Primoris Services Corp: Acquisition of James Construction Group (8-K Summary)
Business Context and Reporting Period
Date: December 18, 2009
Event: Completion of the acquisition of James Construction Group, L.L.C. ("JCG"), a privately-held Florida limited liability company.
Result: JCG became a wholly-owned subsidiary of Primoris Services Corporation.
Key Financial Metrics and Transaction Structure
The total initial acquisition consideration was $125 million, structured as follows:
- Cash: $7 million paid at closing.
- Promissory Note: $53.5 million principal amount, due December 15, 2014. Interest rates escalate from 5% to 8% over the term. Payments are fully amortizing monthly.
- Series A Preferred Stock: 81,852.78 shares issued, valued at approximately $64.5 million based on a 20-day average stock price of $7.88. Each share converts into 100 common shares upon stockholder approval.
- Escrow: 11,897.20 Preferred Shares (approx. 14.5% of total) placed in escrow for three years for indemnity purposes.
- Earnout: Potential additional $10 million in common stock if JCG achieves $35 million in EBITDA for fiscal year 2010.
Debt and Liquidity Impact: The $53.5 million Promissory Note is subordinated to senior lenders and bonding agencies. The note includes covenants restricting dividends, share repurchases, and additional seller financing without consent.
Material Changes and Governance
- Board Expansion: Two new "Class C" directorships created. Michael D. Killgore (JCG CEO) and Robert A. Tinstman (former JCG Executive Chairman) elected to the board.
- Management: Michael D. Killgore appointed President of JCG with a five-year employment agreement ($253,000 base salary) and a two-year non-compete.
- Stockholder Approval: Conversion of Preferred Stock to Common Stock requires stockholder approval as it exceeds 20% of outstanding shares. A special meeting is required. A voting agreement securing >50% of shares has been executed to support the conversion.
- Tax Distributions: JCG distributed $35 million cash and issued a $1.97 million promissory note to members for tax purposes prior to closing.
Outlook, Risks, and Contingencies
- Financial Statements: Audited financial statements and pro forma information for JCG are not included in this filing; they will be filed by amendment within 71 days.
- Conversion Risk: If stockholders do not approve the conversion of the Closing Shares, Primoris has the right (but not obligation) to repurchase the shares.
- Prepayment Triggers: The Promissory Note must be partially prepaid using proceeds from future equity financings or specific debt incurrences.
- Share Cap: Earnout shares are capped at 19.9% of outstanding common stock; excess value would be paid in cash.
Investor Verification Checklist
- Verify the outcome of the special stockholder meeting regarding the conversion of Series A Preferred Stock.
- Review the upcoming 71-day amendment for JCG's audited financial statements and pro forma impact on Primoris's balance sheet.
- Monitor JCG's 2010 EBITDA performance to determine if the $10 million earnout is triggered.
- Assess the impact of the $53.5 million note on Primoris's debt covenants and liquidity ratios.
- Confirm the final allocation of the $35 million tax distribution and any subsequent adjustments.