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ChaSerg Technology Acquisition Corporation

ChaSerg Technology Acquisition Corporation

Oct 19, 2020 by Roman Developer

PROPOSED BUSINESS COMBINATION: Grid Dynamics International, Inc.


ESTIMATED CURRENT FUNDS in TRUST: $224.5 million*
CURRENT PER SHARE REDEMPTION PRICE: $10.21*
ENTERPRISE VALUE: $407.0 million

 

*SPACInsider estimate a/o 3-4-20

Chaserg Technology Corp. proposes to merge with Grid Dynamics International, Inc. (“Grid Dynamics”), a leader in driving enterprise-level digital transformation. Upon completion of the combination, Grid Dynamics will become a Nasdaq-listed public company, with an anticipated initial equity market capitalization of approximately $515 million based on a stock price of $10.00 per share. Immediately upon consummation of the transaction, ChaSerg will change its name to “Grid Dynamics Holdings, Inc.”

Highlights:

  • Enterprise-level digital transformation for Fortune 1000 companies
  • Large and rapidly growing market opportunity estimated to exceed $750 billion by 2025, with current addressable market in excess of $100 billion
  • Technical expertise in the rapidly growing fields of artificial intelligence (AI), data science, cloud computing, microservices, and DevOps
  • Financial profile:
    • Estimated 2019 revenue of $116-$117 million
    • Adjusted non-GAAP EBITDA of $23.6-$24.3 million
    • 2015 – 2019E organic revenue CAGR of ~30%
    • 20%+ adjusted non-GAAP EBITDA margin
    • 2018 revenue per employee of $93,000 per year, approximately 50% higher than publicly traded peers including EPAM Systems, Endava PLC and Globant SA

Anticipated Enterprise Value:  $407.0 million
Anticipated Equity Value: $511.0 million


TRANSACTION SUMMARY

Grid Dynamics will be acquired by a subsidiary of ChaSerg and become a publicly traded entity under the name “Grid Dynamics Holdings, Inc.”

Assuming no redemptions by the public stockholders of ChaSerg, the balance of the approximately $224 million in cash held in ChaSerg’s trust account will be used to pay the existing Grid Dynamics shareholders

  • Cash consideration: $130 million.
    • Subject to reduction in an amount equal to: $13,500,000 multiplied by
      • (x) the balance of the trust account (the “Trust Account”) established by ChaSerg for the benefit of its public stockholders as at the date of the signing of the Merger Agreement minus the Available Parent Cash, divided by
      • (y) 30% of the Trust Account balance as at the date of the signing of the Merger Agreement,
      • where such adjustment amount can be no more than $13,500,000 and no less than $0, and is offset by an equivalent increase in the Share Consideration.
  • Share consideration: The remainder of the consideration payable will consist of approximately 25,523,810 shares of ChaSerg common stock.
    • The Share Consideration is also subject to adjustment for EBITDA performance targets, whereby the Share Consideration is reduced by $1,500,000 for every $100,000 by which the estimated total EBITDA in 2019 is below $23,800,000.
    • The post-closing adjustment of the Share Consideration is capped at 857,143 shares of ChaSerg Class A Common Stock which will be placed in escrow at closing.
  • Grid Dynamics is expected to add approximately $80 million of cash at close, net of transaction expenses and fees

The transaction has been approved by the boards of directors of both Grid Dynamics and ChaSerg. Completion of the transaction is subject to approval by stockholders and certain other conditions. The transaction is expected to close in the first quarter of 2020.


