Business Context and Reporting Period
Company: Global Partner Acquisition Corp. (GPAC), a Special Purpose Acquisition Company (SPAC).
Date of Report: January 11, 2017.
Event: GPAC entered into a definitive Merger Agreement to acquire Sequel Youth and Family Services, LLC ("Sequel"), a provider of youth and family services. The transaction was unanimously approved by the GPAC Board on January 10, 2017.
Key Financial Metrics and Transaction Structure
The filing details the financial structure of the proposed Business Combination rather than historical operating results for a specific period.
- Equity Consideration: Sequel common equity holders will receive newly issued Class B units exchangeable for 4,500,000 shares of GPAC common stock.
- Cash Consideration:
- $105.0 million cash distribution to Sequel common equity holders.
- $30.0 million cash distribution to the Sequel preferred equity holder.
- Preferred Equity Consideration: Approximately $62.2 million in newly issued preferred units to the Sequel preferred equity holder, carrying an initial monthly cash distribution right of 9.9% per year.
- Warrants: 6,532,000 warrants issued to Sequel common equity holders (purchasing approx. 3,266,000 shares).
- Debt: Approximately $137.5 million of Sequel's net debt will remain outstanding post-closing.
- Transaction Expenses: $22.0 million in aggregate third-party expenses ($11.6 million for Sequel; $10.4 million for GPAC/Sponsor).
- Liquidity Sources: GPAC intends to fund cash obligations using approximately $155.3 million from its trust account and $2.8 million in borrowings from Sequel's revolving line of credit.
Material Changes and Agreements
This filing represents a material change in GPAC's corporate status from a SPAC to a combined operating entity. Key contractual changes include:
- Tax Receivable Agreement (TRA): GPAC will share 80% of tax savings from asset step-up with Sequel equity holders (after a $5.0 million retention for the Ripley Trust).
- Escrow and Indemnification: 400,000 Class B units ($4.0 million value) will be held in escrow for 18 months. A $25 million representations and warranties insurance policy was purchased. GPAC's indemnification recovery is subject to a $2.0 million deductible and capped at the escrow amount plus insurance proceeds.
- Sponsor Forfeitures and Vesting:
- Sponsor forfeited 7,532,000 warrants to fund the transaction and a new equity incentive plan.
- 1,552,500 Sponsor founder shares are subject to performance-based vesting over 8 years (triggers at $12.50 and $15.00 share prices).
- 2,328,750 Sponsor founder shares are subject to a new six-month lock-up.
- Executive Compensation: New offer letters for CEO John Stupak ($500k base), COO Mandy Moses ($300k base), and CFO Sybil Potts ($264.6k base), plus annual bonuses and potential equity grants.
- Non-Compete: John F. Ripley agreed to a 10-year non-compete in exchange for $1.9 million per year.
Guidance, Risks, and Conditions
Conditions to Closing: The transaction is subject to customary conditions, including GPAC stockholder approval, no material adverse effects, and a minimum cash balance of approximately $158.0 million in the trust account (after redemptions and commissions) plus additional financing.
Termination Rights: The agreement may be terminated if closing does not occur by May 15, 2017 (extendable to June 15, 2017), or due to regulatory prohibitions or material breaches.
Risks and Contingencies:
- Regulatory Risk: Potential changes to healthcare laws, specifically the Affordable Care Act, and Medicaid spending levels.
- Operational Risk: Disruption of business plans, cybersecurity risks, and billing compliance.
- Financing Risk: Reliance on the trust account balance and the ability to secure additional equity or debt financing if redemptions exceed expectations.
- Key Personnel: Risk of loss of key employees or failure to recruit talent.
Investor Verification Checklist
- Verify the final cash balance in GPAC's trust account after stockholder redemptions to ensure the $158.0 million minimum closing condition is met.
- Confirm the status of Sequel's existing credit facility and the terms of the $2.8 million borrowing intended for closing.
- Review the definitive proxy statement for details on the proposed Equity Incentive Plan and the specific vesting schedule for the Sponsor's founder shares.
- Assess the impact of the 9.9% preferred distribution obligation on the combined company's future cash flow.
- Monitor regulatory developments regarding Medicaid and the Affordable Care Act that could affect Sequel's revenue model.