Low on cash and high on losses, the Cairo-born mass transit firm wants to undo its 2022 acquisition of Volt Lines for $40 million as it searches for a way to survive.

In April 2022, Swvl acquired Volt Lines, a Turkish transportation-as-a-service operator for $40 million and promised to invest an additional $25 million committed to fuelling growth in the region. Now the Nasdaq-listed bus operator wants to undo the transaction.

In a notice filed with the United States Securities and Exchange Commission (SEC) last week, Swvl stated that it has “entered into a definitive agreement with certain former shareholders (the “Former Volt Lines Shareholders”) of Volt Lines B.V. (“Volt Lines”), a private company with limited liability duly incorporated under the laws of the Netherlands, and a Turkey-based B2B and Transport as a Service mobility business, to unwind its previous acquisition of Volt Lines.”

Founded in 2018 by Ali Halabi, Volt Lines provides individual customers and corporate clients in Turkey with an alternative to ride-hailing and public transportation. Volt Lines’ shared buses were used by more than 110 companies in the region at the time of the acquisition.

The company’s acquisition, at the time, followed a buying spree from Swvl that saw it buy ViaPool, a Latin American mass transit company with operations in Argentina and Chile; Berlin-based mobility startup Door2door; and Shotl, an on-demand shuttle bus service.

A few months later, a planned acquisition of London’s Zeelo by Swvl was called off after its share price dropped 33% from IPO highs. Swvl’s share price has since dropped a further 65%.

Swvl says former Volt Lines Shareholders are not obligated to retransfer or cancel the tranche of their Swvl shares already received from the prior acquisition agreement. For context, although the acquisition was reportedly valued at $40 million, Swvl was only obligated to pay $5 million in cash for Volt Lines (within 6 months of the deal closing). The balance was to be settled by issuing 1.4 million Swvl shares in four revenue-based milestone tranches.

Given Swvl’s revenue performance (its half-year revenue in 2022 was $66 million and it has not yet released its third-quarter results), it is likely that these milestones were not reached. A deal like this may represent a depressing win for both sides.

Swvl has said it hopes to turn a profit in 2023, “When we went public back in July 2021, we were estimating to turn profitable in 2024. In response to market conditions, we had to bring profitability forward by one year to 2023,” CFO Youssef Saleem told TechCabal in October 2022.

In December, Swvl exited Pakistan, its second-largest market.

Second Nasdaq notice and a board exit

In a related filing, Swvl has also been notified by Nasdaq that it is not in compliance with its rule that required companies listed on Nasdaq to maintain a minimum market capitalisation of $50 million. Swvl’s market cap is currently just over $21 million, up from its December lows of just under $15 million

To regain compliance with Nasdaq’s listing rules, Swvl stock will have to trade at or above 37 cents ($0.37) to gain a market capitalisation that is equal to, or not below, $50 million; for a minimum of 10 consecutive business days before  July 10, 2023.

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Otherwise, it will have to be delisted from the exchange. This is the second time Swvl’s poorly performing stock has triggered this warning.

The company’s growth-at-all-costs and rapid expansion strategy have been roundly criticised, following its share price collapse amidst a downturn in tech stocks.

Swvl said it had formed a special committee which included independent directors from the Company’s Board of Directors “to explore and evaluate potential strategic alternatives” to enable the company to continue operating. The full list of “Potential Strategic Transactions” includes a corporate sale, a merger, selling all or a portion of the company’s assets, and new debt or equity financings.

If the committee fails, Swvl says it may need to scale back or discontinue parts or all of its operations in order to further reduce costs or seek bankruptcy protection. According to Stock Analysis, a market insights firm, Swvl holds $24.30 million in cash and $6.18 million in debt.

In a separate filing, Swvl announced the exit of an independent director and member of its audit committee, Lone Fønss Schrøder. The company’s filing says Schrøder’s departure is not due to a disagreement with how the company is run. Schrøder, who is currently CEO of Concordium, a blockchain company, is also a venture partner with Colle Capital, the venture capital firm founded by Victoria Grace, who also founded Queen’s Gambit Capital, the firm that led Swvl’s SPAC IPO in 2021.

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