PROPOSED BUSINESS COMBINATION: Platinum Equity portfolio company PAE
ESTIMATED CURRENT FUNDS in TRUST: $408.2 Million*
CURRENT PER SHARE REDEMPTION PRICE: $10.21*
IMPLIED ENTERPRISE VALUE: $1.55 Billion
*SPACInsider estimate a/o 2-7-20
Gores Holdings III, Inc. proposes to combine with Platinum Equity portfolio company PAE (“PAE” or the “Company”), trusted provider of outsourced solutions for enduring missions of the United States government and international partners for over 60 years. Upon closing, this transaction will introduce PAE as a publicly listed company, with an anticipated initial enterprise value of approximately $1.55 billion or 8.9x the Company’s estimated 2020 pro forma Adjusted EBITDA of approximately $174 million.
Key Transaction Terms
- Aggregate purchase price: $1.4 billion
- The consideration payable to the stockholders of PAE will consist of a combination of cash and shares of Gores Holdings III common stock.
- $400 million of cash held in Gores Holdings III’s trust account
- Additional investors have committed to participate in the transaction through a $220 million private placement, led by Alec Gores, Chairman and CEO of The Gores Group.
- Upon completion of the transaction, including the private placement, Platinum Equity and other minority owners of PAE are expected to hold approximately 28 percent of the newly public PAE, subject to various purchase price adjustments.
After giving effect to any redemptions by the public stockholders of Gores Holdings III, the balance of the approximately $400 million in cash held in Gores Holdings III’s trust account, together with the $220 million in private placement proceeds, will be used to pay cash consideration to the stockholders of the Company, pay transaction expenses and reduce PAE’s existing indebtedness to 3.4x 2019 estimated Adjusted EBITDA. The remainder of the consideration payable to the stockholders of PAE will consist of shares of Gores Holdings III common stock.
SUBSEQUENT EVENT – 8-K 10/25/21
- Today announced that it has entered into a definitive agreement to be acquired by an affiliate of Amentum Government Services Holdings LLC (“Amentum”) in an all-cash transaction valued at approximately $1.9 billion, including the assumption of debt and certain fees.
- Under the terms of the merger agreement, PAE shareholders will be entitled to receive $10.05 per share in cash upon the consummation of the transaction, which is subject to shareholder approval and other customary closing conditions, including regulatory approvals.
- The purchase price represents an approximately 70% premium over PAE’s closing price on October 22, 2021, the last trading day prior to the announcement of the transaction.
- The exercise price of PAE’s outstanding warrants will be adjusted pursuant to PAE’s warrant agreement unless the warrants are called for redemption pursuant to such warrant agreement.
- The transaction is not subject to any financing conditions. Upon completion of the acquisition, which is expected to occur by the end of the first quarter 2022, PAE will become wholly owned by an affiliate of Amentum.
- In the event the Merger Agreement is terminated by the Company in certain circumstances, including in order to enter into a definitive agreement with respect to a Company Superior Proposal or in certain events where a Company Acquisition Proposal is consummated following the termination of the Merger Agreement, in each case in accordance with the terms of the Merger Agreement, then the Company shall be required to pay the Parent $30,000,000.
- However, if such termination to enter into a Company Superior Proposal occurs during the Go-Shop Period, such termination fee shall be reduced to $15,000,000.
- In the event that the Company terminates the Merger Agreement in connection with Parent’s breach of the Merger Agreement or failure to consummate the Transactions under certain circumstances, Parent will be required to pay the Company a termination fee of $80,000,000.
- The termination rights of the parties to the Merger Agreement are subject to certain notice, cure and other rights.
- Moreover, the Merger Agreement provides for the reimbursement of certain expenses incurred by the Company or Parent in the event the applicable termination fees are owed.
4,000,000 Earn Out Shares
- upon the occurrence of Triggering Event I (Share Price is greater than $13.00): 1,000,000 Earn Out Shares;
- upon the occurrence of Triggering Event II, (Share Price is greater than $15.50) 1,000,000 Earn Out Shares;
- upon the occurrence of Triggering Event III, (Share Price is greater than $18.00) 1,000,000 Earn Out Shares;
- upon the occurrence of Triggering Event IV, (Share Price is greater than $20.50) 1,000,000 Earn Out Shares.
FOUNDERS SHARES & PRIVATE PLACEMENT WARRANTS
- 3,000,000 Founder Shares to be forfeited and cancelled. (7,000,000 Founder Shares will remain)
- 6,666,666 private placement warrants will remain outstanding (6,666,666 were purchased for $1.50 at IPO)
- $220 million: an aggregate of 23,913,044 shares of Class A common stock in a private placement for $9.20 per share (the “Private Placement”).
- The proceeds from the Private Placement will be used to partially fund the cash consideration to be paid to the stockholders
- Gores Sponsor has agreed to the cancellation of a portion of the Founder Shares (see above) and the shares of Class A common stock to be issued to the participants in the Private Placement will be issued at a discount.