Notable Conditions to Closing

  • After giving effect to the Redemption and the receipt of any additional equity sold by ChaSerg, the total cash and cash equivalents of ChaSerg shall be at least 70% of the Trust Account balance as of the date of signing of the Merger Agreement.
  • Holders of no more than 10% of the shares of Grid Dynamics, as of immediately prior to the Effective Time, shall have exercised (or be entitled to exercise) statutory appraisal rights under Section 1300 of the California General Corporation Law
  • Confirmation that, upon closing, Grid Dynamics has no less than $20,000,000 in cash on hand and cash equivalents

Notable Conditions to Termination

  • By Grid Dynamics or ASL, if after giving effect to the Redemption and the receipt of any additional equity sold by ChaSerg, the total cash and cash equivalents of ChaSerg is less than 70% of the Trust Account balance as of the date of signing of the Merger Agreement
  • By ASL, if after giving effect to the Redemption and the receipt of any additional equity sold by ChaSerg, the consummation of the Business Combination would result in ASL holding more than 50% of common stock of ChaSerg following the Mergers.
  • By ChaSerg if either of the ASL or Teamsun shareholder meeting is held and the required approvals are not obtained or if such meetings are not held within 30 days prior to the Outside Date (June 30, 2020)

Lock-up

At the Closing, each of ASL, Teamsun HK, the Teamsun Affiliate and BGV will enter into a Lock-Up Agreement with ChaSerg. Each such holder will agree not to sell or otherwise transfer its shares in ChaSerg during the period commencing from the Closing and ending on the earlier of:

  • One year after the completion of the Business Combination or
  • Subsequent to the Business Combination,
    • (x) if the last sale price of ChaSerg Class A Common Stock equals or exceeds $12.00 per share for any 20 trading days within any 30-trading day period commencing at least 150 days after the Business Combination, or
    • (y) the date on which ChaSerg completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of its stockholders having the right to exchange their shares of common stock for cash, securities or other property.

Earn-out / Side Letter

  • Sponsor agreed to refrain from selling, transferring or otherwise disposing of up to 1,200,000 shares of its common stock in ChaSerg (such portion, the “Earnout Shares”) until certain release events have been realized.
  • Under the terms of the Side Letter, Sponsor will be able to sell or transfer:
    • one-third of such Earnout Shares upon the price of ChaSerg’s common stock reaching a price of $12.00 per share,
    • an additional one-third of such Earnout Shares upon the stock price reaching a price of $13.50 per share
    • and the final one-third of such Earnout Shares upon the stock price reaching a price of $15.00 per share,
    • in each case where such price targets were achieved for a minimum of 20 days out of a 30-day trading period during the applicable earn out period.

SUBSEQUENT EVENTS: on 1/27/20 Chaserg filed an 8-K amending the Side Letter.  New terms are below:

  • Sponsor agreed to refrain from selling, transferring or otherwise disposing of up to 1,090,000 shares (rather than the original 1,200,000 shares) of its common stock in ChaSerg (such portion, the “Earnout Shares”) until certain release events have been realized.
  • Cantor agreed to refrain from selling, transferring or otherwise disposing of up to 110,000 shares of its common stock in ChaSerg
  • Under the terms of the Side Letter, Sponsor will be able to sell or transfer:
    • one-third of such Earnout Shares upon the price of ChaSerg’s common stock reaching a price of $12.00 per share,
    • an additional one-third of such Earnout Shares upon the stock price reaching a price of $13.50 per share
    • and the final one-third of such Earnout Shares upon the stock price reaching a price of $15.00 per share,
    • in each case where such price targets were achieved for a minimum of 20 days out of a 30-day trading period during the applicable earn out period.

Voting Agreement

Certain Grid Dynamics stockholders and holders of equity interests in the corporate parents of Grid Dynamics, including ASL, Teamsun HK, the Teamsun Affiliate and Benhamou Global Ventures (“BGV”) entered into voting agreements with ChaSerg. Under the Voting Agreements, each party agrees to vote all of their shares of Grid Dynamics or its parent entities (as applicable) in favor of the Merger Agreement and related transactions, refrain from transferring any such shares prior to the consummation of the Business Combination and, where applicable, use reasonable best efforts to obtain any required regulatory approvals.

In addition, Teamsun has executed a proxy to vote the ASL shares that it holds in favor of the Business Combination in the requisite vote of ASL shareholders. Teamsun currently owns approximately 55% of the outstanding shares of ASL.


