economy. The conversation also implies a shift towards new, complex financial products and M&A cycles driven by Bitcoin.

Comparison to Industry Standards

• The discussion references MicroStrategy (MSTR) as a comparable company known for its Bitcoin treasury strategy, noting that shorting MSTR is a natural hedge against Bitcoin exposure.
• The deal structure, involving warrants and a premium, is compared to Warren Buffett's investment in Goldman Sachs in 2008/2009, suggesting a unique and potentially advantageous financial engineering.
• The high cost to borrow ASST (600% annually) is an extreme outlier compared to typical equity borrowing costs, indicating high demand for shorting or limited supply.
• The concept of "498 slots open in the S&P 500 to hold Bitcoin on your balance sheet" positions Strive as an early mover aiming for a similar strategic position as other Bitcoin-holding public companies.

Management Changes

Corporate Governance

Legal Proceedings

• The cautionary statement mentions the possibility that "any legal proceedings that may be instituted against Strive or Semler Scientific or the combined company" could cause actual results to differ materially from anticipated results.

Stakeholder Impact

• Shareholders (Strive): Potential for dilution from new share issuance, but also expected accretion from the acquisition and improved credit quality from preferred equity.
• Shareholders (Semler Scientific): Will receive 21.05 shares of Strive for each of their shares, subject to market dynamics and arbitrage spreads.
• Employees (Semler Scientific): Potential changes to business or employee relationships due to the acquisition and possible spin-off of the healthcare business.
• Customers (Strive & Semler Scientific): Potential adverse reactions or changes to business relationships.
• Creditors (Strive): Improved credit quality expected from the issuance of perpetual preferred equity.

Next Steps

• Strive intends to issue perpetual preferred equity in 2025.
• Strive will look at opportunities to potentially spin off Semler Scientific's healthcare business.
• Strive intends to file a Registration Statement on Form S-4 with the SEC, which will include an Information Statement/Proxy Statement/Prospectus.
• A definitive Information Statement/Proxy Statement/Prospectus will be sent to Semler Scientific stockholders to seek approval of the proposed transaction.

Key Dates

Recommendation

The acquisition of Semler Scientific by Strive, leveraging Bitcoin on the balance sheet, presents an interesting strategic move with potential long-term benefits, including the planned spin-off of the healthcare business and future preferred equity issuance. However, the transaction is described as "institutionally complex," and the extremely high cost to borrow Strive's stock (600% annually) indicates significant market uncertainty and potential volatility. While the long-term vision for Bitcoin integration is bullish, the immediate arbitrage opportunities are complicated by these factors. A "hold" recommendation is appropriate for existing investors to observe the integration process and the execution of Strive's future plans, while new investors should exercise caution due to the complexity and high short interest.

Keywords

Strive, Semler Scientific, Bitcoin, Acquisition, Merger, M&A, Digital Assets, Corporate Governance, Financial Reporting, Perpetual Preferred Equity, Healthcare Spin-off, Treasury Strategy, SEC Filing, Form 425, ASST, SMLR