- The remaining Founder Shares will automatically be converted into shares of Class A common stock at the closing of the transactions contemplated by the Merger Agreement.
NOTABLE CONDITIONS TO CLOSING
- At least an aggregate of $530 million from the Company’s trust account (~$407+ million) and the Private Placement ($220 million)
NOTABLE CONDITIONS TO TERMINATION
- The Merger Agreement may be terminated at any time prior to the consummation of the Mergers (whether before or after the required Company stockholder vote has been obtained) by mutual written consent of the Company and the Stockholder Representative and in certain other circumstances, including if the transactions have not been consummated by June 1, 2020 and the delay in closing beyond such date is not due to the breach of the Merger Agreement by the party seeking to terminate.
- Deutsche Bank Securities Inc. and Evercore acted as lead financial advisors to Gores Holdings III.
- Deutsche Bank Securities Inc. also acted as lead capital markets advisor.
- Evercore, BofA Securities and Morgan Stanley & Co, LLC acted as capital markets advisors.
- Moelis & Company LLC as financial advisor.
- Weil, Gotshal & Manges LLP acted as legal advisor to Gores Holdings III.
- Latham & Watkins LLP acted as legal advisor to Platinum Equity and PAE.
GORES HOLDINGS III, INC. MANAGEMENT & BOARD
Mark R. Stone, 54
Mr. Stone is a Senior Managing Director of The Gores Group. Mr. Stone is a member of the Investment Committee and a member of the Office of the Chairman of The Gores Group. Mr. Stone has worked at The Gores Group for more than ten years, primarily focusing on worldwide operations of all Gores’ portfolio companies and all Gores’ operational due diligence efforts. He has been a senior team member with key responsibility in several turnaround, value-oriented investment opportunities, including Stock Building Supply, a supplier of building materials and construction services to professional home builders and contractors in the Unites States; United Road Services, a provider of finished vehicle logistics services; and Sage Automotive Interiors, the largest North American manufacturer of high performance automotive seat fabrics. Mr. Stone has also been involved with the acquisitions, successful carve-outs and transformations of Lineage Power and VincoTech, manufacturers of telecom conversion products, electronic OEMs, power modules, GPS products and electronic manufacturing services, from TE Connectivity Ltd.; Therakos, a global leader in advanced technologies for extracorporeal photopheresis (ECP), from Johnson & Johnson; and Sagem Communications, a Paris-based manufacturer of set-top boxes, residential terminals, printers and other communications equipment, from the Safran Group. He has served as Executive Chairman and/or CEO of several portfolio companies including Siemens Enterprise Communications, a leading Munich-based global corporate telephony (PBX) and unified communications (UC) solutions provider, and Enterasys Networks, a global network solutions provider. Mr. Stone also served as the Chief Executive Officer of Gores Holdings I from its inception in June 2015 until completion of the Hostess acquisition in November 2016 and has served as a Director of Hostess since November 2016. Additionally, Mr. Stone has served as the Chief Executive Officer of Gores Holdings II (Nasdaq: GSHT) since its inception in August 2016. Prior to joining The Gores Group, Mr. Stone spent nearly a decade as a chief executive transforming businesses across the services, industrial and technology sectors. Mr. Stone spent five years with The Boston Consulting Group as a member of their high technology and industrial goods practices and served in the firm’s Boston, London, Los Angeles and Seoul offices. Mr. Stone earned a B.S. in Finance with Computer Science and Mathematics concentrations from the University of Maine and an M.B.A. in Finance from The Wharton School of the University of Pennsylvania.
Andrew McBride, 37
CFO and Secretary
Mr. McBride has served as Director, Finance and Tax at The Gores Group since February 2010, where he is responsible for tax due diligence and structuring of acquisitions, compliance, planning, financial management and portfolio company reporting. Mr. McBride also served as the Chief Financial Officer and Secretary of Gores Holdings I from January 2016 until completion of the Hostess acquisition in November 2016. Additionally, Mr. McBride has served as the Chief Financial Officer and Secretary of Gores Holdings II (Nasdaq: GSHT) since its inception in August 2016. Previously, from January 2008 to January 2010, Mr. McBride worked in the High Net Worth group at Ehrhardt, Keefe, Steiner, and Hottman, P.C.. From January 2004 to January 2008, Mr. McBride was with KPMG, LLP, assisting international corporations with tax planning, structuring and compliance issues. Mr. McBride holds a B.S. in Accounting and Finance from the University of Notre Dame and is licensed as a Certified Public Accountant in the State of Colorado.
