DiamondHead Holdings Corp. *
PROPOSED BUSINESS COMBINATION: United Homes Group, Inc.
ENTERPRISE VALUE: $572 million
ANTICIPATED SYMBOL: UHG
DiamondHead Holdings Corp. proposes to combine with Great Southern Homes, Inc. GSH will become a publicly traded company, and DiamondHead Holdings Corp. will be renamed United Homes Group, Inc.
Great Southern Homes (GSH) is one of the largest and most established homebuilders in the Southeast, having built more than 11,000 homes over the last two decades. The Company currently has a presence in South Carolina and Georgia and focuses on providing high-quality, affordable homes for the entry-level and first move-up segments. GSH was the 25th ranked starter-home builder and the 41st ranked single-family detached home builder in the United States, respectively, based on 2021 home closings according to Pro Builder’s 2022 Housing Giants Report.
SUBSEQUENT EVENT – 3/28/23 – LINK
- Share Lock-Up Agreements:
- DHHC entered into certain private placement transactions with certain investors who purchased shares of DHHC’s Class A common stock on the open market prior to March 16, 2023 (each a “Lock-Up Investor”), pursuant to which, and subject to and conditioned upon the satisfaction of the closing conditions set forth in the Share Lock-Up Agreements, DHHC agreed to issue to each Lock-Up Investor 0.25 UHG Class A Common Shares (up to 421,100 UHG Class A Common Shares in the aggregate) for a purchase price of $0.01 per share, for each share of DHHC Class A Common Shares held by such Lock-Up Investor at the Closing.
- PIPE Subscription Agreements:
- DHHC and certain investors entered into subscription agreements providing for the purchase by the PIPE Investors at the effective time of the Business Combination of an aggregate of 471,500 shares of UHG Class A Common Shares at a price per share of $10.00, and provided further that for each UHG Class A Common Share purchased by each PIPE Investor, UHG will issue to the applicable PIPE Investor 0.25 UHG Class A Common Shares (up to 117,875 UHG Class A Common Shares in the aggregate) for a purchase price of $0.01 per share for gross proceeds to UHG of approximately $4.7 million.
- Each of the Lock-Up Investors and the PIPE Investors have agreed to subject all of the UHG Class A Common Shares held by each such investor following the consummation of the transactions contemplated by their respective Share Lock-Up Agreement or PIPE Subscription Agreement, as applicable (the “Lock-Up Shares”), to resale and transfer restrictions for a period of one year for 50% of such Lock-Up Shares and two years for the remaining 50% of such Lock-Up Shares.
SUBSEQUENT EVENT – 3/22/23 – LINK
- Great Southern Homes, Inc., a South Carolina corporation and a group of investors party to that agreement have agreed to purchase $80,000,000 in original principal amount of convertible promissory notes and 744,588 shares of Class A common stock in a private placement PIPE investment in connection with the previously announced business combination pursuant to which the Company will acquire GSH, and following which DHHC expects to be renamed United Homes Group, Inc. The aggregate gross amount of the PIPE Investment is $75,000,000.
- The closing of the Note Purchase Agreement is contingent upon the substantially concurrent consummation of the Business Combination and other customary closing conditions.
- The purpose of the PIPE Investment is to raise additional capital for use by the Issuer following the closing of the Business Combination.
- The proceeds of the PIPE Investment are expected to be used by DHHC to offset redemptions of Class A common stock in connection with the Business Combination, and may be used by DHHC to satisfy the Minimum Cash Condition set forth in the Business Combination Agreement.
- The Notes mature five years from the date of the business combination, and bear interest at a rate of 15% per annum.
- The Notes are convertible into Class A common stock after the first anniversary of the issuance date at 80% of the then-current trading price subject to a minimum conversion price of $5.00 and a maximum conversion price of $10.00
- Investors have agreed not to lend, offer, pledge, transfer or dispose of the Shares until the first anniversary of the closing of the Note Purchase Agreement.
- In addition, one of the Investors will have the right to designate a member of the board of directors of DHHC following the closing of the PIPE Investment.
EXTENSION – 1/25/23 – LINK
- The extension vote was approved from January 28, 2023 to July 28, 2023.
