Mubadala's Proposal to Sell Wefox Sparks Controversy

Abu Dhabi's Mubadala Investment Co. Proposes Sale of Struggling Insurtech Startup Wefox to UK's Ardonagh

Mubadala Investment Co., a sovereign wealth fund based in Abu Dhabi, has put forward a proposal to sell the struggling German insurance technology startup, Wefox, to the UK's Ardonagh Group Ltd. This proposition, valued at up to €550 million, presents a stark contrast to Wefox's previous $4.5 billion valuation just two years ago during a funding round led by Mubadala. Wefox, located in Berlin, reported a substantial loss of over €100 million last year and currently requires an additional capital injection of up to €70 million.

Wefox's founders, as well as some early investors, are resisting the sale, expressing concerns about potential complete loss of their investment. Instead, they are advocating for a new funding round through existing investors. This stance is supported by key shareholders such as Chrysalis Investments and Target Global, with Chrysalis preparing to contribute €15 million in the proposed €50 million round. Under Mubadala's plan, Wefox would be divided into two entities: Ardonagh would acquire the core business, while a new company, encompassing Wefox's tech platform and Swiss operations, would be under the ownership of early investors.

This proposed division brings significant risk to early shareholders unless the new company becomes highly profitable. However, investors who engaged in the 2022 funding round could potentially double their money due to preferential liquidation terms, prioritizing their payouts. The fate of these proposals is set to be determined at an extraordinary shareholders meeting on June 28.

Key Takeaways

• Mubadala proposes the sale of Wefox to Ardonagh for an enterprise value of up to €550 million.
• Following its $4.5 billion valuation in 2022, Wefox faced a loss of over €100 million last year and requires an additional €70 million.
• Wefox founders and early investors oppose the sale, preferring a new funding round.
• Chrysalis and Target Global support Wefox founders' alternative funding plan, with Chrysalis contributing €15 million.
• The proposed deal would split Wefox into two entities, posing risks for early investors.

Analysis

Mubadala's proposition to sell Wefox to Ardonagh signifies a strategic shift in managing underperforming assets fueled by Wefox's significant losses and financial requirements. This move could potentially result in a substantial write-down for early investors, while later investors may benefit from liquidation preferences. The alternative funding plan proposed by Wefox's founders and key shareholders, including Chrysalis and Target Global, aims to safeguard value but carries a high level of risk. The division of Wefox into two entities complicates the financial outlook, with the success of the new company holding critical importance for early investors. The impending shareholders' meeting will prove pivotal, shaping the future trajectory of Wefox and the outcomes for investors.

Did You Know?

• Sovereign Wealth Fund: A sovereign wealth fund (SWF) is a state-owned investment fund that invests in real and financial assets such as stocks, bonds, real estate, and alternative investments including private equity funds and hedge funds. SWFs are typically financed by revenues from commodity exports or foreign exchange reserves held by the central bank. Mubadala Investment Co. stands as an example of a sovereign wealth fund originating from Abu Dhabi, managing a significant portion of the UAE's surplus oil reserves.
• Liquidation Preferences: Liquidation preferences are contractual terms in venture capital and private equity that determine the order in which investors receive payment when a company is sold or liquidated. Typically, investors with liquidation preferences are paid before common stockholders. This means that in the event of a sale amounting to less than their initial investment, these investors are reimbursed first, potentially leaving no returns for other shareholders. In the case of Wefox, investors from the 2022 funding round could potentially double their money due to these preferences.
• Enterprise Value (EV): Enterprise value serves as a measurement of a company's total value, often considered a more comprehensive alternative to equity market capitalization. EV encompasses the market capitalization of a company, alongside short-term and long-term debt, in addition to the cash on the company's balance sheet. Regarding the proposed sale of Wefox to Ardonagh, the enterprise value of up to €550 million signifies the inclusive value of the company being considered for acquisition, covering both equity and debt, minus cash.