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Landcadia Holdings III, Inc.

Landcadia Holdings III, Inc.

Oct 19, 2020 by Roman Developer

PROPOSED BUSINESS COMBINATION: The Hillman Group, Inc.

ENTERPRISE VALUE: $2.642 billion
ANTICIPATED SYMBOL: HLMN

Landcadia Holdings III, Inc. proposes to combine with The Hillman Group, Inc. (“Hillman” or the “Company”), a leader in the hardware and home improvement industry. Hillman is controlled by private equity firm CCMP Capital Advisors, LP (“CCMP”). Hillman’s Chairman, Chief Executive Officer and President Doug Cahill will continue to lead the combined company in these roles along with the current management team, and will be a significant equity participant in the Company.

Founded in 1964, Hillman is a leading distributor of hardware and home improvement products, personal protective equipment and robotic kiosk technologies. Today the Company provides a comprehensive solution to its retail customers for managing SKU-intensive, complex home improvement categories, distributing over 110,000 SKUs in categories including fasteners and hardware; work gear, gloves and other PPE; and robotics and digital solutions such as key and fob duplication. Hillman distributes to over 40,000 locations in the U.S., Canada and Mexico, and serves home improvement centers, mass merchants, national and regional hardware stores and other retailers. Leading customers include winning omni-channel retailers such as Ace Hardware, Home Depot, Lowe’s, Tractor Supply, True Value and Walmart, among others. Hillman’s sales have grown in 55 of its 56 year history and are estimated to reach $1.4 billion for the fiscal year ended on December 26, 2020.

Hillman Investment Highlights

  • Long standing, deeply embedded strategic partner to omni-channel retailers
  • Manage 110,000+ SKU’s at over 40,000 locations, including 32,500 kiosks
  • Non-replicable field sales and service team, 1,100 strong
  • #1 market positions in fastener, hardware, key duplication, engraving and PPE product categories
  • Total addressable market of ~$45 billion
    • Enduring home improvement trends: millennials buying homes, suburban migration, and boomers aging in place
  • Sales have grown every year but one in past 56 years
    • Home improvement and other trends support mid-single digit core organic growth
    • Proven M&A record: $550 million in acquisitions since 2018 to drive future growth
  • At end of 2020: 3-year compound annual growth of 18% top line and 22% Adj. EBITDA
    • Strength proven during COVID: FY2020E sales up 12% and Adj. EBITDA up 24%
    • Well-invested platform generating substantial cash flow

TRANSACTION

The transaction implies an enterprise valuation for Hillman of $2.642 billion, or 11.0x projected 2021 pro forma Adjusted EBITDA of $240 million. Estimated cash proceeds from the transaction are expected to consist of Landcadia III’s $500 million of cash in trust.

In addition, investors led by Wells Capital Management and Columbia Threadneedle Investments’ Small Cap Growth Strategy have committed to invest $375 million in the form of a PIPE at a price of $10.00 per share of common stock of Landcadia III immediately prior to the closing of the transaction.

The company expects to use the proceeds from the transaction to accelerate Hillman’s growth initiatives, substantially reduce existing debt, support marketing efforts, and provide additional working capital. It is anticipated that the combined company will have approximately $741 million of debt net of $96 million of cash and cash equivalents on its consolidated balance sheet.

The Landcadia III sponsors and members of its board of directors and management team have agreed to a lock-up period of up to one year following the closing, subject to termination as early as approximately 180 days after closing if certain trading price targets are met. Upon the closing of the transaction, and assuming none of Landcadia III’s public stockholders elect to redeem their shares, existing Hillman shareholders are expected to own 49% of the combined company, the Landcadia III sponsors are expected to own 5% of the combined company, PIPE participants are expected to own 20% of the combined company, and public stockholders are expected to own 26% of the combined company.