- 30,058,968 shares were redeemed for approximately $10.12/share
TRANSACTION
- The transaction values the combined company at a pro forma enterprise value of approximately $572 million, as of December 31, 2022.
- All of GSH’s existing shareholders will roll 100% of their shares into shares of the combined company and, assuming no redemptions from DHHC public shareholders, will hold approximately 51% of the shares of the combined company on closing.
- The transaction will deliver approximately $320 million in cash proceeds, net of estimated transaction costs, to the combined company including a $25 million commitment to purchase and not redeem DHHC public shares from the DHHC sponsor group, including David Hamamoto and Antara Capital.
PIPE
- There is no PIPE for this transaction
NON-REDEMPTION AGREEMENT
- Members of the Sponsor have made a commitment to purchase and not redeem an aggregate of 2.5 million DHHC public shares.
EARNOUT
- Sponsor
- 2.1 mm shares
- 37.5% of the shares will be released after the VWAP is equal to or exceeds $12.50 for 20/30 trading days
- 37.5% of the shares will be released after the VWAP is equal to or exceeds $15.00 for 20/30 trading days
- 25% of the shares will be released after the VWAP is equal to or exceeds $17.50 for 20/30 trading days
- The Sponsor has also agreed that in the event that Closing DHHC Cash is less than $100,000,000, up to 1.0 million Sponsor Shares will be Sponsor Earnout Shares, subject to the same release conditions
- Company
- 20 mm shares over a 5-year period
- 7.5 mm after the VWAP is equal to or exceeds $12.50 for 20/30 trading days
- 7.5 mm after the VWAP is equal to or exceeds $15.00 for 20/30 trading days
- 5 mm after the VWAP is equal to or exceeds $17.50 for 20/30 trading days
SPONSOR SUPPORT AGREEMENT
- The Sponsor has also agreed that in the event that Closing DHHC Cash is less than $100,000,000, up to 1.0 million Sponsor Shares will be Sponsor Earnout Shares
- The Sponsor has also agreed to forfeit approximately 1.8 million Sponsor Shares and approximately 50% of its warrants that were acquired in a privately placement consummated simultaneously with the closing of DHHC’s initial public offering.
LOCK-UP
- Sponsor
- 50% of the Shares, the period ending one year following the Closing, and the remaining 50% of the Shares, the period ending two years following the Closing.
- Nieri Shares
- 50% of the Shares, the period ending one year following the Closing, and the remaining 50% of the Shares, the period ending two years following the Closing.
- Company
- One year following the Closing Date or trading equal to or above $12.00 for 20/30 trading days at least 150 days after the Closing
NOTABLE CONDITIONS TO CLOSING
- Closing DHHC Cash being equal to or exceeding $125,000,000 (the “Minimum Cash Condition”)
- There can be no assurance that the Minimum Cash Condition will be satisfied on the Closing Date.
- In the event that the public shareholders exercise their redemption rights with respect to a number of DHHC Shares such that the Minimum Cash Condition would not be met based on cash held in the DHHC trust account, DHHC would need to seek to arrange for additional third-party financing to be able to satisfy the Minimum Cash Condition.
- DHHC plans to pursue third-party financing to satisfy the Minimum Cash Condition;
- If the Minimum Cash Condition is not satisfied, amended or waived by GSH pursuant to the terms of the Business Combination Agreement, then the Merger would not be consummated.
NOTABLE CONDITIONS TO TERMINATION
- By mutual written consent of DHHC and GSH
- Subject to certain limited exceptions, by either DHHC or GSH if the Merger is not consummated by April 28, 2023.
- By either DHHC or GSH, if a governmental order permanently enjoining, restraining or otherwise prohibiting the consummation of the Transactions is issued and becomes final and non-appealable
ADVISORS
- BTIG, LLC is acting as exclusive sell-side advisor to GSH.
- Nelson Mullins Riley & Scarborough LLP is acting as counsel to GSH.
- Zelman Partners is acting as exclusive M&A advisor to DiamondHead.
- Sullivan & Cromwell LLP is acting as counsel to DHHC.
