Quantum SPAC in Space: Arqit Limited to Raise $400 Million Through SPAC Deal

Photo by NASA on Unsplash

UK-based Arqit Limited (“Arqit”), a leader in quantum encryption technology, will become the second quantum startup to become publicly listed via a special purpose acquisition company, following an agreement with Centricus Acquisition Corp, according to a company statement.

The deal is expected to raise $400 million and implies a ~$1.4 billion market cap, according to reports.

Upon closing of the transaction, a newly formed Cayman holding company, Arqit Quantum Inc., will merge with Centricus, acquire Arqit and register its shares for listing on the Nasdaq Stock Market. Centricus Acquisition Corp. trades on Nasdaq under CENH, CENHW and CENHU).

“The world needs simpler, stronger cyber security, and Arqit addresses that need,” said David Williams, Arqit CEO. “After four years of innovation in stealth mode by a world leading multi- disciplinary teams of scientists and engineers, we are ready to go to market. This technology is important and we need to take it to hyperscale as quickly as possible, because the problems we solve are problems for everyone. The capital from this transaction will enable us to develop critical relationships with existing and new customers and fully scale our platform as a service with a balance sheet which gives us speed, momentum and the resilience to deliver on our commitments to customers for the long term.”

The technology that Williams mentioned is Arqit’s QuantumCloud™ quantum encryption technology, which reportedly makes the communications links of any networked device secure against current and future forms of hacking – even an attack from a future quantum computer.

Centricus CEO Garth Ritchie said the move will establish Arqit as a leader in the encryption space.

“This is a deep tech company which is many years ahead of the market. Arqit has protected its IP by remaining in stealth mode whilst filing over 1,000 claims on more than a dozen patent applications,” said Ritchie. “It is thanks to funding from the British Government and its VC partners that Arqit is now ready to commercialise and scale its product suite; this will complement an already strong cohort of launch customers. The executive and advisory team are a ‘transatlantic who’s who’ of relevant cybersecurity, space and military experience – this team also enjoys peerless access to relevant enterprise customers.”

Arqit’s current customers include the UK Government, the European Space Agency, BT plc, and Sumitomo Corporation. In addition, many companies like Verizon, BP, Northrop Grumman and Iridium are currently testing the use of Arqit’s technologies in different use cases.

It is estimated that the global addressable market for information security and risk management will be approximately $194 billion by the end of 2024, as government, military, cybersecurity, telecoms and financial services players move at speed to protect themselves and their customers from critical security breaches.

Manfredi Lefebvre d’Ovidio, Chairman of both Centricus and Heritage Group, which was the anchor investor in the PIPE transaction, said: “Arqit is a unique company, with disruptive deep technology that will ensure a safer environment for businesses and people. David and his team have built an extraordinary enterprise and we are delighted to support Arqit’s development. Garth and the Centricus Acquisition Corp. team have done a remarkable job and we are extraordinarily pleased to be able to announce our partnership. I and my colleague Carlo Calabria have accepted David’s invitation to remain on the board and to work tirelessly to bring all of our skills and relationships around the world to bear to help to hyperscale this business.”

 

Arqit logo

Next-Generation Encryption

PKI, or “public key infrastructure” or “PKI,” is currently used to encrypt most of the world’s communications, but the company officials explain that the system was designed in the 1980s and is no longer fit for purpose in a hyperconnected world. They add that, most likely within this decade, quantum computers will be able to break PKI’s encryption algorithms.

Symmetric encryption is a well understood encryption technology that is known to be more secure than PKI, including against quantum attack. However, to date there has been no secure way to distribute symmetric encryption keys at scale. Arqit says its system is designed to create those keys at end points when they are needed, at scale, securely, at any kind of end point device and in groups of any size.

QuantumCloud™ puts a small software agent at any end point device. This software creates an unlimited number of symmetric keys with partner devices. The process is very simple and fast. Currently Arqit’s system uses source keys which are originated in data centres, however by 2023 it plans to launch two quantum satellites to assume that role. Those satellites will use a transformational new quantum protocol invented by Arqit which solve all of the known problems of satellite quantum key distribution. They will create a backbone of secure keys within data centres all over the world, and a quantum safe boundary protecting those data centres.

A customer/user can create an infinite number of symmetric key pairs, in groups as large as are needed. Keys are never “delivered”, so they cannot be intercepted. They are created at the end points and therefore can never be known by third parties. They can be used only once if necessary and replaced frequently. The service is sold and fulfilled on a self-service basis in the cloud making it an easily scalable business model.

Arqit believes its solution will provide a transformation in cyber security that provides a simple and elegant migration from existing encryption technology and will also protect against quantum attack.

Transaction Overview

The company provided the following overview of the deal: The transaction values the combined company at a pro forma enterprise value of approximately $1.0 billion, and is expected to provide up to $400 million of gross proceeds to Arqit from a combination of $345 million of cash held in Centricus’ trust account (assuming minimal redemption from Centricus existing shareholders), and approximately $70 million from a fully committed PIPE. All existing shareholders and investors will continue to hold their equity ownership, and current Arqit shareholders will remain the majority owners of the combined company at closing.

In addition to financial investors, strategic investors Heritage Group, Virgin Orbit and Sumitomo Corporation have agreed to invest in the PIPE offering.

The proposed transaction was unanimously approved by Arqit’s board of directors as well as Centricus’ board of directors and is expected to be completed by the end of the third quarter of 2021. The proposed transaction will be subject to approval by Centricus’ shareholders and satisfaction or waiver of the closing conditions identified in the Business Combination Agreement.

Additional information about the proposed transaction, including a copy of the Business Combination Agreement, will be provided in a Current Report on Form 8-K to be filed by Centricus with the Securities and Exchange Commission (the “SEC”) and will be available at www.sec.gov. In addition, Arqit Quantum Inc., a newly formed Cayman holding company, intends to file a registration statement on Form F-4 with the SEC, which will include a proxy statement/prospectus of Centricus, and will file other documents regarding the proposed transaction with the SEC.

Analysis

  • This is the second quantum tech SPAC. Capital raised from quantum SPACs now totals >$1bn
  • SPACs appear to offer a unique opportunity for quantum tech start-ups to raise significant capital in a market where traditional VC investors are nervous around longer investment horizons and hard tech innovation
  • We have seen a shift in sentiment around the broad topic of quantum security. Investors are increasingly interested in software-led solutions to defending information from future hacks (versus using QKD hardware)

 

Advisors

Deutsche Bank is serving as financial advisor and capital markets advisor to Arqit and as a placement agent on the PIPE offering. J.P. Morgan is serving as financial advisor to Centricus in connection with the business combination and as a placement agent on the PIPE offering. White & Case LLP is serving as legal advisor to Arqit Limited. Latham & Watkins LLP is serving as legal advisor to Centricus Acquisition Corp. Sidley Austin LLP is serving as legal advisor to the placement agents.

Matt Swayne
Matt Swayne
Matt Swayne is a contributor at The Quantum Daily. He focuses on breaking news about quantum discoveries and quantum computing. Matt enjoys working on -- and with -- startups and is currently working on a media studies master's degree, specializing in science communication.

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