$200m SPAC, The Music Acquisition Corp, files to liquidate early and delist shares from NYSE

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Over the past couple of years, we’ve seen a number of big-money SPACs launch and merge with music companies to take their chosen targets public.

One such SPAC emerged back in January 2021, when Music Business Worldwide revealed that long-time Geffen Records President Neil Jacobson was plotting a flotation of a new music company in the US.

Jacobson’s blank-check company, The Music Acquisition Corporation (TMAC), floated on the New York Stock Exchange in February last year under the ticker symbol TMAC.U, raising $230 million in the process.

TMAC.U, formed specifically to effect a merger/acquisition in the worlds of both music rights and music tech has been largely quiet since then – something that now doesn’t look likely to change in the near future.

According to a new filing with the Securities Exchange Commission (SEC) in the US, Jacobson’s SPAC has written to its stockholders to seek approval, via a vote, to liquidate early.

Amongst the reasons for early liquidation, according to the filing, are that TMAC’s board believes it “very unlikely” that the firm would complete a business combination by the completion date of February 5, 2023.

The filing issued this week notes that TMAC’s management has reviewed potential targets, although the exact number of targets isn’t specified.

The document adds, however, that TMAC has “not entered into an agreement to effect a business combination with any of these potential targets for a variety of reasons”

Some of those reasons, in TMAC’s words, include:

  1.  The parties’ inability to reach an agreement on valuation;
  2. Pur preliminary assessment of the relevant target company’s business model, customer concentration, competitive landscape and corresponding risks to future financial performance;
  3. Our preliminary assessment of the relevant target company’s ability to execute its business and financial plans and scale its business; and
  4. Alternative options available to potential targets, such as pursuing a traditional initial public offering or waiting for the capital markets to improve before pursuing a listing.

TMAC adds that “in particular, through our efforts to find a suitable target for a business combination,” its management team has encountered what it calls “material changes in the market valuations of public company transactions” since TMAC’s public listing in February 2021.

These changes, according to TMAC have created “divergent expectations of valuation” between blank check companies and the stockholders of the private businesses potentially interested in a merger deal to go public.

“Our board of directors believes such a divergence in expectations will continue to persist until the Original Termination Date and, as a result, that we will not be able to identify, agree upon and consummate a business combination with a suitable target that meets our criteria for a business combination at an acceptable valuation by or before the Original Termination Date,” added TMAC.

The news comes as a report from CNBC, citing new data from SPAC Research, notes that 27 SPAC deals, worth $12.8 billion, have been liquidated in 2022 so far.

CNBC notes that SPACs have been prompted to ‘close up shop’ due to President Biden’s Inflation Reduction Act, which imposes a 1% excise tax on stock ‘buybacks’ after December 31, 2022.

Unsurprisingly, Jacobson’s SPAC also cites President Jo Biden’s Inflation Reduction Act, and the incoming 1% excise tax on repurchasing stock, in its filing.

Reads the SEC filing: “Moreover, recent legislative developments may negatively impact our public stockholders if we are unable to consummate a business combination by or before the Original Termination Date.

“On August 16, 2022, President Biden signed into law the IRA, which, among other things, imposes a 1% excise tax on any domestic corporation that repurchases its stock after December 31, 2022. The Excise Tax is imposed on the fair market value of the repurchased stock, with certain exceptions.

It adds: “Because we are a Delaware corporation and our securities trade on the NYSE, we are a “covered corporation” within the meaning of the IRA. While not free from doubt, absent any further guidance, there is significant risk that the Excise Tax will apply to any redemptions of our public shares after December 31, 2022, including redemptions made if we are unable to consummate a business combination by or before the Original Termination Date.

“The application of the Excise Tax to any redemptions we make after December 31, 2022 could potentially reduce the per-share amount that our public stockholders would otherwise be entitled to receive.”

The filing continues: “After careful consideration of all relevant factors, including, but not limited to, the IRA and the Excise Tax, the time value of money and the conclusion that it is very unlikely that we would be able to complete a business combination before the Original Termination Date, our board of directors has determined that the Charter Amendment Proposal, the Trust Amendment Proposal and the Adjournment Proposal are in the best interests of our Company and our stockholders and recommends that you vote or give instruction to vote for each of the [liquidation/delisting] proposals.”

The SPAC says that, if its proposed amendment to bring forward its termination date is approved, it plans “to voluntarily delist” its shares of Class A common stock from the New York Stock Exchange “as soon as practicable after completion of the mandatory redemption, subject to the rules of the NYSE and our certificate of incorporation, as amended”.

TMAC is very much not the only SPAC listing that the music industry has seen in recent times.

In July last year, Reservoir Media became a public company, listing on the Nasdaq in the US under the ticker RSVR after closing its business combination with Roth CH Acquisition II Co. (ROCC), a publicly traded special purpose acquisition company (SPAC) formed by Roth Capital Partners and Craig-Hallum Capital Group.

In February, Anghami listed on the New York Stock Exchange via a merger with Vistas Media Acquisition Company, a publicly-traded special purpose acquisition company (SPAC).

In June, we reported that US-based physical goods distributor and wholesaler Alliance Entertainment was going to list on the New York Stock Exchange – via a merger with a SPAC called Adara Acquisition Corp.

In July, Spotify rival Deezer made its official stock market debut on the Euronext Paris after combining its business with a Special Purpose Acquisition Company called I2PO.Music Business Worldwide