Virgin Galactic (“VG”) and Social Capital Hedosophia (“SCH”), a public investment vehicle sponsored by Social Capital and Hedosophia, have announced that the boards of directors of each company have approved a definitive agreement under which VG and SCH will merge, with the current shareholders of SCH expected to own up to approximately 49 percent of the combined company.
On July 8, 2019, SCH (NYSE: IPOA) entered into a definitive agreement to combine with VG with a combination of stock and cash financing. The merged company will have an anticipated initial enterprise value of $1.5 billion implying a 2.5x multiple of 2023 projected revenue and a 5.5x multiple of 2023 projected EBITDA as commercial operations are expected to achieve scale. After the completion of the transaction, the majority of the net cash from SCH’s trust is expected to be held on VG’s balance sheet to fund operations and support continued growth.
In connection with the transaction, SCH’s founder has agreed to invest an additional $100 million at $10.00 per share at completion of the transaction. The selling equity owners of VG will receive $1.3 billion in total consideration, inclusive of $1.0 billion of common stock of the combined company valued at $10.00 per share and up to $300 million in cash consideration. Assuming no redemptions by the public shareholders of SCH, current VG shareholders and current holders of SCH will hold approximately 51 and 49 percent of the combined company, respectively, at closing.
The transaction is currently expected to be completed during the second half of 2019, subject to approval by SCH’s shareholders and other customary closing conditions. Credit Suisse acted as capital markets advisor and Skadden, Arps, Slate, Meagher & Flom LLP acted as legal advisor to SCH. M Klein and Company served as financial advisor to VG and Virgin Group for the merger with SCH. LionTree Advisors and Perella Weinberg Partners served as financial advisors to the company regarding its capital raising alternatives. Latham & Watkins LLP acted as VG and Virgin Group’s legal advisor.
Upon closing of the transaction, which is expected in the second half of 2019, VG will be introduced as the first and only publicly traded commercial human spaceflight company.
Sir Richard Branson, the founder of VG, said that great progress in the company's test flight program means that VG is track for the firm's spaceship to start commercial service. By embarking on this new chapter, at this advanced point in Virgin Galactic’s development, the company can open space to more investors and, in doing so, open space to thousands of new astronauts. This is the dawn of a new space age, with huge potential to improve and sustain life on Earth. Branson added that he is delighted that SCH has decided to become such an important part of this amazing journey, as they share VG's dreams and together these dreams will become reality.
George Whitesides, the CEO of VG, added that this transaction represents the next step of this exciting journey. This action will offer the firm the financial flexibility to build a thriving commercial service and invest appropriately for the future.
Chamath Palihapitiya, the Founder and CEO of Social Capital Hedosophia, noted that this will bring the reality of commercial spaceflight to the world. The company is confident that VG is light years ahead of the competition and is backed by an exciting business model and an uncompromising commitment to safety and customer satisfaction.