Ridenow Group, Inc. current report, 12 March 2021

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Business Context and Reporting Period

Company: RumbleOn, Inc. (Note: The filing metadata references "Ridenow Group, Inc." as the target, but the registrant is RumbleOn, Inc.)
Date: March 12, 2021
Event: Entry into a Material Definitive Agreement to acquire RideNow Group, Inc. and its subsidiaries (the "Acquired Companies").

RumbleOn, a digital marketplace for used vehicles, entered into a Plan of Merger and Equity Purchase Agreement to acquire up to 46 powersports retail dealerships operating under the RideNow brand. The transaction involves the acquisition of equity interests and the merger of four specific Arizona entities (C&W Motors, Metro Motorcycle, Tucson Motorcycles, and Tucson Motorsports) into RumbleOn subsidiaries.

Key Financial Metrics and Transaction Structure

Total Consideration: Approximately $575.4 million, subject to adjustments.

  • Cash Component: $400.4 million (plus/minus working capital and indebtedness adjustments).
  • Equity Component: $175 million in RumbleOn Class B Common Stock ("Closing Payment Shares").

Financing Structure:

  • Debt: Approximately $280 million in senior secured term loans from Oaktree Capital Management (Initial Lender).
  • Equity: New equity issuance to fund the remainder of the cash consideration.
  • Bridge Loan: $2.5 million secured promissory note from BRF Finance Co., LLC at 12% annual interest.

Debt Terms (Oaktree Facility):

  • Total Facility: Up to $400 million ($280 million initial advance + $120 million delayed draw).
  • Interest Rate: Adjusted LIBOR + 8.25% (7.25% cash, 1.00% PIK) or ABR + 7.25% (6.25% cash, 1.00% PIK).
  • Maturity: Five years from the Closing date.
  • Prepayment: Required from 50% of excess cash flow, 100% of certain asset sales, and 50% of certain equity financings.

Equity Terms:

  • Share Valuation: Based on the lowest of $30.00, the 20-day VWAP prior to closing, or the lowest price paid for new equity between agreement and closing.
  • Escrow: 10% of Closing Payment Shares will be escrowed at closing.
  • Warrant: Oaktree receives a warrant to purchase shares equal to $40 million divided by the lowest equity issuance price (or 5% of fully diluted market cap if terminated).

Material Changes and Conditions

Transaction Status: Pending. Expected to close in the second or third quarter of 2021.

Key Closing Conditions:

  • Receipt of antitrust clearances and expiration of waiting periods.
  • Stockholder approval of the transaction by RumbleOn.
  • Listing approval of Closing Payment Shares on Nasdaq.
  • Consent from certain powersports manufacturers (OEMs).
  • Resolution of Rights of First Refusal (ROFR) held by certain RideNow minority equity holders.

Termination Rights: Either party may terminate if the transaction does not close by June 30, 2021, extendable to July 31, 2021.

Corporate Changes: Upon closing, RideNow Principal Owners William Coulter and Mark Tkach will become executive officers and directors of RumbleOn. RumbleOn also amended its Articles of Incorporation to increase authorized Class B Common Stock to 100,000,000 shares and expanded its Stock Incentive Plan.

Guidance, Risks, and Contingencies

Management Commentary: The transaction is intended to expand RumbleOn's footprint in the powersports retail sector. Management anticipates all minority owners will participate, but there is no assurance regarding ROFR exercises.

Material Risks:

  • Financing Risk: Failure to secure the required debt or equity financing.
  • Regulatory Risk: Failure to obtain antitrust approvals or OEM consents.
  • Integration Risk: Challenges in integrating RideNow operations and retaining key employees.
  • Minority Holders: If minority holders exercise ROFR, the consideration payable will be reduced, and RumbleOn may not acquire 100% of certain entities.
  • Forward-Looking Statements: Financial projections included in related materials are not audited and involve significant uncertainty.

Investor Verification Checklist

  • Verify the final valuation of the Closing Payment Shares, which depends on the lowest of three specific pricing metrics at the time of closing.
  • Confirm the status of OEM consents, as lack thereof is a specific condition precedent to closing.
  • Monitor the resolution of minority equity holder Rights of First Refusal (ROFR) to determine if the full 46-company acquisition will proceed.
  • Review the definitive proxy statement for details on the dilution impact of the new equity issuance and the warrant granted to Oaktree.
  • Assess the impact of the 1.00% Pay-In-Kind (PIK) interest component on future debt obligations and cash flow.