Victory Capital Holdings, Inc. - Form 8-K Summary
Business Context and Reporting Period
This Current Report on Form 8-K was filed by Victory Capital Holdings, Inc. on November 6, 2018. The filing discloses the entry into a material definitive agreement to acquire two subsidiaries of USAA Investment Corporation: USAA Asset Management Company and USAA Transfer Agency Company.
Key Financial Metrics and Transaction Terms
- Base Purchase Price: $850 million in cash, payable at closing.
- Contingent Consideration: Up to $150 million in additional payments over four years, contingent on annual revenue from "non-managed money" assets meeting specific thresholds (80% to 100% of the closing revenue run-rate).
- Financing Structure: The transaction is expected to be financed via a combination of new debt and existing balance sheet resources.
- New Debt Facilities:
- Seven-year senior secured term loan facility: Up to $1.395 billion.
- Five-year senior secured revolving credit facility: Up to $100 million.
- Debt Adjustments: The base purchase price is subject to reductions for working capital, debt, unpaid transaction expenses, accrued bonuses, and commissions.
Material Changes and Conditions
The transaction represents a significant expansion of the Company's asset management capabilities. The closing is subject to several material conditions:
- Client Consents: Receipt of consents representing at least 75% of the "Run Rate Threshold" (baseline revenue amount) is required to close. The base price is reduced if consents for 95% of the threshold are not obtained.
- Regulatory Approval: Expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.
- Timing: The transaction is expected to close around the end of the second quarter of 2019.
- Termination: The agreement includes a termination date of August 3, 2019, if the transaction is not consummated.
Outlook, Risks, and Management Commentary
Management intends to use the new credit facilities to refinance existing debt, fund this acquisition, and finance the previously announced acquisition of Harvest Volatility Management, LLC. The filing includes extensive forward-looking statements regarding the ability to integrate the acquired business and sustain growth.
Key Risks Disclosed:
- Inability to secure required client consents or shareholder approvals.
- Failure to successfully close the transaction or integrate the acquired business.
- Substantial indebtedness and the risk of failing to meet financial covenants.
- Market conditions affecting assets under management (AUM) and investment performance.
Investor Verification Checklist
- Verify the status of client consents required to meet the 75% closing threshold and the 95% price adjustment threshold.
- Monitor the regulatory review process under the Hart-Scott-Rodino Act.
- Review the final terms of the new $1.395 billion term loan and $100 million revolving facility, including interest rates and covenants.
- Assess the impact of the increased debt load on the Company's liquidity and financial flexibility.
- Track the progress of the concurrent Harvest Volatility Management acquisition.