by Dominique Michael Bellemans and Bob Reno
Once upon a time, the Virtual Merger used to be disrespectfully recommended by wise men with expensive suits and by reputable experts that charged astronomical hourly fees as a second-hand, half-baked alternative when a “true” merger could not take place. For example, because of poor economic conditions, lack of financing or regulatory issues. It was a dummy solution to console the disappointed parties after they were told that the doors to merger’s paradise would remain closed for them, so that they wouldn’t have to abandon all hopes of combining forces with another entity. In those prehistoric times, mergers were all about clunky economies of scale, mercilessly reduced costs, larger geographical coverage, augmented market penetration, commercial diversification and often imaginary synergies. All of which have become quasi irrelevant in the blockchain era.
Today, the Virtual Merger is all about two or more entities combining just their best features and most excellent strengths, about making optimal use of the very best minds from both entities and making up for shortfalls in the individual entities’ skill-sets. It’s about doing so with a specific mutually beneficial objective, an obvious and logical common purpose and democratically set common benchmarks and interrelations. In the large majority of cases, they can do so as perfectly equal partners. The Virtual Merger is as such an amazingly dynamic and efficient strategy which enables two or more entities can integrate only those features, assets, operations, know-how, infrastructure, markets, enabling technologies and/or liquidities that are required and useful to achieve their common goal. And they can do so while retaining their discrete financial and managerial autonomy.
As Bob Dylan so poetically sang … The times, they are changing …
The recent virtual merger between Tera Vera Group of Bucharest (EU) and Optimal Outcome Solutions of Austin, Houston & New York (US) is a very promising premiere in the world of finance, fintech and applied AI and will hopefully be an example for many others to come.
Dominique Michael Bellemans, CEO of Tera Vera Group Srl, says: “When about two months ago, I got in touch with Bob Reno, who had read my article on “The Regrettable Under-performance of the ICO”, it took us very little time to understand that we had a very similar view on how business in the world of finance will look like over the next coming years. Bob and I have each worked closely together with many hundreds of businesses over the last 25 years. Our views were not only similar, more importantly, they were extremely complementary. Being complementary is the key driver of any Virtual Merger and all other strategic and practical considerations should be strictly secondary to that.
“We are truly happy that we are entering this Virtual Merger, which secures us privileged access to the Optimal Outcome algorithms. These allow for detailed and in-depth metrics of financing situations and offer higher-level analytics and unprecedented decision-making insights. The combined force of our Revenue Based Finance (RBF) models and the Optimal Outcome algorithms is groundbreaking and will have a widespread and lasting impact on how corporations, businesses and projects will finance and fund their future from now on.
“Our RBF models require that our clients provide us with a continuous stream of information on the key performance indicators of their project and their revenues. That information is fed in real-time into the Optimal Outcome algorithms and these provide, in turn, optimal scenarios and decision proposals that allow for the seamless matching of liquidity needs and investor returns.
“Traditional mergers look a lot like one of these huge cargo ships that cruise our seas and oceans. These ships carry enormous loads at a tantalizingly slow pace. They follow prescribed routes because, due to their size and weight, maneuvering is difficult. They can only dock, load and unload in mega-ports that are built and equipped specifically to accommodate them. They are so big that they simply could not be any bigger. Owing to inertia, once they are at cruising speed, they must travel many miles before they can come to a halt. A Virtual Merger is much more like a speedboat than a cargo ship.
“We’ve wanted to give this Virtual Merger an even more innovative dimension by allowing interested parties to invest in and participate in the spoils and revenues of our Virtual Merger. They can do so by acquiring tokens. These revenue tokens trade 24/7 on WAVESPLATFORM.COM with symbol TERAVERA. The tokens allow for early-stage participation in the benefits of Tera Vera Group’s Virtual Merger with Optimal Outcome Solutions and the value of the tokens should reflect the perceived value of the success of our virtual merger. The tokens trade against BTC and ETH.”
Bob Reno, Executive Chairman of Optimal Outcome Solutions LLC says: “Together with Tera Vera Group, we will take the financing and funding of businesses, projects and corporations to a completely new level of performance.
