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Cilo Cybin CEO responds to investor concerns

Cilo Cybin CEO Gabriel Theron dismissed concerns that his newly launched special purpose acquisition company (SPAC) will overpay when it buys one of his other companies.

Cilo Cybin Holdings (CCC) was founded by Theron and listed on the JSE on 25 June 2024 as a SPAC.

The SPAC was established in February 2022. Following an initial unsuccessful listing two years ago, it tried again in 2024 and succeeded.

A SPAC is a shell company that lists on an exchange through an initial public offering (IPO). It is used for the special purpose of acquiring a target company or companies in a specific industry.

SPACs are informally viewed as “blank cheque” companies, as investors often have little information on the specific target companies of the SPAC.

A SPAC can be viewed as a large fund that collects investor funds to buy unlisted companies that provide good investment opportunities.

The idea is that the SPAC’s founders and management have the expertise to identify good investment opportunities.

However, because the leaders essentially get a blank cheque to buy companies and pay what they want for them, it seldom provides good returns.

In the case of Cilo Cybin Holdings, the SPAC was formed to invest in commercial enterprises operating in the biotech, biohacking, or pharmaceutical sectors.

In the pre-listing statement, Cilo Cybin Holdings said that it identified Cilo Cybin Pharmaceutical (CCP) as its first target acquisition company.

CCP is a medical cannabis company based in Midrand, having cannabis cultivation, manufacturing and packaging facilities.

Cilo Cybin CEO Gabriel Theron

What stands out is that Cilo Cybin Pharmaceutical was founded by Gabriel Theron in 2018. That means the target acquisition company and the SPAC have the same founder.

Therefore, Theron started CCP in 2018, then created the Cilo Cybin Holdings SPAC in 2022 and listed it on the JSE to buy his own company CCP with the money raised from investors.

It raises concerns about a conflict of interest, with Theron at the centre of both companies. The concerns are two-fold.

  • The Cilo Cybin SPAC (CCC) gives little financial information on the target company Cilo Cybin Pharmaceuticals (CCP).
  • Given that Gabriel Theron is also the founder of CCP, why was it necessary to create a SPAC instead of listing CCP directly?

Without audited financial figures for Cilo Cybin Pharmaceuticals, investors may not know whether buying the company is a good idea.

It is also difficult to calculate Cilo Cybin Pharmaceuticals’ fair value to determine whether the Cilo Cybin SPAC is overpaying for this company.

If Cilo Cybin Pharmaceuticals had strong financials, it would have been in Theron’s interest to list it directly on the JSE.

With strong financials, Cilo Cybin Pharmaceuticals would have had no problem raising additional capital to acquire more companies.

It would have achieved the same goal as the SPAC with much more transparency and less complication.

The current SPAC setup creates the opportunity for CCC to decide how much they would pay for CCP, without the market’s valuation playing a role.

Given that the founder and management of CCC and CCP are the same people, it carries the risk of CCC overpaying for CCP with investor’s money.

Daily Investor raised these concerns with Cilo Cybin CEO Gabriel Theron, but he said it should not worry investors.

He explained that he preferred a SPAC instead of listing Cilo Cybin Pharmaceutical directly on the JSE because of its simplicity.

“Our Malaysian partners advised us that it would be a much faster process for them to approve the investment utilising a SPAC,” he said.

This was partly because, at the time of negotiations in 2023, Cilo Cybin Pharmaceutical was not yet profitable.

He also said there should not be concerns about him controlling both the SPAC and Cilo Cybin Pharmaceutical, which could lead to an inflated valuation for CCP, which would benefit him.

“We take a long-term approach, and we have no intention to exit or cash out,” Theron told Daily Investor.

He explained that he would not be able to vote on the acquisition transaction due to his interest in both entities.

“Any investors who are unhappy with the transaction who invested in the IPO have a redemption right,” he said.

This means that should they not vote in favour of the transaction, they will be refunded.

“It is our intention to always benefit our investors and grow the company to be a giant in the sector globally,” he said.

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