Shares of British Columbia quantum-computing startup D-Wave Quantum Inc. popped nearly 16 per cent on their first day of trading Monday after merging with a special purpose acquisition company – in a market in which other freshly listed quantum companies have struggled to keep their share prices up.
The company said in February that it would go public by merging with a special purpose acquisition company, or SPAC, called DPCM Capital Inc., which was listed on the New York Stock Exchange. The Burnaby, B.C., firm brands itself as a pioneer of commercialized quantum computing, harnessing the power of subatomic particles to process information at speeds far faster than classic computer systems.
D-Wave got to market faster than many competitors through a specialized approach called “quantum annealing,” but has since shifted more focus to “gate-model” computing. In such a model, bits are replaced with entities called qubits, which can hold a value that can simultaneously behave as though it is a one and a zero, helping to process information with incredible efficiency when linked together.
Such feats of computing require immense amounts of capital to develop, and the transaction was set to grant D-Wave access to a trust account with US$300-million – assuming that there were no redemptions by shareholders. But the company said in a recent filing with U.S. securities regulators that the SPAC’s shareholders exercised rights to redeem US$291-million worth of shares at a price of about US$10.01 a share.
This significantly reduces D-Wave’s access to new capital from the deal, though it also included a separate US$40-million commitment from new and old investors. They included Canadian pension fund PSP Investments, Japan’s NEC Corp., Goldman Sachs Asset Management, New Jersey-based Yorkville Advisors and Aegis Group Partners of Richmond Hill, Ont.
In a filing, D-Wave warned that if a “significant number” of the SPAC’s investors redeemed their shares, it could become a “controlled company” under NYSE rules, with PSP controlling the majority of voting power. This could exempt D-Wave from some corporate governance requirements, such as the need for a majority of the board to be filled by independent directors.
The merged company’s shares opened at US$8.98 Monday, closing at $10.
Morgan Stanley & Co. LLC, Citigroup Global Markets Inc. and UBS Securities LLC resigned from their advisory roles in the transaction in May, according to another filing, leaving a combined US$32.5-million in fees on the table.
The company brought in US$6.3-million in revenue in 2021 and US$5.2-million in 2020, filings said. Because quantum computing is in its early stages, many companies are selling investors on future prospects. But tech companies have been battered in recent months amid macroeconomic uncertainties, such as inflation and rising interest rates, and those promising longer-term payoffs are more broadly exposed to investors’ skittishness.
Other quantum companies that have recently listed publicly through SPAC mergers have struggled to maintain their share prices. Shares in California’s Rigetti & Co. Inc. have fallen by about half since its deal closed in March, while those in Maryland-based IonQ Inc. have fallen by nearly 80 per cent since its high of US$35.90 last fall.
James Sanders, of the S&P Global tech-industry analysis firm 451 Research, said in an interview that that SPAC market “has been unkind to a lot of industries, and quantum is certainly one of them.”
But D-Wave’s dual path of annealing and gate-based quantum computing, he said, could make the company more appealing, as they’re adept at solving different sets of problems. As an example, he said, the former can help optimize supply chains and vehicle routing, while the latter is more likely to help chemical and pharmaceutical industries.
Being able to approach two kinds of problems, Mr. Sanders said, “is probably one more area than a competitor.”
With a report from Sean Silcoff
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