Business Context and Reporting Period
This Form 8-K Current Report was filed by Willdan Group, Inc. on March 2, 2016, covering events occurring on February 26, 2016. The filing details the entry into a Material Definitive Agreement for the acquisition of Genesys Engineering P.C. and a Third Amendment to the Company's existing Credit Agreement with BMO Harris Bank National Association.
Key Financial Metrics and Transaction Details
Acquisition of Genesys Engineering P.C.
- Total Purchase Price: Approximately $12.6 million, subject to working capital and tax adjustments.
- Payment Structure:
- $6.0 million in cash payable at closing.
- 255,808 shares of Willdan Common Stock valued at $2.0 million (based on a 10-day volume-weighted average price).
- $4.6 million in cash payable in 24 equal monthly installments beginning March 26, 2016.
- Financing: The Company intends to use cash on hand for the initial $6.0 million payment.
Credit Facility and Liquidity
- Facility Type: Revolving line of credit and delayed draw term loan facility.
- Outstanding Borrowings: None under the revolving line of credit.
- Available Liquidity: $7.5 million remains available for borrowing.
- Stock Repurchase Authorization: The amendment permits the repurchase of up to $7.0 million of Common Stock, subject to maintaining at least $7.0 million in unrestricted cash or undrawn availability.
Material Changes and Agreements
Third Amendment to Credit Agreement
- Maturity Extension: Extended from March 24, 2016, to March 24, 2017.
- Acquisition Support: Explicitly permits the Genesys Acquisition and the associated installment payments.
- Covenant Adjustments:
- Tangible Net Worth: Revised formula requires maintaining a minimum based on Dec 31, 2015 levels, plus 50% of subsequent net income, plus equity proceeds, minus stock repurchases, and adjusted for acquisition impacts.
- Permitted Indebtedness: Decreased notes to sellers of acquired businesses from $4.25 million to $4.15 million. Increased cash earn-out/performance payment obligations from $7.9 million to $10.5 million. Added specific allowance for $4.6 million in indebtedness related to Genesys installment payments.
Equity Issuance
The Company will issue 255,804 shares of unregistered Common Stock (127,904 to each of Ronald W. Mineo and Robert J. Braun) as part of the acquisition consideration. These shares are subject to a three-year lock-up period.
Outlook, Risks, and Contingencies
- Closing Conditions: The acquisition is subject to customary closing conditions and may be terminated if not consummated by March 30, 2016.
- Control Limitations: Due to New York state law regarding professional corporations, Willdan will not own capital stock of Genesys post-closing. While Willdan will provide administrative support and restrict ownership transfers, it will not control Genesys's professional decision-making.
- Guarantees: Willdan and its subsidiary WES will guarantee certain obligations of the merged entity, including the installment payments.
Investor Verification Checklist
- Verify the closing date of the Genesys acquisition and confirmation that the March 30, 2016 termination deadline was met.
- Confirm the final purchase price after working capital and tax adjustments.
- Monitor the Company's unrestricted cash levels to ensure compliance with the $7.0 million threshold required for any future stock repurchases.
- Review subsequent filings for the impact of the Genesys acquisition on consolidated revenue and tangible net worth covenants.
- Check for any defaults or covenant breaches under the amended BMO Credit Agreement.