Hagerty, Inc. current report, 02 December 2021

Abrir documento

Business Context and Reporting Period

Hagerty, Inc. filed this Form 8-K on December 2, 2021, following the closing of its business combination with Aldel Financial Inc. Hagerty became a publicly traded holding company in an Up-C structure, with its primary asset being an equity interest in The Hagerty Group, LLC.

The transaction closed on December 2, 2021, after approval by Aldel stockholders on December 1, 2021. The filing includes historical financial information for Hagerty for the nine months ended September 30, 2021 and 2020, and pro forma combined information for the nine months ended September 30, 2021 and year ended December 31, 2020, principally through incorporated exhibits and the proxy statement.

Key Financial Metrics and Capitalization

  • The PIPE financing raised $703.85 million through the issuance of 70,385,000 Class A shares and 12,669,300 warrants.
  • Hagerty Holding Corp. received $489.7 million in cash, 176,033,906 OpCo Units and an equal number of Class V shares.
  • Markel Corporation received 75,000,000 OpCo Units and an equal number of Class V shares.
  • At closing, outstanding securities included 82,327,466 Class A shares, 251,033,906 Class V shares, 12,669,300 PIPE warrants, 5,750,000 public warrants, 286,250 private warrants and 1,300,000 private out-of-the-money warrants.
  • Warrants were generally exercisable at $11.50 per Class A share, except for the 1,300,000 private out-of-the-money warrants, which had a $15.00 exercise price.
  • Approximately 3,005,034 Aldel shares were redeemed at approximately $10.10 per share.
  • The filing text does not provide clear consolidated values for revenue, net income or loss, operating cash flow, margins, cash balances, total debt or liquidity. These amounts are contained or referenced in Exhibits 99.1 through 99.3 and the proxy statement.
  • The filing references a third amendment to Hagerty’s credit agreement dated October 27, 2021, but does not summarize the facility balance, interest rate, maturity, covenants or available borrowing capacity.

Material Changes Versus the Prior Comparable Period

  • The principal change was the completion of the SPAC business combination, conversion of Aldel into Hagerty, Inc., and the transition from shell-company status to an operating public company.
  • The transaction added PIPE capital and resulted in significant changes to the company’s share count, ownership structure, warrants and governance arrangements.
  • Hagerty’s historical financial statements for the nine months ended September 30, 2021 and 2020 are provided by reference, but the filing text does not state the period-over-period changes in revenue, profitability, cash flow or margins.
  • The company changed its independent registered public accounting firm for the combined entity from Plante & Moran, PLLC to Deloitte & Touche LLP. No disagreements or reportable events with Plante & Moran were disclosed.

Guidance, Outlook, Risks and Unusual Items

  • No formal financial guidance or specific revenue, earnings or cash-flow outlook is provided in the filing text.
  • Management identifies risks involving integration and realization of transaction benefits, competition, growth management and profitability, loss of distribution partners, fraud, member retention, cybersecurity, regulatory changes, insurance cyclicality, and unexpected claim frequency or severity.
  • The Tax Receivable Agreement with Hagerty Holding Corp. and Markel may create future payment obligations associated with realized tax benefits; the filing refers investors to the agreement for details.
  • Markel and Hagerty Holding Corp. received exchange rights allowing their OpCo Units and Class V shares to be exchanged for Class A shares or, at the company’s option, cash.
  • The company entered into indemnification agreements with directors and executive officers, lock-up agreements, an amended LLC agreement, an exchange agreement and sponsor warrant lock-up arrangements.
  • The 2021 Equity Incentive Plan authorized up to 38,317,399 Class A shares, and the 2021 Employee Stock Purchase Plan authorized up to 11,495,220 Class A shares.
  • The company had not paid cash dividends and did not expect to declare dividends in the foreseeable future.

Important Facts for Investors to Verify

  1. Review Exhibits 99.1 through 99.3 for actual revenue, loss, cash-flow, margin and balance-sheet results for the nine months ended September 30, 2021 and 2020.
  2. Reconcile the $703.85 million PIPE financing, redemption payments and transaction expenses to the company’s post-closing cash and liquidity position.
  3. Review the credit agreement amendment for debt outstanding, covenants, maturities, interest rates and borrowing availability.
  4. Assess potential dilution from the 20,005,550 warrants outstanding at closing, the equity incentive plan, the ESPP and future exchanges of OpCo Units and Class V shares.
  5. Review the Tax Receivable Agreement and exchange agreement for potential cash obligations, tax-benefit sharing and ownership dilution.
  6. Evaluate voting control and governance concentration: Hagerty Holding Corp. owned approximately 52.8% of common stock, Markel approximately 23.5% and State Farm approximately 17.2% as reported at closing.
  7. Confirm the final trading symbols, registration rights, lock-up expirations and any subsequent ownership changes following the December 2, 2021 closing.