Katapult Holdings, Inc. current report, 28 May 2021

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Filing Overview

FinServ Acquisition Corp. filed this Form 8-K on May 28, 2021 under Item 8.01. The filing supplements the definitive proxy statement/prospectus for FinServ’s proposed merger with Katapult Holdings, Inc. The proxy statement was declared effective on May 14, 2021 and mailed to stockholders beginning approximately May 18, 2021.

Transaction and Business Context

  • Under the December 18, 2020 merger agreement, FinServ’s subsidiaries would combine with Katapult, with the resulting company becoming a wholly owned subsidiary of FinServ.
  • The filing does not report a new operating period or provide historical financial statements or current-period financial results for Katapult or FinServ.
  • The supplemental disclosures were provided to avoid potential delay, cost and distraction, while FinServ stated that they were not an admission that the original disclosures were legally insufficient or material.

Financial Metrics and Liquidity

The filing text does not provide clear values for revenue, profit, cash flow, margins, debt, cash balances, liquidity, valuation or other operating metrics.

  • The merger negotiations addressed a proposal that $50 million of PIPE proceeds would be used to fund cash on FinServ’s balance sheet.
  • The parties also negotiated the closing condition relating to available cash after FinServ stockholder redemptions.
  • Barclays’ transaction fees, including a portion of its deferred FinServ IPO compensation, were payable at closing and conditioned on successful completion of the merger. If the merger did not close, Barclays would not receive those fees but would remain entitled to expense reimbursement and indemnification under its engagement letter.

Material Supplemental Disclosures

  • FinServ entered into nondisclosure agreements with 32 potential target companies in addition to Katapult and conducted varying levels of discussions, negotiations and due diligence.
  • Due diligence areas included financial projections and sensitivities, historical performance, macroeconomic trends, competitive positioning, operating margins, growth opportunities, management performance, technology, regulation and public-company considerations.
  • Negotiations with Katapult covered post-closing governance, transaction structure, representations and covenants, the use of PIPE proceeds, and the available-cash closing condition.
  • The planned post-closing board was described as having seven members, with one FinServ representative, Lee Einbinder continuing as a director, and Orlando Zayas joining the board; other current FinServ directors were expected to resign at closing.
  • FinServ disclosed that Barclays served as financial advisor and lead placement agent for the PIPE investment, in addition to having been an underwriter in FinServ’s IPO.

Outlook, Risks and Contingencies

The filing provides no new quantitative guidance. Forward-looking statements regarding projected financial and performance metrics, market opportunity and anticipated transaction benefits are expressly described as illustrative and not guarantees of future performance.

  • Completion of the merger remained subject to required regulatory approvals, stockholder approvals, satisfaction of closing conditions and successful financing and redemption outcomes.
  • Identified risks include failure to complete the transaction or realize expected benefits, uncertainty in Katapult’s projected financial information, merchant concentration, competition, COVID-19 effects, and the ability to obtain equity, equity-linked or debt financing.
  • Additional risks may arise from changes in business, market, financial, political and legal conditions and from assumptions underlying management estimates and market data.

Key Facts to Verify

  • Whether FinServ and Katapult stockholders approved the proposed merger and whether all regulatory and other closing conditions were satisfied.
  • The final amount of available cash after stockholder redemptions and the amount of PIPE financing actually raised.
  • Whether the $50 million intended for FinServ’s balance sheet was funded and how it was ultimately used.
  • The final post-closing board composition and ownership structure.
  • Barclays’ final fees, deferred IPO compensation and related transaction expenses.
  • Katapult’s actual financial results and performance relative to the projections referenced in the proxy materials.