Embattled synthetic biology firm Zymergen (NASDAQ:ZY) finally received some positive news as genetic engineering specialist Ginkgo Bioworks (NYSE:DNA) announced today it will buy out Zymergen in an all-stock transaction. This agreement will value ZY stock at a market capitalization of approximately $300 million. DNA shares are down nearly 5% in early afternoon trading.
The board of directors for both companies unanimously approved the buyout. Under the terms of the deal, Zymergen stakeholders will receive a fixed exchange ratio of 0.9179 Ginkgo shares for each unit of ZY stock, representing 5.25% pro forma ownership of Ginkgo following the transaction, according to a shared press release.
Fundamentally, the two companies believe the business combination can impart significant accretive benefits to multiple industries, including manufacturing, agriculture and medicine. Per the press release:
“Ginkgo plans to integrate Zymergen’s core automation and software technologies for scaling strain engineering capacity into its Foundry, including Zymergen’s machine learning and data science tools for exploring known and unknown genetic design space. Ginkgo customers will also benefit from the expansion of Ginkgo’s library of biological assets (“Codebase”) following the transaction.”
Notably, this buyout represents Ginkgo’s largest acquisition to date, which should “significantly enhance Ginkgo’s platform by integrating strong automation and software capabilities as well as a wealth of experience across diverse biological engineering approaches.”
Still, the benefits to ZY stock remain an open question.
The Rocky History of ZY Stock
Structured as a horizontal platform, Ginkgo serves various customer needs across multiple industries rather than producing its own products. Under the acquisition, Ginkgo “will support Zymergen’s plans to evaluate strategic alternatives for its advanced materials and drug discovery businesses, which have ‘established valuable product pipelines and rapid prototyping capabilities,’” per Fierce Biotech.
That’s the good news for ZY stock. The not-so-pleasant news is that the deal “is unlikely to mean a reprieve for Zymergen staff worried about redundancy, with Ginkgo confirming that the biotech will continue its standalone cost restructuring initiatives, including a reduction in head count and program rationalization.”
Enjoying early support from Softbank (OTCMKTS:SFTBY), Zymergen raised over $1 billion in venture capital funding before launching its initial public offering in April of last year. However, by August, CEO Josh Hoffman abruptly exited the organization, sinking ZY stock to the tune of 75%. The high-profile departure also invited questions about when Zymergen would generate any commercial revenue.
Even with the 20% pop in the morning session, ZY stock is down nearly 66% on a year-to-date basis. Since its first public close, shares have hemorrhaged a staggering 93% of market value.
No Panacea Available
Although the recent acquisition may seemingly represent a fresh turning of the page for both companies, the reality is ZY stock isn’t the only entity under the microscope. Shares of Ginkgo Bioworks have suffered a slightly worse performance since the beginning of this year, down nearly 68%.
In the first quarter of 2022, Ginkgo generated $168.4 million in revenue, up 282% against the year-ago level. However, the worrying aspect for the company is its expanding red ink on the bottom line. For the most-recent quarter, it posted a net loss of $590.5 million, significantly worse than the net loss of $73.6 million in Q1 2021.
Ultimately, Wall Street may be in a “show me” mode for Ginkgo. So far, the acquisition of ZY stock doesn’t appear to be impressing onlookers.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.