Federal Street Amends Merger Agreement and Backstop


Federal Street Amends Merger Agreement and Backstop

Dec 20, 2018 INTEL by Kristi Marvin

PIPE with THL for up to $750 Million now at $8.50 per share

Federal Street Acquisition Corp. (“FSAC”) announced early this morning that they have amended both the merger agreement with Agiliti Health and the subscription agreement with Thomas H. Lee Partners, L.P. (“THL”) to provide backstop financing. Notably, the purchase price has been reduced to $1.44 billion and the per share purchase price for the backstop financing has been reduced to $8.50, from $10.00.

After FSAC’s three shareholder vote adjournments, there was a general sense that some sort of change was imminent.  However, amending the terms of the PIPE to $8.50 without adjusting the warrant strike, especially in light of Avista Healthcare’s troubles, is more than a little surprising.  Let’s take a look at the details.


The purchase price has been reduced from from approximately $1.58 billion to approximately $1.44 billion and the aggregate consideration will now be payable solely in cash, rather than a combination of cash and common stock.

If you recall, in the original agreement, the stock consideration was to be decreased (and cash consideration increased) depending on the amount of cash available post redemptions and the remainder of the merger consideration was to be paid in cash. The reduction in consideration to shareholders effectively represents stock consideration in Agiliti, Inc. that the selling equityholders were willing to forgo to ensure that the transaction could proceed.

Private Placement

FSAC also amended the subscription agreement with an affiliate of THL.  This will provide backstop financing for the revised transaction in the event of redemptions by FSAC’s public stockholders. The subscription agreement provides for the purchase of common stock of FSAC at a per share price of $8.50 in an aggregate amount up to $750 million.

First off, “in the event of redemptions” is an interesting bit of language and should probably say “because everyone wants to redeem”.  However, that’s not gonna fly in a press release. Nonetheless, the important point of this change is that given the strike price on the public warrants is not being adjusted to reflect the effective price of $8.50, the warrants go from being $1.50 out-of-the-money ($11.50 strike, $10.00 share price), to now twice that, or $3.00 out-of-the-money (same strike of $11.50, but an $8.50 share price).

This is not going to sit well with investors, to say the least, and it will start the conversation regarding the “Crescent Term” all over again.  If you’re unfamiliar with the Crescent Term, you can read about it here.  However, you can fully expect subsequent SPACs will be having conversations about this term going forward.

On the whole, this business combination wasn’t going to work as it was originally structured. A change was going to be made. Furthermore, FSAC’s reduction in purchase price and an amended PIPE subscription agreement is still going to be preferable to the changes seen in I-AM/Smaaash, where two investors (Polar and K2) were able to sell their shares to the company for $11.23 (and receive restricted stock).  FSAC/Agiliti now has a fighting chance with cash via the $750 million PIPE (vs. the original $250M PIPE, plus expected cash from trust).  HOWEVER, it would have been far more preferable if FSAC adjusted the warrant strike as a concession to shareholders.   Unfortunately, it sounds like FSAC doesn’t care much about doing FSAC #2, since if they did want to do a second SPAC, they would have tried to make this more palatable to investors.

Regardless, this is one of many body blows to the general SPAC mood we’ve had in November and December.  We need some good news…and soon.


  • Citigroup Global Markets Inc. and BofA Merrill Lynch are serving as financial advisors
  • Kirkland & Ellis LLP is serving as legal counsel to FSAC.
  • Weil Gotshal & Manges LLP is serving as legal advisor to Agiliti Health, Inc. and Irving Place Capital Management, L.P.