SilverSun Announces Investment/SpinOff Plan

I can’t say I didn’t sense this one coming. Once the Rhodium reverse merger was officially off, it seemed only a matter of time before another deal was proposed. Today, the company announced that similar to the terminated Rhodium Deal, SilverSun would “accept an investment“, and SWK Technologies (which is the primary asset of SilverSun) would be spun out to what appears to be an independent company with existing shareholders (and management) continuing to own SWK Technologies:

Brad Jacobs to Lead Equity Investment of $1 Billion in SilverSun Technologies and Pursue Acquisitions in an Industry to be Announced Later
Jacobs to Become Chairman and Chief Executive Officer‍

Company to Become Platform for Jacobs’ New Venture after Spinning Off Existing SilverSun Business

Key Points of the Press Release:

  • Investment Agreement: JPE and co-investors will invest $1 billion in SilverSun, with $900 million from JPE and $100 million from co-investors, including Sequoia Heritage.
  • Change in Leadership: Brad Jacobs will become the CEO and chairman of SilverSun’s board following the investment.
  • Spin-off of Existing Business: SilverSun’s existing business will be spun off into a new entity, SilverSun Technologies Holdings, Inc., and shares of this entity will be distributed to SilverSun’s stockholders.
  • Reverse Stock Split: An 8:1 reverse stock split is planned before the investment closure.
  • Stock Conversion and Warrants: Post-investment, JPE, and co-investors will have significant control over the company’s common stock through convertible preferred stock and warrants.
  • Dividend Payment: SilverSun will declare a $2.5 million cash dividend to stockholders, funded from the investment proceeds.
  • Current Management’s Role: The current management, including CEO Mark Meller, will continue in their roles at the spin-off company.
  • Public Listing of Spin-off Company: The spin-off company will apply for a public listing.

Impact on Existing Shareholders:

  • Dividend Benefit: Shareholders will receive a substantial cash dividend ($2.5 million in total) from the investment proceeds.
  • Ownership in New Entity: They will own shares in the spun-off SilverSun Technologies Holdings, allowing them to benefit from its potential future growth.
  • Dilution of Current Shares: The reverse stock split and new investment likely dilutes the value of existing shares in SilverSun.

Impact on SilverSun Technologies (SWK Technologies):

  • Capital Infusion: The $1 billion investment would appear to significantly boost SilverSun’s capital, although most , if not all, of the $1 billion seems headed for “acquisitions in an industry to be named later,” and those acquisitions are going to be in the SilverSun company and likely not SWK Technologies.
  • Strategic Leadership Change: Brad Jacobs’ leadership could bring new strategic direction, given his track record in building multi-billion-dollar companies.
  • Restructuring: The spin-off and new investment could reposition SilverSun for future acquisitions and ventures.
  • Stockholder Approval and Regulatory Compliance: The deal requires approval from SilverSun’s stockholders and must satisfy other closing conditions, indicating a transition phase and potential restructuring.

What Does This Mean?

From an article in FreighWaves:

Brad Jacobs has chosen the vessel for his next act.

The man who put together the XPO freight conglomerate and then sold it off in pieces to leave behind the LTL-focused XPO, stand-alone 3PL RXO and contract logistics company GXO is leading a $1 billion investment in a company called SilverSun Technologies, which is publicly traded on the Nasdaq (NASDAQ: SSNT)

In its prepared statement, JPE spells out a series of steps that will result in JPE and its minority investors ultimately owning approximately 99.85% of the company. The existing shareholders of SilverSun will receive a $2.5 million cash dividend, funded by the JPE deal, and the existing operations will be spun off into a company named SilverSun Technologies Holdings. The current management at SilverSun will stay in place at the new company, its core business will continue, and the deal is structured so its shareholders are in a position to benefit from growth at JPE.

After the spinoff, Jacobs will become CEO and chairman of the remaining company, which will have no ongoing activities. With a platform in hand, Jacobs’ next round of investments and activities can commence with the backing of a publicly traded company.

In essence, SilverSun (SSNT), the corporate parent of SWK Technologies, sold their NASDAQ listing to individuals who plan to use the listing to begin a new round of investments with the backing of a publicly traded company.

For SWK Technologies, the future is not as clear. While the press release speaks of a “public listing of its shares, which will be registered under a Form 10 registration statement filed with the U.S. Securities and Exchange Commission, ” it’s unclear exactly what market, if any, the shares might trade.

After this transaction closes, the SWK Technologies company could be aligned for future sale once they no longer have the overhead of maintaining a public stock listing.