The transaction is expected to close in the second quarter of 2021.

landcadia III transaction summary


PIPE

  • 37,500,000 shares of Landcadia Class A common stock for an aggregate purchase price equal to $375,000,000
  • Includes investments from Wells Capital Management and Columbia Threadneedle Investments’ Small Cap Growth Strategy

A&R LETTER AGREEMENT (FORFEITURE OF FOUNDER SHARES)

Landcadia, each Sponsor, each member of the Board and the management team of Landcadia amended and restated in its entirety:

  • (i) the Letter Agreement entered on October 8, 2020 in connection with Landcadia’s initial public offering and
  • (ii) the Letter Agreement, dated January 6, 2021, from Dona Cornell to Landcadia (as so amended and restated, the “A&R Letter Agreement”). Pursuant to the A&R Letter Agreement, among other things,
    • (i) the Sponsors agreed to forfeit their pro rata share of 2,828,000 shares of Landcadia’s Class B common stock upon the Closing,
    • (ii) TJF Sponsor agreed to forfeit an additional 1,000,000 shares of Landcadia’s Class B common stock upon the Closing and
    • (iii) the Sponsors and each member of Landcadia’s Board and/or management team agreed to vote in favor of the Business Combination.
    • Further, the Sponsors and each member of Landcadia’s Board and management team agreed to certain restrictions on transfer with respect to the shares of New Hillman common stock that they will receive upon the Closing. Such restrictions end on the date that is one year after Closing, or are subject to an early price-based release if the price of the shares of New Hillman common stock equal or exceed $12.00 per share for any twenty trading days within any thirty-day trading period at least 150 days after the merger.

LOCK-UPS

Founder Shares: the period commencing on the date hereof and ending on the earlier of:

  • (A) one year after the Closing Date,
  • (B) the first date the last sale price of the Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Closing Date, or
  • (C) the date on which the Company completes a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of the Company’s stockholders having the right to exchange their shares of Common Stock for cash, securities or other property.

Hillman Holder: he or she shall not Transfer any shares of Closing Hillman Stock for six (6) months following the Closing Date; provided:

  • (x) that 33% of the Closing Hillman Stock shall be transferable as part of an Underwritten Offering following 90 days after the Closing Date if the last closing price of the Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period after the Closing, and
  • (y) each executive officer and director of the Company shall be permitted to establish a plan to acquire and sell shares of Common Stock pursuant to Rule 10b5-1 under the Exchange Act, provided that such plan does not provide for the Transfer of shares of Closing Hillman Stock during the Hillman Lock-up Period.

NOTABLE CONDITIONS TO CLOSING

  • The aggregate cash proceeds from Landcadia’s trust account, together with proceeds of the PIPE Investment, equaling no less than $639,000,000, after giving effect to all redemptions of public shares, the payment of transaction expenses and any other Landcadia liabilities
  • Aggregate indebtedness net of cash and cash equivalents of New Hillman immediately following the Closing of no more than $885,000,000, plus an amount equal to any additional borrowings by Hillman since the end of its last fiscal year under its existing revolving credit facility of up to $100,000,000
  • cash and cash equivalents held by New Hillman of at least $50,000,000 immediately after Closing

NOTABLE CONDITIONS TO TERMINATION

  • By either Landcadia or the Stockholder Representative if the Closing has not occurred on or before July 24, 2021 (the “Outside Date”)

ADVISORS

  • Barclays and Jefferies are acting as financial advisors to Hillman.
  • Ropes & Gray LLP is acting as legal advisor to Hillman.
  • Jefferies is acting as capital markets advisor to Landcadia III.
  • White & Case LLP is acting as legal advisor to Landcadia III.
  • Jefferies and Barclays are acting as placement agents for the PIPE.

MANAGEMENT & BOARD


Executive Officers

Tilman J. Fertitta, 63
Co-Chairman and Chief Executive Officer

Mr. Fertitta was previously Co-Chairman and Chief Executive Officer of Landcadia I from September 15, 2015 through the consummation of the Waitr business combination, and he currently serves on the board of directors of Waitr Holdings Inc. He has served as Co-Chairman and Chief Executive Officer of Landcadia II since February 14, 2019. Since August 2010, Mr. Fertitta has been the sole shareholder, chairman and Chief Executive Officer of FEI, which owns the NBA’s Houston Rockets, the restaurant conglomerate Landry’s, Inc. (“Landry’s”) and the Golden Nugget Casinos and is recognized today as a global leader in the dining, hospitality, entertainment and gaming industries. Mr. Fertitta was the sole shareholder at the time he took Landry’s public in 1993, and after 17 years as a public company, he was the sole shareholder in taking Landry’s private in 2010. Mr. Fertitta currently serves as Chairman of the Houston Children’s Charity, the Houston Police Foundation, and is currently the Chairman of the Board of Regents for the University of Houston. He is also on the Executive Committee of the Houston Livestock Show and Rodeo, one of the nation’s largest charitable organizations. He also serves on the boards of the Texas Heart Institute and the Greater Houston Partnership.


