8-K: Alchemy Investments Acquisition Corp 1 Announces Non-Binding LOI with Cartiga, LLC for Potential Business Combination

Alchemy Investments Acquisition Corp 1 and Cartiga, LLC have announced a non-binding letter of intent for a potential business combination, aiming to create a Nasdaq-listed, tech-forward alternative asset management company.

Summary

• Alchemy Investments Acquisition Corp 1 (ALCY), a SPAC, has signed a non-binding letter of intent with Cartiga, LLC for a potential business combination.
• Cartiga is an alternative investment firm specializing in litigation finance, utilizing data analytics to drive investments.
• Cartiga has originated over $1.6 billion in assets and realized $1.6 billion in cash since 2000.
• Cartiga's strategy involves integrating legal and financial data to predict litigation outcomes and optimize investment performance.
• The proposed business combination aims to consolidate the fragmented litigation finance market through acquisitions and integration of complementary companies.
• Cartiga has over $250 million in committed equity capital from a blue-chip investor base.
• Cartiga's proprietary database contains over 250,000 individual litigation-linked asset fundings across 8,000+ lawyers and law firms.
• Cartiga has a 20+ year track record originating assets exhibiting non-correlated risk and outsized risk-adjusted returns.
• Cartiga has invested over $20 million in IT and product development since 2020.
• Cartiga has approximately 95 employees.
• Cartiga has completed four rated securitization transactions, with three fully realized.
• The pro forma business plans to opportunistically consolidate the fragmented litigation finance market through the intended acquisition and integration of complementary companies and assets.
• The transaction is subject to shareholder and regulatory approvals and other customary closing conditions.
• The parties intend to file a registration statement with the SEC, including a proxy statement/prospectus, for the proposed business combination.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive due to the potential benefits of the business combination, Cartiga's strong track record, and the large addressable market. However, the non-binding nature of the LOI and the inherent risks associated with SPAC transactions temper the overall sentiment.

Positives

• Cartiga has a proven track record with more than $1.6 billion in lifetime originations and $1.6 billion in cash realizations since inception in 2000.
• Cartiga has a large addressable market of over $300 billion, representing approximately 1.4% of US GDP.
• Cartiga is supported by over $250 million in committed equity capital from a blue chip investor base.
• Cartiga's proprietary database contains over 250,000 individual litigation-linked asset fundings diversified across 8,000+ unique lawyers and law firms.
• Cartiga has a 20+ year track-record originating assets exhibiting non-correlated risk and outsized risk-adjusted returns versus traditional private credit.
• Cartiga has invested over $20 million in IT and product development since 2020.
• Cartiga's blended asset-level IRR is 20% on realized litigation investments.
• Cartiga's FY 2024 Realizations from Litigation Investments were $185M+.
• The business combination could enhance transparency, reduce the cost of capital, and expand access to flexible funding for Cartiga.

Negatives

• The letter of intent is non-binding, meaning the deal may not be finalized.
• The proposed business combination is subject to shareholder and regulatory approvals, which may not be obtained.
• The inability to obtain or maintain the listing of securities on Nasdaq following the proposed Business Combination is a risk.
• The proposed Business Combination disrupts current plans and operations as a result of the announcement and consummation of the proposed Business Combination is a risk.
• The ability to recognize the anticipated benefits of the proposed Business Combination, which may be affected by, among other things, competition, the ability of Cartiga to grow and manage growth profitably, and retain its key employees is a risk.
• The amount of redemption requests made by Alchemys shareholders is a risk.

Risks

• The non-binding nature of the letter of intent allows either party to cease discussions.
• Legal proceedings could be instituted against the parties following the announcement of the business combination.
• Failure to obtain shareholder or regulatory approvals could prevent the completion of the business combination.
• The inability to maintain a Nasdaq listing after the combination poses a risk.
• The business combination could disrupt current plans and operations.
• The ability to recognize the anticipated benefits of the combination is subject to competition and Cartiga's ability to manage growth and retain employees.
• Changes in applicable laws or regulations could adversely affect the parties.
• Economic, business, and/or competitive factors could negatively impact Alchemy or Cartiga.
• The projected financial information for Cartiga is uncertain.
• The organic and inorganic growth of Cartiga's business and the timing of expected business milestones are subject to risks.
• The amount of redemption requests made by Alchemy's shareholders could impact the transaction.
• The parties caution readers not to place undue reliance upon any forward-looking statements, which speak only as of the date made.

Future Outlook

The combined company aims to consolidate the fragmented litigation finance market through acquisitions and integration of complementary companies, enhancing scale, operational efficiency, and market presence to drive long-term growth for shareholders.

Management Comments

• Mr. Vittorio Savoia, Co-CEO of Alchemy, stated that Cartiga's platform is an attractive alternative investment with a return profile uncorrelated with other asset classes.
• Mr. Mattia Tomba, Co-CEO of Alchemy, believes that a Nasdaq listing will put Cartiga in a leadership position in the industry by enhancing transparency, reducing the cost of capital, and expanding access to flexible funding.
• Cartiga's CEO, Mr. Sam Wathen, remarked that combining with Alchemy aligns perfectly with their goals and would enable Cartiga to establish new industry guidelines with full transparency and utilize its public currency to drive growth and acquire complementary businesses.

Industry Context

The announcement reflects a growing trend of SPACs targeting companies in the alternative asset management space, particularly those leveraging technology and data analytics. The litigation finance market is becoming increasingly attractive to investors seeking non-correlated returns.

Comparison to Industry Standards

• Cartiga's focus on data-driven litigation finance aligns with the broader trend of technology adoption in the legal industry.
• Burford Capital is a major player in the litigation finance industry, and Cartiga's stated goal of consolidating the market suggests a competitive landscape.
• Cartiga's claim of non-correlated returns is a key selling point, as investors seek diversification in their portfolios.
• Cartiga's blended asset-level IRR of 20%+ is a strong indicator of performance compared to the Cliffwater Direct Lending Index (CDLI).

Stakeholder Impact

• Shareholders of Alchemy will have the opportunity to vote on the proposed business combination.
• Employees of Cartiga may benefit from the increased resources and opportunities as a public company.
• Law firms and their clients could benefit from Cartiga's enhanced ability to provide capital and data-driven insights.
• Investors may gain access to a unique asset class with potentially attractive risk-adjusted returns.

Next Steps

• The parties need to enter into definitive documentation regarding a Business Combination.
• A newly formed holding company intends to file relevant materials with the SEC, including a Registration Statement on Form S-4, that includes a preliminary proxy statement/prospectus, and when available, a definitive proxy statement and final prospectus.
• Alchemy will mail the definitive proxy statement and a proxy card to each shareholder entitled to vote at the Extraordinary Meeting relating to the transaction.

Key Dates

Keywords

business combination, litigation finance, SPAC, Cartiga, Alchemy Investments Acquisition Corp 1, alternative asset management, data analytics, Nasdaq, merger, acquisition