“We chose and developed the virtual merger concept as the optimal way to join our efforts because it was the most efficient and by far the most adaptable one. It was also the most immediate, implemented in near real time. The term “Virtual Merger” describes the relatively recent phenomenon of independent entities entering into contractual arrangements that are functionally, but not legally, equivalent to actual mergers.
“Our AI-algorithms are the optimal match for Tera Vera Group’s RBF models (especially the Revenue Token and Pioneer Token designs) and their strategic vision. These models and designs were, in turn, the true complement to our own Optimal Outcome Solutions, not just for both of us, but even so for those in our respective distributed ecosystems. As such our Virtual Merger is just as much an Optimal Outcome for Others (a so-called “O3 Virtual Merger”) and not only for ourselves.
“Our Virtual Merger goes even further than that. It became obvious almost right away that the killer application for our combined forces would be the setup of a hedge fund that we would jointly build, fuel and manage. Not only are we convinced that this fund will provide projects and businesses with a permanent and tailored liquidity stream, but that at the same time, we can create superior returns for our investors. Those returns can be achieved through providing continuous liquidity in exchange for a part of future revenue streams.
“The cost of implementation of our Virtual Merger is just a tiny little fraction of the legal and other fees associated with a traditional merger. While it would not be reasonable to say input from a lawyer is not required when undertaking a VM, it is fair to say the legal footprint of a VM deal is a much smaller one than would be apparent with a traditional merger, acquisition or joint venture. In terms of legal documents, most VMs could be wrapped up with a Letter Of Intent and/or a Memorandum of Understanding, (MOU) with specific attention to clauses relating to confidentiality, non-solicitation (of staff and clients) and intellectual property ownership. What is important to remember for businesses considering a virtual merger, though, is that if things don’t work out, MOUs are legally ‘lite’. While they do illustrate the shared intent of their signatories, they do not impose a strict legal commitment or liability on either party, and in general they are not enforceable in court. The bottom line being that parties should choose who they virtually merge with carefully, as in reality these deals can only work while there is mutual goodwill and shared objectives between the participants. Should any of those fundamentals change, there are few options for legal recourse for either party.
“It is far more exciting and dynamic to focus completely on what we can achieve together than to completely merge. No need to think a great deal about board seats, reciprocal shareholdings, due diligence, regulatory issues etc … All that counts is what we can bring together. We have decided to join forces as equal partners, who decide unanimously and equally share the revenues that we will generate. Just think on how efficient, easy, transparent and straightforward that is. Think about how easy it is to translate just that into a 3-page Virtual Merger contract. In my opinion, it should never take more than that in our fast paced and ever-changing environment to transform a great idea into a ready-to-go venture.”
In the nascent blockchain industry where due diligence of companies and the viability of their products is difficult to gauge using traditional metrics, advocates of virtual mergers say that subsuming intellectual properties and operations makes more sense than trying to allocate a value and acquire them outright.
Because there is no transfer of ownership or shares between companies, virtual mergers preclude shareholder approval which, in the case of publicly listed companies, could lead to disgruntled shareholders unhappy with the deal selling their holdings and crashing the share price. In the unlisted world of blockchain companies this isn’t as big a concern.
So how does a virtual merger differ from a traditional merger?
- It is governed by contract without reference to statutorily determined procedures or consequences
- A VM does not result in the absorption of one company by another
- A VM does not result in cash-outs or exchanges with either shareholding group; where regular mergers are often contested and brought to court by significant shareholders
While there is no bright-line definition of a virtual merger, they usually involve the shared use of assets contributed by each of the companies. The two companies remain legally independent, each with its own directors, officers and shareholders.
According to Stuart R Cohn of the University of Florida College of Law the conditions of a virtual merger typically involve:
- A significant portion of business operations of at least one of the two entities;
- Result in a joint management unit that directs the use of the assets contributed by each of the respective companies
- Permit either party to withdraw from the arrangement without penalty and
- Permit the parties, following withdrawal, to (i) reclaim their respectively contributed assets or (ii) effect a buyout of the withdrawing company’s interest, which would include the contributed assets.
The recent tidal wave of ICOs has seen billions raised but precious little so far in the way of products and services delivered. One reason for this may be that core developments are being sidetracked assembling all the components of a ‘real’ business — and losing focus on their grand vision. One potential solution for these stalled projects, say some, is the ‘virtual merger’…