Leo Holdings Corp. (LHC) Signs Term Sheet with Digital Media Solutions

Leo Holdings Corp. (LHC), which is scheduled to hold their extension vote on Tuesday, February 11th, previously teased investors by putting out a press release on January 27th, providing a few headline details about a potential target they are in discussions with for a combination.  However, yesterday (Feb. 6th), LHC decided to “show a little more leg” by providing additional details in an effort to keep investors from redeeming. As for the timing of yesterday’s filing from LHC, keep in mind that today is the last day to redeem ahead of their extension vote.

As for the details, Leo has signed a term sheet with a named company now – Digital Media Solutions LLC (“DMS”). DMS is a “technology-enabled business capitalizing on the secular shift of advertising dollars from traditional offline channels to online digital channels by helping connect consumers and advertisers with innovative brand and marketplace solutions. ” Total enterprise value of the proposed transaction is $757 million representing a multiple of 12.0x fiscal year 2020, with an expected adjusted EBITDA of $63 million.  Plus, LHC got a $100 million PIPE (common at $10.00). However, since we don’t know all the details yet, we don’t know if there any founder shares or any other sweeteners attached to that PIPE to bring PIPE investors cost basis below $10.00.

We also have a familiar face involved in this transaction with Clairvest. If their name doesn’t ring a bell, they were a minority shareholder of Accel Entertainment, the company with which TPG Pace Holdings combined, and Clairvest initially filed suit to block the merger. Clairvest eventually dismissed their suit and Acel (ACEL) is currently trading around $12.58. Soooo….good thing they changed their mind.

The good news is, in LHC’s case, Clairvest (which owns 46% of DMS) is “supportive” of this transaction and it says the sellers (including the management team) are expected to retain over 40% equity interest of the combined company post-close (subject to the amount of shares redeemed).

So while we don’t have a “definitive agreement” on file heading into next week’s extension vote, providing enough additional details to keep investors interested was a good move.  Especially since LHC is asking for five and a half extra months without a contribution to trust. The share price zoomed to close yesterday at $10.57, which is well above estimated trust value, so redemptions should be minimal (if any).  Plus, getting past the extension vote with minimal redemptions is probably what DMS is waiting for to sign a definitive agreement. So most likely we get a full blown combination announcement very quickly after the vote.

This looks like a nice “save” on Leo’s part after their agreement with Chuck E. Cheese was terminated last year.

Once the transaction closes, DMS is expected to trade on the NYSE under ticker “DMS”.  BofA Securities is acting as financial advisor to DMS.