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Hi all, I’m Vieje.

I’m the Director of Equity Strategy at Secfi, where we help startups and their employees make informed decisions to get the most value out of their equity. I hope you’re all getting ready to power down your computers for the holidays. Since business rarely takes a real break, however, I couldn’t help but dig into last week’s announcement that MoneyLion is acquiring Even Financial and what this deal really means for the employees at Even Financial, who will now be a part of a new company.

Let me start off by saying that the devil is often in the details, and we don’t really have much more than what was in the press release. As more details become public, we’ll have more answers about the acquisition. From what has been shared though, the acquisition appears to be unusual. Of course, that doesn’t mean there’s anything concerning. Just that it’s not a typical M&A structure.

So let’s look at what we know.

The terms of the deal raise more questions than answers

The announcement says “the transaction provides for total consideration to Even Financial’s equity holders of up to $440M.” In other words, MoneyLion is valuing Even Financial at that price and that’s a nice jump from Even’s last valuation of $196M, according to Pitchbook. That piqued my interest. More specifically, the deal is $345M in preferred shares and $15M in cash, with another possible $80M in preferred shares.

Here’s a few things that stood out to me:

• How was a $440M valuation decided? MoneyLion went public via a SPAC at $10 per share earlier in September. The press release says that Even’s shareholders are entitled to preferred shares of MoneyLion that convert to common shares at $10. But, as of close on December 16, MoneyLion’s stock price has dropped to $3.73. Based on that price, the deal would be valued at around $175M for Even’s shareholders (the amount their new MoneyLion stock is worth), much lower than $440M. It’s very likely — given how long M&A’s can take — that talks began just before the listing. Meaning the $10-per-share price was determined quite some time ago. And it sounds better to stick to a higher valuation than have to undercut it due to recent market conditions.
• How much are Even Financial’s shareholders going to be able to make off this deal? They’ll get preferred stock that they can convert to common stock at $10. The preferred stock would pay a 3% dividend in the meantime. Based on what I’m reading, I’m interpreting this deal as that Even shareholders will be entitled to a 3% dividend and will only be able to convert and sell shares if the stock crosses the $10 mark. That stipulation would allow the deal to maintain a $440M price tag. So, it looks to me like it’s convertible debt with a 3% dividend. And that’s all Even shareholders will see until the share price exceeds $10.
• What is the $15M in cash being used for? It is a bit odd that such a small part of the deal is in cash, while the rest is in stock. And it’s unclear why that may be the case. It’s very possible that it’s being used to clean up Even’s cap table, buy out unexercised options from current employees, or it could be used to spread out to all stockholders as a nice New Year’s bonus. But, it’s also possible that it could be going straight to Even’s founders or certain investors, leaving out rank-and-file employees from a nice cash bonus.

What this means for Even Financial employees

At Secfi, I speak with startup employees every day about their equity, so I always look at these kinds of deals from the perspective of the employees, because many are probably asking what it means for them. For many, they just don’t think about their equity until they have to, and when they do, they suddenly realize that it can be either complicated to understand, expensive to exercise, or both.

This is based on what’s been released, and employees should be looking for more details specifically around the preferred shares before taking any major actions. But for now, here’s what I am seeing from what’s been announced:

• An all-stock deal for employees. Most likely, all Even employees will have their stock converted to MoneyLion preferred shares. That’s good news because a stock-for-stock acquisition is not typically a taxable event, meaning employees probably won’t pay any taxes until they sell their MoneyLion shares. They will however likely have to pay taxes on any dividends received on the preferred shares.
• Potential 12-month lock-up period. From what I can tell, it looks like there will be a lock-up period of 12 months for employees. So, they won’t be able to sell any of their converted MoneyLion shares until one year after the acquisition closes. All others are locked up until March 22nd, 2022.
• They’re likely subject to the $10-per-share conversion. As I said above, it’s likely the deal is priced at $440M despite MoneyLion’s drop in share price, because Even shareholders will have to wait until their MoneyLion preferred stock reaches $10 per share before converting and selling. So, in addition to a lock-up period, they’ll have to wait for the share price to go up while collecting a 3% dividend.

At the end of the day, an acquisition can be a very great outcome for founders, investors, and employees. Most startups don’t exit and most employees don’t get to see their equity become worth something. Employees at Even Financial should be happy that they got to an exit.

The hope is that MoneyLion’s shares will shoot up past the $10 mark so that Even’s employees can see the value of their equity become a reality. If that happens, this will look more like a $440M deal than a $175M one. All in all, despite some questions about the acquisition, we should all be rooting for those at Even to get a nice financial windfall.

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