Economic Investment

Digital Freight Startup Transfix Going Public in SPAC Deal Merger with a blank-check company is the latestin a series of deals shaking up the freightlogistics sector

Transfix Inc. plans to go public through a merger with a special-purpose acquisition company, giving the digital freight startup an enterprise value of $1.1 billion in the latest deal shaking up the middleman freight brokerage business. The blank-check merger would allow New York-based Transfix, which competes with bigger rivals including Uber Technologies Inc.s Uber Freight business, to tap public markets for backing to expand its business of using technology to connect shippers with truckers and to expand development of additional services, such as transportation management software, company executives said.The transaction with blank-check company G Squared Ascend I Inc. would give Transfix, founded in 2013, approximately $375 million in cash net of transaction expenses, assuming no redemptions by G Squared Ascend Is public stockholders, the companies said. In a SPAC deal, investors can pull out if they dont like the transaction, redeeming their shares for cash invested plus interest. G Squared Ascend I is sponsored by affiliates of G Squared Equity Management, a growth and venture-capital fund that previously invested in Transfix. G Squared Equity Management is also leading a commitment of an additional $110 million to backstop the merger under a forward purchase agreement, or a contract to buy at a specified price, with $60 million pledged to Transfix regardless of any redemptions. We believe that this is a huge opportunity for us to accelerate our growth, to continue investing in our technology and AI machine learning capabilities and product development, Transfix Chief Executive Lily Shen said. The transaction would also give Transfix more financing options, including for future mergers and acquisitions, although the main focus will continue to be on organic growth, finance chief Christian Lee said. Once the deal closes, Transfixs existing shareholders would own 69% of the combined company, Transfix Holdings Inc., and G Squared Ascend I Inc. shareholders would own 24%. Investors in the forward purchase agreement would own 4% and G Squared Ascend Is sponsors would own 3%, the companies said. The planned SPAC merger comes as a flurry of deals is reshaping the freight brokerage sector and as rival digital load-matching ventures that have grown rapidly face greater pressure to turn a profit. Echo Global Logistics Inc., one of the largest domestic freight brokers, is planning to go private, while Uber Freight said in July it was acquiring logistics service provider Transplace for $2.25 billion. Transfix was an early entrant in the now-crowded field of startups that aim to use technology to streamline the process of booking freight transportation. Rivals include Seattle-based Convoy Inc., whose investors include funds backed by Microsoft Corp. founder Bill Gates and Amazon.com Inc. founder Jeff Bezos. Last year, Transfix had $184 million in revenue and recorded an adjusted loss of $27 million, according to an investor presentation. By contrast, in the second quarter of thisyear, Uber Freight generated $348 million in revenue and reported an adjusted quarterly loss of $41 million. Transfix expects to generate $281 million in revenue this year and record an adjusted loss of $35 million, and projects it will be profitable on an adjusted basis by 2024, with $44 million in adjusted earnings before taxes, depreciation and amortization and $1.06 billion in revenue. We have not been chasing market share, Ms. Shen said. We have been chasing the right solution, and finding the right moment and opportunity for us to scale. And thats why were doing this transaction now. The agreement comes as a market frenzy over SPACs earlier this year has faded under stronger scrutiny from securities regulators.

1. What is the stated rationale for Transfix to enter into this deal with G Squared Ascend I?
2. Describe the transaction structure.
3. Discuss the increasing activity in the freight brokerage space. What is driving it?
4. Why has the earlier market frenzy for SPACs faded, according to the article?