LIFX Acquisition - A few thoughts

This thread is assuming the potential acquisition is LIFX. Supported by  a few hints including Twitter posts, this is by far the most likely target (still speculation though).

What we know for sure?

1. Lifx had 3 rounds of VC funding with the latest being 12M USD.
2. Post Lifx-Buddy merger will be cash-flow break even in 19Q4.

What can we deduce?
1. We dont know the percentage of capital that represents however it would be surprising the owner would be willing to sell more than 20%. Let us assume Lifx valuation will be around 70M USD, thus 100M AUD for the sake of easy calculation
2. Buddy is burning 4M per quarter and let's assume the most optimistic scenario by 19Q4 is generating 1.5M receipt(an increase of 1M comparing to Q2), that means Lifx must have at least 2.5M positive cash flow per month.


Normally takeover happens in 3 fasion:
1) Buddy is substantially bigger than Lifx. Lifx is an opportunistic buy as it is struggling and Buddy has abundance of cash to throw around.
2) Lifx is reverse taking over Buddy as a venue for listing. Buddy is on the verge of collapsing.
3) The deal is mutually beneficial to both parties. Both parties believe the counterpart is a valuable addition to each.

If the assumption that Lifx is cash-positive is true, it looks in a much better position than Buddy is. Scenario 1) can be easily ruled out. While Scenario 2 is more likely, Buddy is nowhere near being dead. The developers are still active, the management is still busy finding/finalizing new deals (or not?).

I would say Scenario 3 is the most likely scenario. How should we value Buddy after the merge? It's difficult to tell as we are not professionals and we do not have as good information as the guys in the field do. However, according to my experience, you can always take the hint from others who should have better insights. Remember, no matter how idiotic we think the managements are, they ARE STILL MORE successful than most of us. If we cannot say for sure for Buddy's management, we need to have some trust on Lifx management.

If Lifx management is willing to accept Buddy to be a partner, and use it's cash to help Buddy to get through the burning stage, that tells me something. Lifx will be the one to lose most out of the deal if Buddy is as crap as some believe. If the more informative and successful party is willing to bet on Buddy, why shouldnt we?