Business Context and Reporting Period
Advantage Solutions Inc. filed this Form 8-K reporting the completion of its business combination with Conyers Park II Acquisition Corp. on October 28, 2020. Conyers Park merged with Advantage Interco, with Advantage Interco surviving. The transaction converted the registrant from a shell company into the combined operating company, which began trading on Nasdaq under the symbols ADV and ADVWW on October 29, 2020.
The filing presents the post-closing company and incorporates historical financial information for Advantage for the years ended December 31, 2017 through 2019 and the six months ended June 30, 2019 and 2020. Unaudited pro forma combined information as of June 30, 2020 and for the six months ended June 30, 2020 and year ended December 31, 2019 was filed as Exhibit 99.2.
Key Financial Metrics, Financing and Liquidity
- Redemptions: Holders redeemed 32,114,818 public shares for approximately $323.1 million, or approximately $10.06 per share.
- PIPE financing: The company issued 85,540,000 Class A shares for aggregate gross proceeds of $855.4 million.
- Trust account: Approximately $131.2 million remained in the trust account immediately before closing and was used to fund the business combination.
- Shares outstanding: Class A shares outstanding totaled 318,425,182 immediately after closing. Topco and the Advantage Sponsors collectively owned approximately 75% of the outstanding Class A shares.
- New revolving facility: Advantage Sales & Marketing Inc. entered into a senior secured asset-based revolving facility of up to $400.0 million, subject to borrowing-base capacity, with a five-year maturity. Letters of credit are limited to the lesser of $150.0 million and unused commitments.
- New term loan: The company entered into a secured first-lien term loan facility with aggregate principal of $1.325 billion. The facility amortizes at 1.00% of original principal annually in equal quarterly installments and bears interest at an adjusted Eurodollar rate plus 5.25% or a base rate plus 4.25%.
- Senior secured notes: Advantage issued $775 million of 6.50% senior secured notes due November 15, 2028. Interest is payable semiannually beginning May 15, 2021.
- Use of proceeds: Net proceeds from the notes, credit facilities and PIPE investment, together with trust-account cash, were intended to repay prior senior secured credit facilities and pay transaction-related fees and expenses.
- Operating metrics: The filing text does not provide clear current-period revenue, net income, operating income, cash flow, margin, cash balance or net debt values; those details are incorporated by reference from the proxy statement and pro forma exhibits.
Material Changes Versus the Prior Comparable Period
- The transaction materially changed the registrant’s structure, ownership, capital base and reporting profile by replacing the shell company with Advantage’s operating business.
- The company raised $855.4 million of gross PIPE proceeds and established $1.325 billion of term debt, up to $400.0 million of revolving capacity and $775 million of senior secured notes.
- Conyers Park’s Class B shares converted into Class A shares, and 5,000,000 performance-based shares issued to Topco remain subject to forfeiture until specified market-performance conditions are met.
- The new financing replaced the company’s previous senior secured credit facilities; the filing does not provide a directly comparable post-closing versus prior-period debt table.
- Topco held 203,750,000 shares, representing approximately 64.0% of Class A shares immediately after closing, while the Sponsor held approximately 5.8%, including shares issuable upon warrant exercise.
Guidance, Outlook, Commentary and Risks
The filing does not provide specific revenue, earnings or cash-flow guidance. Management’s forward-looking statements address anticipated benefits of the transaction, future operating performance, liquidity, growth and market prospects, but the filing states that actual results may differ materially.
- Key risks include the COVID-19 pandemic, retailer developments, labor-cost and classification changes, client consolidation and procurement pressure, changing consumer-goods and retail programs, technological change and the need to develop omni-channel services.
- The company faces substantial indebtedness, floating-rate exposure, refinancing risk, mandatory debt prepayments and restrictive covenants governing acquisitions, investments, dividends, asset sales and additional indebtedness.
- Liquidity could be affected by the company’s ability to generate operating cash flow and by borrowing-base availability under the revolving facility. A 1.00-to-1.00 fixed-charge coverage ratio applies when excess availability falls below specified thresholds.
- Additional risks include integration of acquired businesses, including Daymon; acquisition execution; employee retention; foreign-currency exposure; joint-venture limitations; material weaknesses in internal controls; and matters related to the April 2018 acquisition of Take 5 Media Group.
- The company may be unable to maintain Nasdaq listing standards or realize the expected benefits of the business combination.
- The company paid up to $10.0 million to Centerview Partners at closing for transaction advisory services. Certain directors are affiliated with Centerview Capital Consumer, creating a disclosed related-party relationship.
Important Facts for Investors to Verify
- Review the pro forma financial statements and historical financial information incorporated by reference to confirm revenue, profitability, cash flow, leverage, liquidity and transaction accounting.
- Verify the amount of debt actually drawn at closing, borrowing-base availability, cash on hand and the resulting net leverage.
- Read the credit agreements and notes indenture for covenants, mandatory prepayment provisions, collateral priorities, events of default and interest-rate exposure.
- Assess the effect of the $323.1 million redemption and $855.4 million PIPE financing on ownership dilution and available transaction liquidity.
- Monitor Topco’s controlling ownership, the 5,000,000 performance shares, Sponsor warrants and potential future dilution.
- Review the disclosed COVID-19, client-concentration, labor, acquisition-integration, internal-control and Take 5 Media Group risks.
- Confirm Nasdaq’s continued listing review and the company’s subsequent periodic reports for actual operating results and management guidance.