Richard Handler, 59
Co-Chairman and President

Mr. Handler previously served as Co-Chairman and President of Landcadia I from September 15, 2015, through the consummation of the Waitr business combination. He has served as Co-Chairman and President of Landcadia II since February 14, 2019. He has been with Jefferies LLC since 1990 and has served as Chief Executive Officer since 2001, making him the longest serving CEO on Wall Street. He is the Chief Executive Officer and Director of Jefferies and Chairman of the board of directors, Chief Executive Officer and President of Jefferies Group LLC. Mr. Handler also serves as Chairman of the Global Diversity Council at Jefferies LLC. In addition he is Chairman and CEO of the Handler Family Foundation, a non-profit that focuses on many philanthropic areas, including providing 4-year all-inclusive fully-paid college educations each year to 15 of the most talented and deserving students coming from challenging backgrounds and circumstances. The foundation also works to protect the environment by protecting endangered species. Prior to Jefferies LLC he worked at Drexel Burnham Lambert in the High Yield Bond Department. Mr. Handler received an MBA from Stanford University in 1987. He received his BA in Economics (Magna Cum Laude, High Distinction) from the University of Rochester in 1983 where he also serves as Chairman of the Board of Trustees.


Richard H. Liem, 66
Vice President and Chief Financial Officer

Mr. Liem previously served as Vice President and Chief Financial Officer of Landcadia I from September 15, 2015 through the consummation of the Waitr business combination. He has served as Vice President and Chief Financial Officer of Landcadia II since February 14, 2019. Mr. Liem currently serves as Chief Financial Officer and Executive Vice President of Golden Nugget, LLC. Mr. Liem has been the Chief Financial Officer of Landry’s Restaurants Inc. (a subsidiary of Golden Nugget, LLC.) since June 11, 2004 and serves as its Executive Vice President and Principal Accounting Officer. He joined Landry’s Restaurants, Inc. in 1999 as the Corporate Controller. Mr. Liem joined Landry’s from Carrols Corporation, where he served as the Vice President of Financial Operations from 1994 to 1999. He served with the Audit Division of Price Waterhouse, L.L.P. from 1983 to 1994. He has been a Director of Landry’s, Inc. since 2009 and also serves as a director of Golden Nugget, LLC. Mr. Liem also serves on the compliance committee for Golden Nugget Atlantic City, LLC. In addition, he serves as the Executive Vice President and Chief Financial Officer of FEI, which is the holding company for Golden Nugget, Inc., Landry’s, Inc., and other assets owned and controlled by Tilman J. Fertitta. Mr. Liem is a Certified Public Accountant and was first licensed in Texas in 1989.


Steven L. Scheinthal, 59
Vice President, General Counsel and Secretary

Mr. Scheinthal previously served as Vice President, General Counsel and Secretary of Landcadia I from September 15, 2015, through the consummation of the Waitr business combination, and he currently serves on the board of directors of Waitr Holdings Inc. He has served as Vice President, General Counsel and Secretary of Landcadia II since February 14, 2019 . Mr. Scheinthal has served as a member of the Board of Directors of Landry’s since its IPO in 1993 and as its Executive Vice President or Vice President of Administration, General Counsel and Secretary since September 1992. He also serves as a member of the board of directors, Executive Vice President and General Counsel of FEI, which is the holding company for Landry’s, the Golden Nugget Hotels and Casinos and other assets owned and controlled by Tilman J. Fertitta. He devotes a substantial amount of time on behalf of all FEI companies, including Landry’s and Golden Nugget, to acquisitions, financings, human resources, risk, benefit and litigation management, union, lease and contract negotiations, trademark oversight and licensing and is primarily responsible for compliance with all federal, state and local laws. He was also primarily responsible for Landry’s corporate governance and SEC compliance from its initial public offering and during the 17 plus years Landry’s operated as a public company. Prior to joining Landry’s, he was a partner in the law firm of Stumpf??& Falgout in Houston, Texas. Mr. Scheinthal represented Landry’s for approximately five years before becoming part of the organization. He has been licensed to practice law in the state of Texas since 1984.


