February 04, 2015 - 12:38pm EST by
2015 2016
Price: 9.52 EPS 0 0
Shares Out. (in M): 19 P/E 0 0
Market Cap (in $M): 177 P/FCF 0 0
Net Debt (in $M): -145 EBIT 0 0
TEV (in $M): 22 TEV/EBIT 0 0
Borrow Cost: General Collateral

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  • Special Purpose Acquisition Company (SPAC)
  • Small Float
  • Illiquid
  • Management Change


Wisekey is the best investment opportunity of my lifetime. Just kidding, it’s a raging short. But you might conclude it truly is the best investment you’ve ever seen after flipping through their most recent investor presentation.


This is a SPAC, which means it’s predisposed to blowing up. I still don’t understand how SPACs exist. In a world of gimmicky investment products, I’m not sure there is anything as demonstrably failure-prone as these things. The sponsors of this SPAC (Garnero Group Acquisition Co – GGAC) are a bunch of Brazilian guys no one has ever heard of. The one catch here is that the deal still hasn’t been approved by GGAC shareholders, although these things usually are. Borrow is tight in the meantime, so you’ll have to wait for the deal to close to put on the short.


On October 30, GGAC announced its intention to acquire a company called Wisekey, with an expected closing sometime 1Q15. GGAC’s advisor on the deal was EarlyBirdCapital (EBC), a firm familiar to many people who have successfully shorted SPAC’s. EBC also took GGAC public and will receive a $4.6m fee if the deal closes. Prior to the acquisition, GGAC had 20.1m shares outstanding and $144m in cash. To pay for the 93% of Wisekey they are acquiring, GGAC is issuing 14.5m shares and paying $15m cash to Wisekey owners and another $6.5m for various fees. The structure is somewhat unusual for a SPAC since they’re spending so little cash, opting to issue shares instead. I suspect it’s to protect themselves from receiving redemptions. Ignoring warrants (there are 9m with a $10 strike), Wisekey will have a share count of 34.6m and $123m cash, so a market cap of $340m and an EV of $217m.


What is Wisekey? Actually, let me correct myself, the proper spelling of the company is “WIS@key”, but we’ll just stick with Wisekey for now. Truthfully, I can’t figure out what this company does, their website and the IR decks are mostly buzzword-laden gibberish that talk about cybersecurity and digital protection in extremely vast, ambiguous terms. They have several products that really don’t make much sense.


  • WISecurity is basically a domain registry for protected website.

  • WISeID appears to be some sort of Dropbox-like storage product.

  • WISfans, which is an app for sports teams to, umm, share stuff.

  • WISeAuthentic is something that, like, ensures that your luxury watch is real, or something.


On top of all this, they own a bunker inside a Swiss mountain. Or at least they purport to…no pictures of the place exist.



That is one sweet bunker.


Anyway, if the company isn’t completely made up, I can feel confident saying it’s a complete pig. Actually, this can’t be made up – no one would make up something so awful. Here are the reported income statement and balance sheet, which are evidence of how stupid Wisekey is.




They are paying over $160m for this. But here’s the part where it gets comical…please spend a moment considering this single slide that gives guidance:



If this doesn’t make you laugh, nothing will. Let’s clarify this for a moment. Wisekey is supposedly going to grow revenue between 70-130x in the next 3-4 years. Organically speaking, unless this is Google circa 1999, this is impossible. And with just $123m in cash to play around with, they would have to pay .1-.2x EV/Rev for a business with 50% fcf margins to hit these figures. The algebra implies they would be paying .2-.3x fcf for whatever they bought next. Actually, it implies they would be getting paid to acquire the best business in the world.


Projections like these speak to the amateurish (or worse) nature of the people involved with this. Besides being results that appear to be a joke, putting out guidance with enough range to fit the Death Star into is suspect enough. When was the last time you saw a company give a revenue guidance range where the high end was almost double the low end?


To remind you, GGAC is paying $15m cash and $145m in stock ($160m total) to acquire a business with negative 200% ebit margins, 65% decline in sales, and $1m in tangible assets. I believe that Wisekey is essentially worthless and that GGAC is worth a discount to cash, which is $3.55/share on a proforma basis. It should trade at a discount because GGAC management is highly likely to destroy value with the remaining $123m of cash. My conservative price target is $2.65/share. There is some borrow available now but it’s small.


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.



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