BC Partners is using losses to buy companies
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Wish.com once was a high-flying ecommerce unicorn, raising billions from VCs before going public in 2020 at a $14.1 billion valuation.
- Now, its corporate carcass is being used to buy makers of dimethyl sulfide and evaporated salt.
It's all the brainchild of BC Partners, whose credit arm is using huge net operating losses (NOL) to indirectly fund acquisitions of profitable businesses.
- BC first got involved 18 months ago, via a $150 million convertible preferred investment in ContextLogic Holdings, which was a Nasdaq-listed shell after having divested the Wish.com assets for only $161 million.
- It was basically a recap, in partnership with Abrams Capital, resulting in a company that had a modest cash reserve and nearly $4 billion of NOLs.
The strategy is about taxes, which ContextLogic won't need to pay until the NOL offsets are all used up.
- In the meantime, BC is helping ContextLogic buy stable, profitable businesses in niche industries. So far from private equity sponsors in search of DPI.
- The first was US Salt, which it bought last year for $907.5 million from Emerald Lake Capital Management. The second came yesterday, when ContextLogic agreed to buy specialty chemicals firm gChem for around $850 million from EagleTree Capital.
- Each deal is structured as a rights offering in which ContextLogic shareholders can participate. If they don't, BC Partners and Abrams take the positions — in addition to using their pro rata shares.
"The stock market usually gives no value to NOLs until you start using them," explains Ted Goldthorpe, head of BC Partners Credit. "This is always something I wanted to do, but there aren't too many companies with big NOLs that don't also have environmental or litigation liabilities."
- He believes there's a large universe of potential targets, possibly as alternatives to SPAC mergers.
- "When we first started this, I got a lot of calls from peers asking how it works," Goldthorpe adds. "It's early days still but I wouldn't be surprised to see others do something similar."