MANAGEMENT & BOARD
Executive Officers
David T. Hamamoto, 61
Chairman and Chief Executive Officer
David T. Hamamoto is the Founder of Diamond Head Partners, LLC which he established in 2017. He is also a director and chairman of the nominating and corporate governance committee of Lordstown and previously served as the Chairman and Chief Executive Officer of DiamondPeak. Previously, he served as Executive Vice Chairman of Colony NorthStar (now Colony Capital (NYSE:CLNY)), a real estate and investment management firm, from January 2017 through January 2018. The NorthStar companies, which he founded, were sold to Colony Capital in January 2017. Prior to the sale, Mr. Hamamoto was Executive Chairman of NorthStar Asset Management Group (“NSAM”) since 2015, having previously served as its Chairman and Chief Executive Officer from 2014 until 2015. Mr. Hamamoto was the Chairman of the board of directors of NorthStar Realty Finance Corp. (NYSE:NRF)(“NRF)), a real estate investment trust, from 2007 to January 2017 and served as one of its directors from 2003 to January 2017. Mr. Hamamoto previously served as NRF’s Chief Executive Officer from 2004 until 2015 and President from 2004 until 2011. Mr. Hamamoto was Chairman of the board of directors of NorthStar Realty Europe Corp. from 2015 to January 2017. In 1997, Mr. Hamamoto co-founded NorthStar Capital Investment Corp., the predecessor to NorthStar Realty Finance, for which he served as Co-Chief Executive Officer until 2004. Prior to NorthStar, Mr. Hamamoto was a partner and co-head of the Real Estate Principal Investment Area at Goldman, Sachs & Co. During Mr. Hamamoto’s tenure at Goldman, Sachs & Co., he initiated the firm’s effort to build a real estate principal investment business under the auspices of the Whitehall Funds. Between April and July 2018, several class actions (and two derivative lawsuit) were filed in connection with the Colony-NorthStar merger and the merged company’s performance thereafter; three in federal court in California, three in state court in California, and two in state court in Maryland. Mr. Hamamoto is named as an individual defendant in each of these lawsuits. The lawsuits generally share a factual nexus, and allege securities law violations and other claims against all defendants, including Mr. Hamamoto. Presently, only one federal and one (consolidated) state case are pending. Mr. Hamamoto disputes all such allegations and is defending vigorously against the lawsuits. Mr. Hamamoto received a B.S. from Stanford University and an M.B.A. from the Wharton School of Business at the University of Pennsylvania.
Keith Feldman, 44
Director and Chief Financial Officer
Mr. Feldman currently serves as a director and the chairman of the audit committee of Lordstown and previously served as the Chief Financial Officer and Treasurer of NorthStar Realty Europe Corp. (NYSE: NRE), a NYSE listed REIT focused on European commercial real estate properties from May 2017, through the acquisition by AXA Investment Managers-Real Assets, in September 2019. Mr. Feldman served as a managing director of Colony Capital, Inc., from January 2017 to October 2019 and served as a managing director of NorthStar Asset Management Group Inc., a predecessor company of Colony Capital, Inc. from July 2014 to January 2017, as a managing director of NorthStar Realty Finance Corp. from January 2014 to July 2014 and as a director of NorthStar Realty Finance Corp. from January 2012 to December 2013. In each of these roles, Mr. Feldman’s responsibilities included capital markets, corporate finance, and investor relations. Earlier in his career, Mr. Feldman held various financial positions at NorthStar Realty Finance Corp., Goldman Sachs, J.P. Morgan Chase and KPMG LLP. Mr. Feldman received a Bachelor of Science in accounting from Binghamton University. Mr. Feldman is a CFA charterholder and a CPA.
