Repay Holdings Corp current report, 09 May 2019

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Business Context and Reporting Period

Company: Thunder Bridge Acquisition, Ltd. (to be renamed Repay Holdings Corporation)

Date: May 9, 2019

Event: Filing of Form 8-K regarding the Second Amendment to the Merger Agreement with Hawk Parent Holdings, LLC ("Repay"). The filing details amendments to the proposed business combination, including changes to consideration, warrant terms, and the execution of a Private Investment in Public Equity (PIPE) transaction.

Key Financial Metrics and Transaction Terms

Merger Consideration Adjustments:

  • Base Merger Consideration: Reduced from $600,000,000 to $580,650,000.
  • Required Cash Consideration: Reduced by $30,000,000.
  • Cash Cap Removal: The $300,000,000 cap on cash consideration payable to Repay equity holders has been removed.
  • Balance Sheet Allocation: Up to $50,000,000 of excess cash proceeds may be retained by the post-closing company for general corporate purposes (e.g., debt repayment, acquisitions), in addition to existing $10 million reserves.

PIPE Investment:

  • Amount: $135,000,000.
  • Price: $10.00 per Class A ordinary share.
  • Use of Proceeds: Funding required cash consideration, warrant cash payments, and transaction costs. Excess proceeds over $60 million will increase cash consideration to Repay equity holders.

Warrant Amendment Terms:

  • Exercise Ratio: Reduced to one-quarter (0.25) of one Class A ordinary share per warrant.
  • Exercise Price: $2.875 per quarter share ($11.50 per whole share).
  • Cash Payment: Warrant holders receive $1.50 in cash per warrant in exchange for the reduction in share entitlement.
  • Private Warrants: Holders (Sponsor and Cantor) waived rights to the cash payment; Cantor forfeited all 350,000 private warrants.

Pro Forma Financial Estimates (as of Dec 31, 2018, "No Redemption" scenario):

  • Cash and Cash Equivalents: Approximately $60 million.
  • Goodwill: Between $380 million and $415 million.
  • Additional Paid-in Capital: Between $370 million and $405 million.
  • Non-Controlling Interests: Approximately $151 million.

Material Changes Versus Prior Period

The filing represents a material amendment to the original Merger Agreement dated January 21, 2019. Key changes include:

  • Consideration Reduction: The total base consideration was lowered by approximately $19.35 million.
  • Warrant Restructuring: A significant dilution of warrant value (reduced to 25% of a share) offset by a $1.50 cash payout per warrant.
  • Board Composition: Richard Thornburgh will serve on the board of directors in lieu of James Kirk.
  • Sponsor Adjustments: The Sponsor agreed to cancel an additional 1,935,000 Class B shares and transfer 8,000,000 private warrants to PIPE investors. The Parent Expense Cap was increased from $20 million to $21.75 million.
  • Capital Structure: Introduction of $135 million in new equity via the PIPE investment.

Guidance, Outlook, Risks, and Contingencies

Outlook and Conditions:

  • Closing Conditions: The transaction is contingent upon obtaining consent from holders of at least 65% of outstanding Public Warrants for the Warrant Amendment.
  • Accounting Treatment: The transaction may be accounted for as an acquisition (Thunder Bridge as acquirer) or a reverse merger (Repay as acquirer) depending on the level of shareholder redemptions.
  • Lock-Up: PIPE Investors are subject to a 120-day lock-up period on shares and warrants acquired.

Risks and Contingencies:

  • Termination Rights: Parties retain the right to terminate the Merger Agreement if warrant consent is not obtained.
  • Forward-Looking Statements: Management notes significant uncertainties regarding future results, regulatory changes in the payment processing market, and the ability to execute growth strategies.
  • Pro Forma Reliability: The pro forma financial information is preliminary, unaudited, and based on estimates that may change materially.

Investor Verification Checklist

  • Verify the outcome of the Warrantholder Meeting to confirm if the 65% approval threshold for the Warrant Amendment is met.
  • Review the definitive proxy statement/prospectus (Form S-4) for full unaudited pro forma financial statements and detailed assumptions.
  • Confirm the final settlement of the Merger Consideration, as cash and equity components are subject to closing adjustments.
  • Monitor the status of the PIPE Investment closing and the subsequent registration statement filing for PIPE shares.
  • Assess the impact of the reduced Base Merger Consideration and warrant terms on the implied enterprise value of Repay.