Chaserg Technology trans summary


ADVISORS

  • Cantor Fitzgerald and William Blair are acting as capital markets advisors to ChaSerg.
  • Latham & Watkins LLP and Ellenoff, Grossman and Schole are serving as legal counsel to ChaSerg.
  • Covington Associates LLC is acting as financial advisor to Grid Dynamics.
  • Wilson Sonsini Goodrich & Rosati, P.C. are acting as legal counsel to Grid Dynamics.
  • Reed Smith Richards Butler, LLP is serving as legal counsel to Automated Systems Holdings Limited.

 

CHASERG MANAGEMENT & BOARD


Executive Officers

Lloyd Carney, 56
CEO and Director

Mr. Carney has spent more than 25 years in the technology industry. He started at Wellfleet and Nortel Networks in 1997 and in 2002 he rose to become division president. In 2003, he joined Juniper Networks as Chief Operating Officer where he oversaw the engineering, product management and manufacturing divisions. Thereafter, in 2004, he was named Chief Executive Officer of Micromuse, an enterprise and telecom network management company. Mr. Carney led the sale of Micromuse to IBM for $865 million, staying at IBM for a year after the sale to ensure a smooth transition. In 2008, he became the Chief Executive Officer of Xsigo Systems, a provider of network visualization systems, which was sold to Oracle Corporation in 2012. Mr. Carney then accepted the role of Chief Executive Officer and director of Brocade Communications Systems, Inc., a networking solutions company, in early 2013. His tenure culminated in the sale of Brocade to Broadcom Ltd. for $5.5 billion in late 2017. Mr. Carney is currently a member of the board and audit committee of Visa, a leading credit card company. From 2005 to 2014, he was a member of the board of Cypress Semiconductor Corporation, where he served on the audit and compensation committees. He was also a member of the board of Technicolor (SA), a technology company in the media and entertainment sector from 2010 until 2015, where he chaired its technology committee. In addition, since 2007 he has served as Chief Executive Officer of Carney Global Ventures, LLC, a global investment vehicle. Mr. Carney holds a B.S. degree in Electrical Engineering Technology from Wentworth Institute of Technology, as well as a M.S. degree in Applied Business Management from Lesley College.


Eric Benhamou, 62
CFO, President & Director

Mr. Benhamou co-founded Bridge Communications, a specialist in computer network technologies in 1981. Bridge Communications later merged with 3Com Corporation, a networking equipment vendor, in 1987. Thereafter, he became Chief Executive Officer of 3Com, serving there from 1990 to 2000, and as chairman until 2010. As 3Com’s Chief Executive Officer, he led the company in acquiring US Robotics, the owner of Palm, Inc. the maker of the groundbreaking Palm Pilot. Palm, Inc. was thereafter spun off in 2000, and Mr. Benhamou served as its Chief Executive Officer until 2003. In 2003, Mr. Benhamou founded Benhamou Global Ventures (BGV), a venture capital firm focused on technology companies, specializing in cloud software, artificial intelligence cyber security, and mobile applications. Mr. Benhamou has been a member of the board of directors of Silicon Valley Bank since 2004. He has been a member of the board of directors of Finjan Holdings, a cybersecurity firm, since 2013. He served on the board of Cypress Semiconductor as chairman for over a decade, until 2017. He also serves on the board of several privately held technology companies, including Ayehu, an IT automation and orchestration platform, Totango, a provider of customer success software, Virtual Instruments, an IT infrastructure performance management platform, and 6dbytes, a food robotics company. He holds an M.S. from Stanford University’s School of Engineering and a Diplôme d’Ingénieur and a Doctorate from Ecole Nationale Supérieure d’Arts et Métiers, Paris. Mr. Benhamou taught entrepreneurship in various business schools around the world for over 10 years, principally at INSEAD, Stanford University and IDC’s Herzliya’s Arison School of Business, where he was a visiting professor. He also served on the Advisory Board of Stanford’s school of Engineering and the Board of Governors of Ben Gurion University of the Negev in Israel.


