Business Context and Reporting Period
This Form 8-K, filed on June 6, 2019, reports the consummation of the "Ranpak Business Combination" on June 3, 2019. One Madison Corporation (formerly a Cayman Islands exempted company) domesticated to Delaware and renamed Ranpak Holdings Corp. (NYSE: PACK). The Company acquired 100% of the equity interests of Rack Holdings Inc. (Ranpak), a leading provider of environmentally sustainable protective packaging solutions. The filing covers the transaction details, new debt financing, and selected historical financial data for Ranpak for the three months ended March 31, 2019.
Key Financial Metrics
Transaction Consideration: Total cash consideration of $798,890,451 and €140,000,000. Approximately $341.5 million and €140.0 million was used to repay existing indebtedness and transaction expenses; the remainder was paid to sellers.
Debt Financing (New Facilities):
- First Lien Dollar Term Facility: $378,175,000
- First Lien Euro Term Facility: €140,000,000
- Revolving Facility: $45,000,000 (undrawn as of June 3, 2019)
Historical Performance (Rack Holdings - Three Months Ended March 31, 2019):
- Net Sales: $66.1 million (7% increase vs. prior year)
- Net Loss: $3.4 million (improved from $6.8 million loss in prior year)
- Operating Cash Flow: $13.7 million
- Cash and Equivalents: $23.2 million (as of March 31, 2019)
- Total Debt: $495.1 million (as of March 31, 2019, prior to refinancing)
Material Changes vs. Prior Period
Revenue Growth: Net sales increased 7% year-over-year to $66.1 million, driven by volume and price increases in paper consumables. On a constant currency basis, sales increased 12%.
Profitability: Net loss narrowed significantly by 50% to $3.4 million, primarily due to a $4.9 million swing in foreign currency results (from a $2.9 million loss to a $1.9 million gain) and improved operating income.
Capital Structure: The Company transitioned from a shell company to an operating entity with substantial leverage. Existing debt of approximately $495 million was refinanced with new senior secured credit facilities totaling approximately $539 million (including the Euro facility).
Installed Base: The installed base of protective packaging systems grew 8% to 98,538 units as of March 31, 2019.
Outlook, Risks, and Unusual Items
Management Commentary: Management expects to incur incremental annual public company expenses of at least $2.0 million. The Company believes cash from operations and the new revolving facility will cover working capital needs for the next 12 months.
Key Risks:
- Supply Chain: Reliance on limited suppliers for kraft paper (e.g., 45% of North American requirements from WestRock in 2018) and third-party component suppliers.
- Commodity Prices: Fluctuations in kraft paper prices may impact margins if not passed to customers.
- Debt Covenants: The new credit agreement includes a "springing" financial covenant requiring a maximum first lien net leverage ratio of 9.10:1.00 if revolver usage exceeds 35% of commitments.
- Concentration: The largest single end-user accounted for approximately 11% of net sales in 2018.
Unusual Items: The filing notes a change in independent auditors, dismissing WithumSmith+Brown, PC and engaging Deloitte & Touche LLP effective June 6, 2019. No disagreements were reported regarding accounting principles.
Investor Verification Checklist
- Debt Service Capacity: Verify the Company's ability to service the new ~$539 million debt load and comply with the 9.10:1.00 leverage covenant.
- Paper Cost Pass-Through: Assess the Company's ability to pass on rising kraft paper costs to customers without losing market share.
- Supplier Concentration: Review the dependency on WestRock and other single-source suppliers for critical raw materials.
- Pro Forma Adjustments: Examine the unaudited pro forma financial statements (Exhibit 99.2) for the impact of transaction costs and new debt interest on future earnings.
- Customer Concentration: Monitor the stability of the top end-user relationships, particularly in the e-commerce sector.