“This deal was so intertwined with the global economy’s response to the Covid-19 pandemic, both in terms of subject matter and length, that for however long dinner party discussions recount lockdown memories, clapping for carers or the 5pm briefing, I will recall LumiraDx’s ‘de-SPAC transaction’, says lead associate Nick Skill.
Skill joined Fried Frank in April 2019, having qualified at Norton Rose Fulbright in 2015. He has been working with Fried Frank corporate partner Ian Lopez, also previously Norton Rose Fulbright, since 2016.
They had worked together on all previous LumiraDx deals, as well as Mayo Clinic’s joint ventures in Abu Dhabi and London, Domino’s Pizza Group on multiple disposals and the Guardian Media Group on its digital advertising joint venture with the Telegraph, News International and Reach plc. Meanwhile, on the private equity side, he’d helped corporate partner Dan Oates on Allocate Software’s acquisition of Enterprise Study Limited and on certain add-ons for AEA Investors.
However, working on the LumiraDx deal, in the context of a global pandemic, was always going to be a totally different kind of challenge. “Taking any company public creates its own specific challenges but advising a medical diagnostics company that has developed its own Covid-19 test during the midst of a global pandemic created obstacles over and above the issues faced on a typical listing”, he explains.
“We received our initial instructions to raise up to $150m to fund the development of LumiraDx’s 12-minute covid-19 antigen and antibody tests pretty much on the day that the UK went into lockdown. That was the starting gun for a 15-month journey where LumiraDx pursued multiple structures in order to go-public, ultimately achieving a Nasdaq listing through its reverse triangular merger with CA Healthcare Acquisition Corp, (CAH) whilst also effecting five equity and debt financings to raise up to approximately $850m in order to ensure that the company had sufficient capital to sustain its day-to-day business in the face of unprecedented demand.”
Taken together with LumiraDx’s historic funding rounds, the multiple financings further complicated an already complex capital structure. LumiraDx’s shareholder base numbers almost 400 persons and is divided into four suites of equity: A Ordinary Shares, Common Shares, Series A Preferred Shares, and Series B Preferred Shares. The company has also issued 5 per cent and 10 per cent Convertible Loan Notes (convertible into Common Shares), various warrants over both A Ordinary Shares and Common Shares, and numerous options under its UK and US option plans.
This presented challenges from a structuring and approvals perspective as the capital structure needed to be collapsed into a dual stock company of A Ordinary Shares and Common Shares. Understanding (and keeping up with the various amendments) required our core UK team to really get into the weeds of the capital structure as we had to educate the Company, the various banks and all of their advisers on the structure and how this impacted on the sequencing in the merger.
“A major sticking point was structuring the lock-up which is intended to facilitate price stability for the Common Shares once they become publicly traded and to help create an orderly market for the Common Shares”, Skill recalls. “Typically SPACs require each individual shareholder to enter into a contractual lock-up agreement. However, due to the size of our shareholder base and therefore the logistical difficulties with obtaining lock-up agreements from each Shareholder we devised what became known as the “structural lock-up” where we built the provisions into the Company’s constitutional documents and the convertible loan notes/ preferred equity. This was a novel approach without precedent and required a significant amount of ‘educating’ the banks.”
The deal ran into further complications when the valuation of the merger was cut from $5bn to $3bn, which involved an amendment to the merger agreement, the prospectus being reworked and further complicating an already complex stock split and sequencing to the merger. The team overcame these issues via its thorough knowledge of the inner workings of the company, particularly its complex capital structure of equity and debt, which the core team — Lopez, Skill, James Frecknall and Adrian Packer— knew inside and out. After which it was a case of adding that knowledge to that of corporate partner Warren de Wied’s expertise on the SPAC side of things, and US securities law.
“As a transactional lawyer you expect to face challenges, to work late nights and to coordinate teams across multiple jurisdictions, but what really made this transaction stand out was the sense that we were helping, however tangentially, to re-open the global economy and get everyone back to a new state of normal”, Skill says.
“From a personal perspective it was the continuation of a journey that started for me back in 2016 when I started working for LumiraDx, who itself was only founded a year previous, and I take great pride in the fact that they have grown from a near start-up to a $3bn Nasdaq listed company.”
Members of the Fried Frank team have advised LumiraDx since its inception in 2014, including on the company’s 2016 private placement, 2018 Series A funding round, its 5 per cent loan note issuance in 2019, and several other debt and equity offerings in 2020 and 2021, in order to fund the development of its innovative diagnostic testing platform and pipeline of more than 30 assays.
