NLIT - Safe Harbor SPAC Reduces Payment
This story has been updated as of September 23, 2022.
Earlier this week, Green Market Report reported that the planned acquisition of Safe Harbor Financial by a special purpose acquisition company (SPAC) hit a snag when the parties announced a multiweek delay .
On Monday, Northern Lights Acquisition Corp. revealed that it will need a few extra weeks to deliver the $70 million that it owes Safe Harbor Financial under the terms of a deal signed back in February, with the cash now due on Sept. 28 instead of Aug. 31.
Reduced Cash Payment
On Friday, the SPAC announced that it was reducing the amount of the initial cash payment to Safe Harbor. Northern Lights stated that it will “provide for the deferral of a total of $50 million of the $70 million due to the seller at the closing of the Business Combination.” The company’s filing stated, “The purpose of deferral is to provide the company with additional cash to support its post-closing activities. Pursuant to the Second Amendment, the Company will pay the Deferred Cash Consideration in one payment of $15,000,000 on or before December 15, 2022, and the $35,000,000 balance in six equal installments of $6,416,667, payable beginning on the first business day following April 1, 2023 and on the first business day of each of the following five fiscal quarters, for a total of $38,500,002 (which amount includes 5% interest annualized). The Deferred Cash Consideration may be prepaid by the Company, in whole or in part, at any time.”
In addition to the reduced cash payment, the latest filing noted that the Securities Purchase Agreement with certain investors called the “PIPE Investors” are committed to purchasing $60 million of shares of Class A Convertible Preferred Stock and warrants. The floor price for these shares was reduced to $1.25. The filing also stated, “The Company has also agreed that 20% of the proceeds of the offering will be held in escrow as liquidated damages in the event that the agreed resale registration statement is not filed or declared effective in accordance with the PIPE Registration Rights Agreement.”
Deal Will Get Done
The delay was said to be only due to both parties waiting on approval from the Nasdaq, which is relatively common and doesn’t mean the deal is in danger, Matt Karnes, principal at New York-based GreenWave Advisors, told Green Market Report.
“It could be, but not necessarily,” Karnes said, when asked if the delay should be considered a red flag for investors. “I just think that the longer it goes on, the way in general that the market is, it could call into question a rationale to hold rather than fold (by investors).”
Karnes said that SPAC acquisitions – which have become increasingly common across the U.S. cannabis industry, as companies search high and low for capital with which to expand and fund operations – have been largely beneficial for marijuana businesses, and the Safe Harbor deal will likely be the same.
“They’ve served their purpose, because sources of capital are limited in cannabis,” Karnes said. “It’s easier than going through the rigmarole of going public through the (Canadian Securities Exchange).”
But, Karnes added, raising capital through a SPAC acquisition is “a shortcut method, and with that comes added risks.”
Some SPAC deals have fallen through, Karnes said, the most high-profile of which was the cancellation of the Ceres Acquisition Corp.’s buyout of Parallel last year.
That deal originally valued Parallel at $1.8 billion when the acquisition was announced in February 2021, but by October, Ceres investors changed their minds based on a reported loss in confidence in Parallel’s ability to deliver on “lofty financial projections,” Reuters reported at the time.