Business Context and Reporting Period
ChaSerg Technology Acquisition Corp. filed this Form 8-K on November 13, 2019, announcing a definitive merger agreement with Grid Dynamics International, Inc. The transaction is intended to create Grid Dynamics Holdings, Inc., subject to stockholder, regulatory, exchange-listing and other closing conditions.
Transaction Terms and Key Metrics
- Merger consideration consists of $130.0 million in cash, subject to reductions, and 25,523,810 shares of ChaSerg Class A common stock.
- Cash consideration may be reduced by up to $13.5 million based on the ChaSerg trust account and available parent cash; the reduction would be offset by additional shares.
- Share consideration is subject to customary adjustments for working capital, indebtedness, excess cash and specified acquisitions.
- Share consideration may be reduced by $1.5 million for every $100,000 that estimated 2019 EBITDA is below $23.8 million. The related closing adjustment is capped at 857,143 shares placed in escrow.
- At closing, Grid Dynamics must have at least $20.0 million of cash and cash equivalents.
- After redemptions and any additional equity financing, ChaSerg must retain at least $5.0 million in net tangible assets and cash and cash equivalents equal to at least 70% of the trust account balance at signing.
- The filing does not provide historical revenue, net income, cash flow, margins, debt balances or other operating financial statements for Grid Dynamics or ChaSerg.
Material Changes Versus the Prior Comparable Period
The filing is a transaction announcement rather than a periodic financial-results filing. It does not present comparable-period operating results. The material change is ChaSerg’s entry into the merger agreement and related voting, lock-up and sponsor arrangements.
Guidance, Outlook, Risks and Unusual Items
- The proposed transaction will occur through an initial merger of a ChaSerg subsidiary with Grid Dynamics followed by a second-step merger into another ChaSerg subsidiary.
- Completion requires approval by Grid Dynamics stockholders, ChaSerg stockholders, ASL shareholders, Teamsun shareholders and specified regulatory and exchange approvals.
- Grid Dynamics’ closing conditions include no material adverse effect since December 31, 2018, execution of specified employment agreements, appraisal rights by no more than 10% of Grid Dynamics shares, approval of a new equity incentive plan and other corporate approvals.
- Voting agreements require specified Grid Dynamics-related holders to support the transaction and restrict transfers before closing. Teamsun reportedly owns approximately 55% of ASL and granted a proxy supporting the transaction.
- Major holders are expected to enter one-year lock-up agreements, subject to earlier release if the post-combination stock price reaches $12.00 per share under specified conditions.
- The sponsor agreed to restrict transfers of up to 1,200,000 shares. One-third of these shares may be released at each of $12.00, $13.50 and $15.00 per share, subject to trading-period requirements.
- The merger agreement may be terminated for specified breaches, legal prohibitions, failure to obtain approvals, inadequate post-redemption cash or other customary events.
- Risks include failure to satisfy closing conditions, shareholder redemptions, inability to maintain Nasdaq listing, competing offers, transaction costs, disruption to operations, retention of key employees, competition and failure to realize anticipated benefits.
Important Facts for Investors to Verify
- Review the complete merger agreement and subsequent proxy materials for final consideration, adjustment formulas, closing conditions and termination rights.
- Verify the trust account balance, available parent cash, expected redemptions and any additional equity financing.
- Assess Grid Dynamics’ 2019 EBITDA against the $23.8 million threshold and the resulting share adjustment.
- Confirm Grid Dynamics’ cash and cash equivalents at closing and compliance with the $20.0 million minimum.
- Review historical and projected financial statements, including revenue growth, profitability, cash flow, margins and debt, when provided in the proxy or subsequent filings.
- Track required approvals, Nasdaq listing status, appraisal rights and the expected closing date.
- Evaluate dilution from the 25,523,810 shares, assumed options, adjustment shares and sponsor earnout shares.