The go-public transaction had multiple iterations to it. In January 2021, LumiraDx initially filed an IPO prospectus to list on Nasdaq. It subsequently withdrew from its IPO plans and shifted its strategy to obtaining a Nasdaq listing by means of the ‘de-SPAC’ transaction, which the company signed in April 2021.
In parallel with pursuing a potential listing (which culminated in the ‘de-SPAC’ transaction), the company continued to require funding to aid further development and scale up its covid-19 response. Fried Frank advised the company on the issuance of 10 per cent Convertible Loan Notes to raise up to US$150m to fund the development of its antigen and antibody tests, a Series B preferred equity raise of up to US$200m to scale up its other covid-19 activities, a debt raise of US$150m from Jefferies Finance and Silicon Valley Bank, its entry into a US$300m senior secured term loan facility agreement with funds managed by Pharmakon Advisors, and a US$100m for an asset-based revolving credit facility to further support its growth strategy and commercial ramp up.
“As a UK M&A lawyer advising a Cayman incorporated company on a reverse triangular merger with a NASDAQ listed special purpose vehicle the entire experience was a learning curve”, Skill admits. “We had to get up to speed with, amongst other things, how SPAC transactions are structured; the impact that the company’s complex capital structure would have upon the sequencing of the merger; the disclosure and filing requirements; the governance and incentive arrangements that need to be put in place; and the relevant approvals required, and all of this took place after an eight month rehearsal pursuing a completely different structure, a traditional IPO, that was aborted in January 2021.”
In order to stay agile and respond to the ever-changing landscape, as the pandemic moved from an acute focus on diagnostic testing to the roll out of the covid-19 vaccines, Skill says the team needed to comprise both a close-knit transatlantic team, which thoroughly understood the workings of the business, and specialists that were experts in their field, particularly on De-SPAC transactions. This meant that when inevitably circumstances outside of the firm’s control changed the dynamics of the deal, such as the reduced valuation, they could react quickly to keep the deal on track and achieve the client’s objectives.
“Although as a lawyer you need to focus on the main transaction – in this scenario the de-SPAC transaction – that focus should not detract from the continuing requirements of the business’, Skill says, reflecting on the pressures of the transaction. “This deal epitomised that sentiment. Whilst all of our efforts were focused on executing the listing, the company continued to require regular injections of capital to fund the development and scaling up of its covid-19 activities, so we often had multiple work-streams ongoing where we effected cross over financings in parallel with the main transaction, all of which impacted one another.”
Hence, the parties agreed upon a structure that involved CAH merging with and into a subsidiary of the company. This structure had few precedents and required a coordinated effort from Fried Frank’s corporate M&A, capital markets, debt finance, equity incentives, and tax teams in both the US and UK, with input from Cayman counsel, to design and then implement the transaction.
‘De-SPAC’ transactions, while gaining momentum, are not overly typical in a UK context which increased the onus on the firm to explain US customs and market practice to LumiraDx in order to educate them on how to pursue the most favourable terms. The team had to keep in mind the ever-changing landscape as the pandemic moved from an acute focus on diagnostic testing to the roll out of the covid-19 vaccines and the impact this would have on valuation and the timing of the listing.
“I find working in the healthcare sector emotionally rewarding and motivating as you are typically surrounded by some of the greatest minds on the planet”, says Skill. “So being able to point towards a product that is transforming community-based care and knowing that the work you are doing is contributing towards that goal does provide that extra drive to keep working through the multiple late nights.”
About Nick Skill
2019-present: Associate, Fried Frank
2013-2019: Associate, Norton Rose Fulbright
Who’s Who: the Fried Frank team
Led by: Corporate partner Ian Lopez, supported by corporate associates Nick Skill, James Frecknall, and Adrian Packer.
“De-SPAC” transaction led by: Corporate partners Ian Lopez and Warren S. de Wied and included tax partners Alan S. Kaden, Joseph E. Fox, and Nick Thornton; executive compensation & ERISA partner Jason R. Ertel; corporate partner Neil Caddy; litigation partner Scott Luftglass; corporate associates Nick Skill, R. Kirkie Maswoswe, James Frecknall, Adrian Packer, Andrew J. Steiger, Ryan Fung, and Jacqueline Punjabi; executive compensation & ERISA associates Samantha Steinfeld Rozell and Tyler Forni; and tax associates Shane C. Hoffmann and Richard Pilgrim.