Nicholas Daraviras, 46
Vice President, Acquisitions

Mr. Daraviras previously served as Vice President, Acquisitions of Landcadia I from September 15, 2015 through the consummation of the Waitr business combination. He has served as Vice President, Acquisitions of Landcadia II since February 14, 2019. Mr. Daraviras is Co-President of Leucadia Asset Management and a Managing Director of Jefferies. Prior to 2014, Mr. Daraviras had been employed with Jefferies Capital Partners, LLC or its predecessors since 1996. Mr. Daraviras has served on the board of Fiesta Restaurant Group since April 2011 and currently serves on Corporate Governance and Nominating Committee. He also serves on several boards of directors of private portfolio companies of Jefferies.

Board of Directors

Scott Kelly, 56
Director

He has served as Director of Landcadia II since May 12, 2020. Mr. Kelly is a former NASA astronaut and retired U.S. Navy Captain, U.S. spaceflight record holder and an experienced test pilot having logged more than 15,000 hours of flight time in more than 40 different aircraft and spacecraft. A former fighter pilot, Mr. Kelly flew the F-14 Tomcat aboard the aircraft carrier, USS Dwight D. Eisenhower. Mr. Kelly was selected by NASA as an astronaut in 1996. A veteran of four space flights, he piloted Space Shuttle Discovery to the Hubble space telescope in 1999 and, subsequently, commanded Space Shuttle Endeavor on a mission to the International Space Station in 2007. His long-duration space flight experience includes two flights on the Russian Soyuz spacecraft, launching and landing from Kazakhstan and two stays aboard the International Space Station as commander, the first a 159-day mission in 2010-2011 followed by his recorded-breaking 340-day mission to the international space station in 2015. During his yearlong mission, known worldwide as the “Year In Space,” he conducted three spacewalks before returning home in March 2016. Mr. Kelly has received many awards and honors, including the Defense Superior Service Medal, the Legion of Merit and Distinguished Flying Cross. Mr. Kelly also was recognized at the 2015 State of the Union Address by U.S. President Barack Obama. Mr. Kelly is a Fellow of the Society of Experimental Test Pilots and a member of the Association of Space Explorers. Mr. Kelly was appointed Champion for Space by the United Nations Office for Outer Space Affairs. Mr. Kelly serves on the audit and compliance committees of GNAC, an indirect subsidiary of FEI. Since his departure from NASA in April 2016, Mr. Kelly founded Mach 25 LLC, through which he has been active as a motivational speaker and author. In 2016 he published a New York Times bestseller memoir Endurance and a children’s picture book; more recently, he published Infinite Wonder?-?a collection of extraordinary images he photographed aboard international space station, also a New York Times bestseller.


Dona Cornell, 59 [Appointed 1-06-21]
Director 

Ms. Cornell has served as the Vice President for Legal Affairs and General Counsel at the University of Houston since June 2002, where she is responsible for all legal related issues involving business, financial, student and academic affairs throughout the University of Houston System and the four component campuses. Ms. Cornell is also a member of the Chancellor and President’s Executive Cabinet, which addresses all management and strategic initiatives of the University of Houston System and reports directly to the Chancellor. Additionally, Ms. Cornell serves as counsel and advisor to the Board of Regents with oversight of the Board Office. Matters that Ms. Cornell handles at the University of Houston include complex transactions, international collaborations and programs, endowment and investment matters as well as collaboration with internal audit to ensure audit and compliance matters are being addressed appropriately. The compliance group for the main University of Houston campus reports directly to Ms. Cornell, and she meets with the audit and compliance group of the University of Houston System weekly to provide advice and counsel, including setting the agenda for the Audit Committee meetings. Previously, Ms. Cornell served as Deputy Chief of General Litigation Division of the Office of Texas Attorney General, as a shareholder in the Austin-based law firm Morehead, Jordan & Carmona, and as the President of the Houston Chapter of Texas General Counsel Forum. Ms. Cornell is currently a member of the Houston Bar Association and the National Association of College and University Attorneys. Ms. Cornell regularly speaks at state and national conferences on ethics, governance and higher education law. Ms. Cornell earned her undergraduate and law degrees from the University of Texas at Austin and is licensed to practice law throughout Texas and in U.S. District Courts for the Northern, Southern, Eastern and Western Districts of Texas and the U.S. Court of Appeals for the Fifth Circuit.