Board of Directors

Clark N. Callander, 60
Director Nominee

Mr. Callander has overseen hundreds of merger and acquisition and financing transactions during his over 35-year career. As a co-founder in 2003 of Savvian LLC, a mergers and acquisitions advisory firm, and head of its Capital Market Advisory activity, he helped lead the firm through its merger with Japan’s GCA Holdings Corp. (GCA) in 2008 and the combined entity’s listing on the Tokyo Stock exchange and subsequent acquisition of its European subsidiary, Altium in 2016. Mr. Callander is currently employed as a Senior Advisor to GCA. Previously, from 1993 to 2002, he held the position of head of Corporate Finance at Robertson Stephens & Company. As a private investor, he has invested in dozens of companies and venture capital funds primarily in the technology industry and joined many of their advisory boards. In addition, Mr. Callander is an active investor and since 2012 has served on the Board of Managers at Albany Road Real Estate Partners LLC, a private real estate investment and management firm. He earned a B.S. from Stanford University and an M.B.A. from the Wharton School of the University of Pennsylvania.


Irwin Federman, 83
Director Nominee

Mr. Federman’s career spans over forty years as an executive, entrepreneur and investor in the technology industry. Mr. Federman led Monolithic Memories, a semiconductor company, as its Chief Executive Officer from 1979 until its merger with Advanced Micro Devices, or AMD, in 1987, after which he assumed the post of Vice-Chairman at AMD. In 1988, he became a Managing Director of Dillon, Read and Company, an investment banking firm. Mr. Federman then joined U.S. Venture Partners (USVP) as a Senior Partner, in 1990. USVP was then facing financial difficulties. Under his leadership, USVP’s performance improved, enabling the firm to raise nine consecutive venture funds over the ensuing 25 years. Mr. Federman presently serves as Senior Advisor at USVP. Mr. Federman has been an early investor in, and has served on the Board of Directors of, many technology start-up companies, including Check Point Software Technologies, Ltd. (NASDAQ:CHKP) (since 1995), Mellanox Technologies, Ltd. (NASDAQ:MLNX) (since 1999), MMC Networks Inc. (NASDAQ:MMCN) (1994 to 1998), Nuance Communications, Inc. (NASDAQ:NUAN) (1995 to 2001), SanDisk Corp. (NASDAQ:SNDK) (1988 to 2016) and Centillium Communications (NASDAQ:CTLM) (1998 to 2006). He presently serves on the Board of Directors of Check Point, and as Chairman of the Board of Directors of Mellanox. Mr. Federman served two one-year terms as Chairman of the Semiconductor Industry Association (SIA), and one six-year term as Chairman of the Dean’s Advisory Committee at Santa Clara University’s Leavey School of Business. He received a B.S. in Economics from Brooklyn College, and was awarded an honorary Doctorate in Engineering Science by Santa Clara University.


William Zerella, 62
Director Nominee

Mr. Zerella has over 30 years of experience in technology businesses, including pre-revenue start-ups and companies in excess of $1 billion in revenue. Since June 2018, he has been the Chief Financial Officer of Luminar Technologies, an autonomous vehicle technology company. Prior to joining Luminar, Mr. Zerella was the Chief Financial Officer of Fitbit Inc. (NYSE: FIT), a maker of wearable fitness devices, from 2014 to June 2018. During his tenure at Fitbit, the company grew from $271 million in revenue to over $2 billion in revenue, with sales at 45,000 locations in 86 countries around the world. Mr. Zerella was part of the team managing Fitbit’s IPO in 2015, raising $841 million, at that time the largest consumer electronics IPO in history. From 2011 to 2014, Mr. Zerella served as Chief Financial Officer of Vocera Communications Inc. (NYSE:VCRA), a provider of voice-controlled patient communications products for the health-care industry. In 2012, he helped guide Vocera to the public markets and raise $80 million in its IPO. From 2006 to 2011, Mr. Zerella also served as Chief Financial Officer of Force10 Networks, a networking company that was acquired by Dell Inc. in 2011. Since 2016, Mr. Zerella has been a member of the board of directors of GroundTruth, a private global location technology company. Mr. Zerella is a Certfied Public Accountant and holds an M.B.A. in Finance from the Leonard N. Stern School of Business at New York University. He also holds a B.S. in Accounting from the New York Institute of Technology.