Business Context and Reporting Period
Consonance-HFW Acquisition Corp. (CHFW) filed this Form 8-K on August 2, 2021 under Item 8.01. The filing supplements the definitive proxy statement/prospectus for CHFW’s proposed business combination with Surrozen, Inc., a preclinical biotechnology company. Under the April 15, 2021 Business Combination Agreement, a CHFW subsidiary would merge with Surrozen, with Surrozen surviving as a wholly owned subsidiary of CHFW.
The SEC declared the related Form S-4 registration statement effective on July 15, 2021. CHFW’s special shareholder meeting was scheduled for August 10, 2021.
Key Financial and Transaction Metrics
- The executed March 1, 2021 term sheet provided for an implied Surrozen equity value of approximately $250.0 million.
- The proposed PIPE financing was approximately $100.0 million, including a $25.0 million Sponsor commitment, a $5.0 million commitment from The Column Group, and efforts to obtain an additional $20.0 million from existing Surrozen investors.
- The proposed minimum cash closing condition was $100.0 million, net of certain CHFW transaction expenses.
- CHFW’s IPO underwriter, J.P. Morgan, would receive deferred underwriting compensation of $3.22 million, equal to 3.5% of the IPO’s gross proceeds, contingent on closing. J.P. Morgan and BofA Securities would also receive customary transaction-related fees payable upon closing.
- The proposed post-closing equity incentive plan would initially include an award pool equal to 10% of New Surrozen’s outstanding stock, with an additional automatic 5% annual evergreen provision.
- Because Surrozen’s programs were preclinical, CHFW management did not perform a discounted cash flow analysis and did not receive or review revenue projections from Surrozen in connection with the transaction.
- The filing does not provide current revenue, profit, cash flow, operating margin, debt, or liquidity figures for Surrozen or CHFW beyond the transaction-specific amounts described above.
Material Changes Versus the Prior Comparable Disclosure
The filing voluntarily amends and supplements the definitive proxy statement/prospectus in response to a shareholder complaint and two shareholder demands seeking additional disclosure. CHFW states that the allegations are meritless and that no additional disclosure was legally required, but provided the supplemental disclosures to avoid nuisance, cost, distraction, and potential delays to the transaction.
- The supplemental disclosures expand the description of CHFW’s target search, including approximately 100 potential targets, 39 preliminary discussions, and 21 confidentiality agreements.
- The filing provides additional detail regarding the February and March 2021 term sheets, valuation negotiations, PIPE financing, minimum cash condition, board composition, lock-up provisions, and equity incentive plan.
- CHFW disclosed that management and the board authorized and ratified the engagement of J.P. Morgan and BofA Securities in connection with the PIPE financing, with J.P. Morgan also serving as M&A advisor.
- CHFW stated that none of its current directors or officers was expected to become an employee of New Surrozen.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
No operating guidance or revenue outlook was provided. The transaction remains subject to shareholder approvals, satisfaction of closing conditions, financing and cash requirements, potential shareholder redemptions, and other contractual conditions.
A purported CHFW shareholder filed litigation in New Jersey, and two shareholders submitted disclosure demands. CHFW denied liability and wrongdoing. The outcome of the litigation and any related proceedings could affect the timing or completion of the Business Combination.
Other disclosed risks include failure to consummate the transaction, termination of the Business Combination Agreement, competing acquisition proposals, inability to realize expected benefits, integration and growth challenges, employee retention, transaction costs, inability to maintain a post-closing Nasdaq listing, the level of shareholder redemptions, and accounting or reporting issues relating to SPAC warrants.
The filing contains extensive forward-looking statements regarding the proposed transaction and the combined company. These statements are not guarantees of future performance and are subject to material uncertainty.
Investor Verification Items
- Verify whether CHFW shareholders approved the Business Combination at the scheduled August 10, 2021 meeting and whether the transaction subsequently closed.
- Confirm the final PIPE financing amount, cash delivered at closing, transaction expenses, and shareholder redemption levels.
- Review the definitive proxy statement/prospectus and Form S-4 for Surrozen’s historical financial statements, cash runway, liabilities, capitalization, and pro forma ownership.
- Assess the effect of the 10% equity incentive pool and 5% annual evergreen provision on dilution.
- Review the status and resolution of the shareholder litigation and disclosure demands.
- Verify all contingent advisory, underwriting, placement-agent, and other transaction fees payable at closing.
- Evaluate Surrozen’s preclinical development risks, including the absence of revenue projections and the uncertainty of clinical and regulatory outcomes.