PrivCo EXCLUSIVE): LIVINGSOCIAL Receives Emergency $110M Debt Infusion From Existing Investors With Oppressive Terms, JUST DAYS FROM BANKRUPTCY, Effectively Handing Over Distressed Co. to Today's Financing Participants...Implied Valuation: JUST $330M, DOWN 94% FROM $5.7 BILLION In Dec. 2011 V.C. Round...Equity Was NOT Issued Today (As Has Been Widely Misreported)...Instead, A Desperate LIVINGSOCIAL Accepted A COMPLEX Series of Secured-Convertible-Debt Securities With Onerous Terms (PrivCo Has Confirmed Exclusively) Including: (1) Liquidation Preferences of SEVERAL TIMES the $110M In Debt (2) Double-Digit Cash Dividends (3) "Super-Warrants" On Stock, (4) Secured Against Co. Assets and Stock, and (5) Re-Pricing of Participating Investors Earlier Rounds...Employees' and Founders' Common Stock Now Worthless
- Today's Participating Investors Effectively Now Own The Entire Company
- Common Stock and Shares of Company's Employees Now WORTHLESS
- LivingSocial senior company insider tells PrivCo: "We scrambled for cash quickly....we did receive one other funding offer, but the current investors' terms were the least bad of two terrible proposals....which we had no choice but to take it or file for Chapter 11."
- LivingSocial ended year with just $76 Million in cash & current assets, against a stunning $338 Million in short-term liabilities
- "The company threw itself at the mercy of its investors - who, having already sunk $823,624,695 before the emergency funding, were in a position to dictate the terms - to avoid a total collapse of the company within days...though this will likely be LivingSocial's final gasp." - PrivCo CEO Sam Hamadeh
- LivingSocial Insider Tells PrivCo: "It was a take-it-or-leave it deal"
February 20, 2013 8:15 PM EST - LivingSocial (PrivCo Private Company Ticker: LIVSOCP) has just received $110 million in emergency financing from some of its existing investors today, in a last ditch attempt to save the privately-held daily deals company from imminent financial ruin, PrivCo has confirmed exclusively, until the company can be sold by year's end to recoup whatever is still possible.
PrivCo today exclusively confirmed the terms of the distressed financing (which was NOT a "new VC round" as has been widely misreported) with both a senior executive at LivingSocial familiar with the transaction, as well as a current LivingSocial venture capital investor participating in the new emergency debt financing:
Distressed Financing Including The Following Onerous Terms (PrivCo Exclusive):
Implied valuation of LivingSocial in today's financing is $330 million, a 94% decrease from December 2011's $5.7 Billion valuation, although with the complex sets of rights/re-pricings of earlier rounds/cash dividends, etc. the implied valuation could be as little as $165 million. ("There really is no valuation anymore," said one source familiar with the transaction terms.)
Ramifications of LivingSocial's Acceptance of The Oppressive Terms of Emergency Funding:
When reached by PrivCo today, a senior LivingSocial communications executive - who would only speak off the record stated: "I will try to put my best possible positive spin on what you have pieced together is a negative situation":
PrivCo today exclusively confirmed the terms of the distressed financing (which was NOT a "new VC round" as has been widely misreported) with both a senior executive at LivingSocial familiar with the transaction, as well as a current LivingSocial venture capital investor participating in the new emergency debt financing:
Distressed Financing Including The Following Onerous Terms (PrivCo Exclusive):
- LIVINGSOCIAL Issued A New Complex Class of Convertible Debt Securities, Convertible Into a Still New Class of Preferred Stock With Still More New Preferences - EQUITY or stock was NOT issued today as widely misreported today
- "Super liquidation preferences" of several times the $110 Million in debt (e.g., at 4x, a debt liquidation preference of up to $440 Million)
- A large issuance of "Super-Warrants" for still more shares in LivingSocial attached to the Secured Convertible Debt
- Double-digit annual cash dividends to be paid by LivingSocial
- Re-pricing of participating investors' previous rounds
Implied valuation of LivingSocial in today's financing is $330 million, a 94% decrease from December 2011's $5.7 Billion valuation, although with the complex sets of rights/re-pricings of earlier rounds/cash dividends, etc. the implied valuation could be as little as $165 million. ("There really is no valuation anymore," said one source familiar with the transaction terms.)
Ramifications of LivingSocial's Acceptance of The Oppressive Terms of Emergency Funding:
- 4,000 employees' stock is rendered worthless
- Employees' stock options are worthless
- Founder stock is worthless
- Emergency funding terms means LivingSocial handed over the company to today's funders
- Nearly a billion dollars of investor money has been lost, as all early rounds (Series A, B etc.) are worthless
- Sources said LivingSocial's Board made clear this was the final lifeline, that the company must break even by the end of the year including closing dozens of unprofitable offices and laying off thousands of employees
- PrivCo expects Chapter 11 by year end, with secured convertible debt holders ahead of merchants in liquidation preferences
- Despite company's attempt to say this funding was a vote of confidence by investors, virtually no risk to investors because primary spot in line in a bankruptcy liquidation
- LivingSocial's merchants owed money stand behind today's funders in the event of a bankruptcy, as unlike today's funders they are unsecured creditors
- PrivCo's sources indicate that investors are forcing the company to break even in an attempt to sell the company by year's end
- Needless to say, there will not be a LivingSocial IPO
When reached by PrivCo today, a senior LivingSocial communications executive - who would only speak off the record stated: "I will try to put my best possible positive spin on what you have pieced together is a negative situation":
- "Shareholders extended a lifeline to the company which is a major vote of confidence"
- "Yes most of our Current Liabilities are Merchant Payables, which are local merchants' share of the dailydeals we sell and yes we collect that cash in advance, and we do owe them for all that - and yes it's now hundreds of millions of dollars more than our cash on hand. But despite our Current Liabilities being high, they at least are not as frightening as Groupon's Merchant Payables gap, as Groupon pays out usually in 1/3rds (30 days, 60 days, then 90 days), while at LivingSocial, we usually pay 80% of the total daily deal's sales to a merchant within 10 days of the offer ending, and then we owe them the other 20% months later. So yes we owe local merchants a lot of money, more than our Cash, and these Merchant Payables are most of our Current Liabilities as PrivCo surmised, but I will point out thta at least it's not as as great a portion of our Current Liabilities as Groupon's."
- "Our CEO said we do now plan to break even and become profitable by year end. I'm not sure exactly how, but that is our goal."
- "Hopefully the announcement today of new financing helps alleviate concerns of LivingSocial's solvency...and we know they are out there....especially concerns from our merchants we owed money to."
- "We also did get a second offer to finance us, so we were able to choose between two offers. And that's a great position to be in, and shows we had a second offer and they were also interested. And the current investors' offer was the better of the two so that's the Financing deal we took." ("As a corporate lawyer who has seen thousands of funding term sheets," said PrivCo CEO Sam Hamadeh, Esq.,"given the oppressive terms of the offer they accepted, I can't imagine how ugly the other financing offer looked.")
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