Business Context and Reporting Period
This Form 8-K, dated July 13, 2016, reports that Hydra Industries Acquisition Corp. (a Special Purpose Acquisition Company) entered into a definitive agreement to acquire Inspired Gaming Group and its affiliates (the "Inspired Group"), a London-based gaming company. The transaction is structured as a Business Combination between Hydra and the Inspired Group.
Key Financial Metrics and Transaction Terms
- Total Transaction Value: Approximately £200 million ($264 million USD).
- Equity Value: Approximately £96 million ($126 million USD) after adjusting for debt and liabilities.
- Earn-out Potential: Up to $25 million (or up to 2.5 million Hydra shares) contingent on performance through September 30, 2018.
- Consideration Structure:
- Base Consideration: £100,363,394.31, subject to adjustments for transaction expenses and interest payments.
- Accruing Negative Consideration: A deduction of £21,500 per day from July 2, 2016, until closing.
- Payment Mix: Partially in cash (from trust and private placement proceeds) and partially in newly issued Hydra common stock valued at $10.00 per share.
- Liquidity Sources: Hydra's cash in trust, $20 million from a private placement with Macquarie Capital, and other available funds.
Material Changes and Conditions
The filing announces a material change in Hydra's corporate status from a shell company to an operating entity upon closing. The transaction is subject to several material conditions, including:
- Approval by Hydra's stockholders.
- Certain regulatory approvals pertaining to the gaming industry.
- Other customary closing conditions.
The filing does not provide historical revenue, profit, or cash flow metrics for the Inspired Group, nor does it detail Hydra's standalone financials beyond the trust and private placement amounts mentioned.
Outlook, Risks, and Management Commentary
Management has indicated that the earn-out component is tied to Inspired's performance in specific jurisdictions through September 30, 2018. The filing notes that the transaction value is based on a USD/GBP exchange rate of $1.32/£1.00 as of July 13, 2016, implying currency risk. Additional details regarding the business combination are referenced in a press release filed on July 14, 2016, and an investor presentation filed on July 19, 2016.
Key Facts for Investor Verification
- Verify the final exchange rate at closing, as the transaction value is sensitive to GBP/USD fluctuations.
- Confirm the exact amount of "Accruing Negative Consideration" deducted based on the final closing date.
- Review the specific performance metrics in Schedule 5 of the Share Sale Agreement that determine the $25 million earn-out.
- Assess the regulatory approval timeline for the gaming industry, which is a condition precedent to closing.
- Examine the detailed financial statements of the Inspired Group in the referenced investor presentation to understand underlying profitability and debt levels.