Board of Directors
Alec Gores, 64
Chairman of the Board of Directors
Mr. Gores is the Founder, Chairman and Chief Executive Officer of The Gores Group, a global investment firm focused on acquiring businesses that can benefit from the firm’s operating expertise. Mr. Gores pioneered a new operational approach to private equity investing when he founded The Gores Group in 1987. Since then, the firm has acquired more than 100 businesses including a current portfolio of more than 20 active companies worldwide. Mr. Gores began his career as a self-made entrepreneur and operating executive. In 1978, he self-funded and founded Executive Business Systems (EBS), a developer and distributor of vertical business software systems. Within seven years, EBS had become a leading value-added reseller in Michigan and employed over 200 people. In 1986, CONTEL purchased EBS, and Mr. Gores subsequently began acquiring and operating non-core businesses from major corporations and building value in those entities, a decision that ultimately led to the founding of what has evolved into The Gores Group today. Under his leadership, The Gores Group has continued to acquire businesses in need of operational and financial resources, while creating value and working with management teams to establish an entrepreneurial environment as a foundation for sustainable growth. This philosophy has served the firm well. Mr. Gores served as the Chairman of the Board of Directors of Gores Holdings I from its inception in June 2015 until completion of the Hostess acquisition in November 2016. Additionally, Mr. Gores has served as the Chairman of the Board of Directors of Gores Holdings II (Nasdaq: GSHT) since its inception in August 2016. Mr. Gores holds a degree in Computer Science from Western Michigan University.
Randall Bort, 52
Mr. Bort is a Co-Founder of SandTree Holdings, LLC, a private commercial real estate investment firm. Previously, Mr. Bort was an investment banker at Drexel Burnham Lambert, BT Securities, Donaldson, Lufkin & Jenrette, Credit Suisse First Boston, The Mercanti Group and Imperial Capital. Mr. Bort has significant financial, transactional and capital markets experience across multiple industries and has worked both domestically and in Asia. Mr. Bort earned a B.A. in Economics and Mathematics from Claremont McKenna College and an M.B.A. in Finance and Entrepreneurial Management from The Wharton School of the University of Pennsylvania. Mr. Bort served as a member of the Board of Directors of Gores Holdings I from August 2015 until completion of the Hostess acquisition in November 2016. Additionally, Mr. Bort has served as a member of the Board of Directors of Gores Holdings II (Nasdaq: GSHT) since its inception in August 2016. Mr. Bort also is a member of the Board of Trustees of Children’s Bureau, a non-profit organization based in Los Angeles focused on foster care and the prevention of child abuse.
William Patton, 71
Mr. Patton is Chairman, Chief Executive Officer and Co-Founder of The Four Star Group, a consulting and advisory firm focused on the civilian fields of Defense, Space, Military and Security. Mr. Patton has served as chairman, president and/or chief executive officer of a number of private and public companies including Unisys, Cado Systems, MAI Basic Four and Peerless Systems and has spent his entire career in the related fields of computer systems and telecommunications technology. Mr. Patton served as a member of the Board of Directors of Gores Holdings I from August 2015 until completion of the Hostess acquisition in November 2016. Additionally, Mr. Patton has served as a member of the Board of Directors of Gores Holdings II (Nasdaq: GSHT) since its inception in August 2016. Mr. Patton holds an undergraduate Business degree from Santa Monica City College and a B.S. in Petroleum Engineering from the Missouri School of Science & Technology graduating cum laude, and attended the Harvard Business School PMD Program. Mr. Patton was the Co-Founder and first President of the United States Academic Decathlon, now recognized as the nation’s largest high school competition emphasizing academic excellence including most of the United States and many international schools. Mr. Patton served as an officer and Ranger in the United States Army for nine years, attaining the rank of Major.
Jeffrey Rea, 51
Mr. Rea currently serves as a director of BMC Stock Holdings, Inc. (Nasdaq: STCK). Mr. Rea previously served as President, Chief Executive Officer and Director of Stock Building Supply Holdings, Inc. from November 2010 to December 1, 2015, at which time the company was merged with Building Materials Holding Corporation to create BMC Stock Holdings, Inc. Prior to that, Mr. Rea served as President of the specialty products group at TE Connectivity Ltd. from 2008 to 2010. Prior to that, Mr. Rea was the Senior Vice President of the building products group at Johns Manville, a global manufacturer of highly engineered materials and building products, which is owned by Berkshire Hathaway Company. Before joining Johns Manville, Mr. Rea served for 15 years in various leadership roles at General Electric Company, including general management, sales and marketing, distribution management and supply chain leadership positions. Mr. Rea also served for five years with its corporate audit staff. Mr. Rea served as a member of the Board of Directors of Gores Holdings I from March 2016 until completion of the Hostess acquisition in November 2016. Additionally, Mr. Rea has served as a member of the Board of Directors of Gores Holdings II (Nasdaq: GSHT) since its inception in August 2016. Mr. Rea received a degree in mechanical engineering from Rose-Hulman Institute of Technology.