Board of Directors
Judith A. Hannaway, 67
Director
Ms. Hannaway currently acts as a consultant to various financial institutions. Ms. Hannaway previously served as a director of DiamondPeak. Prior to this, until 2004, Ms. Hannaway was employed by Scudder Investments, a wholly-owned subsidiary of Deutsche Bank Asset Management, as a Managing Director. Ms. Hannaway joined Scudder Investments in 1994 and was responsible for Special Product Development including closed-end funds, offshore funds and REIT funds. Prior to joining Scudder Investments, Ms. Hannaway was employed by Kidder Peabody as a Senior Vice President in Alternative Investment Product Development. She joined Kidder Peabody in 1980 as a Real-Estate Product Manager. Ms. Hannaway has served as an independent director of Fortress Transportation & Infrastructure LLC since 2018, and previously served as the lead independent director of NorthStar Realty Europe Corp. (NYSE: NRE) from 2015 to 2019, NorthStar Realty Finance Corp. (NYSE: NRF) from 2004 to 2017 and NorthStar Asset Management Group Inc. (NYSE: NSAM) from 2014 to 2017. Additionally Ms. Hannaway served as chairperson of the independent committee of NRE, negotiating and overseeing its sale and assimilation into AXA in 2019. Ms. Hannaway holds a Bachelor of Arts from Newton College of the Sacred Heart and a Master of Business Administration from Simmons College Graduate Program in Management.
Jonathan A. Langer, 51
Director
Jonathan A. Langer currently serves as a Managing Member of Fireside Investments, LLC, a private investment firm that Mr. Langer founded in 2012. Mr. Langer is a member of the Board of Directors of KKR Real Estate Finance Trust Inc. (NYSE: KREF), which he joined in May 2017. Mr. Langer is also currently a member of the Board of Directors of International Market Centers, Inc., which he joined in September of 2017. Mr. Langer previously served as Chief Executive Officer and President of NorthStar Realty Finance Corp. (NYSE: NRF) from August 2015 to March 2017, when NorthStar Realty Finance Corp. merged with Colony Capital, Inc. and NorthStar Asset Management Group Inc. He also previously served as Executive Vice President of NorthStar Asset Management Group from August 2015 to March 2017, a position he maintained as a co-employee with NorthStar Realty Finance Corp. Mr. Langer was an Operating Partner and Consultant at Bain Capital from March 2010 to March 2012, where he worked in its private equity area. From 1994 to 2010, Mr. Langer was employed at Goldman, Sachs & Co., where he worked as a Partner in its Real Estate Principal Investment Area (REPIA). His responsibilities included overseeing REPIA’s North American real estate and global lodging investment efforts. Mr. Langer previously served on the boards of Icon Parking, Westin Hotels and Resorts, Kerzner International Resorts, Inc., Hilton Hotels & Resorts, Strategic Hotels & Resorts, Inc. and Morgans Hotel Group. Mr. Langer received a B.S. in Economics from the Wharton School at the University of Pennsylvania.
Charles W. Schoenherr, 60
Director
Mr. Schoenherr currently serves as Managing Director of Waypoint Residential, LLC, which invests in multifamily properties in the Sunbelt. He has served in this capacity since January 2011 and is responsible for sourcing acquisition opportunities and raising capital. Mr. Schoenher previously served on the Board of Directors of Colony Capital from January 2017 through June 2020. Prior to serving on Colony Capital’s board, Mr. Schoenherr served on the Board of Directors of NorthStar Realty Finance Corp., NorthStar Realty Europe Corp. and NorthStar Real Estate Income II, Inc., positions he had held from June 2014, October 2015 and December 2012, respectively. Mr. Schoenherr also previously served on the Board of Directors of NorthStar Real Estate Income Trust, Inc. from January 2010 to October 2015. From June 2009 until January 2011, Mr. Schoenherr served as President of Scout Real Estate Capital, LLC, a full service real estate firm that focuses on acquiring, developing and operating hospitality assets, where he was responsible for managing the company’s properties and originating new acquisition and asset management opportunities. Between September 1997 and October 2008, Mr. Schoenherr served as Senior Vice President and Managing Director of Lehman Brothers’ Global Real Estate Group, where he was responsible for originating debt, mezzanine and equity transactions on all major property types throughout the United States. During his career he has also held senior management positions with GE Capital Corporation, GE Investments, Inc. and KPMG LLP, where he also practiced as a certified public accountant. Mr. Schoenherr currently serves on the Board of Trustees of Iona College and is on its Real Estate and Investment Committees. Mr. Schoenherr holds a Bachelor of Business Administration in Accounting from Iona College and a Master of Business Administration in Finance from the University of Connecticut.