Hagerty, Inc. current report, 17 August 2021

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Business Context and Reporting Period

This Form 8-K was filed by Aldel Financial Inc. on August 18, 2021, reporting events occurring August 17, 2021. Although the requested company is Hagerty, Inc., Hagerty was then a private operating company known as The Hagerty Group, LLC; Aldel was the public registrant and SPAC.

Aldel, Aldel Merger Sub LLC and The Hagerty Group entered into a Business Combination Agreement. Merger Sub will merge into Hagerty, Aldel will change its name to Hagerty, Inc., and the combined company will operate as a publicly traded Up-C structure, subject to closing conditions.

Key Financial and Transaction Metrics

  • The agreed aggregate equity value for Hagerty is $3.0 billion, subject to specified adjustments for transaction expenses or excess buyer funds.
  • Secondary consideration is $450 million, plus any amount by which Aldel’s post-redemption trust account and PIPE proceeds exceed $750 million, capped at an additional $50 million.
  • A PIPE financing was agreed for 70,385,000 Class A shares and 12,669,300 warrants, generating aggregate gross proceeds of $703.85 million.
  • The transaction requires aggregate cash proceeds of at least $450 million after specified expenses, liabilities and transaction adjustments.
  • Under the proposed Tax Receivable Agreement, New Hagerty would pay HHC and Markel 85% of realized tax savings associated with specified basis increases and related tax attributes; the filing states that payments could be substantial.
  • The filing does not provide Hagerty’s historical revenue, profit, cash flow, margins, debt balances or standalone liquidity metrics.

Material Changes Versus the Prior Comparable Period

The filing does not report operating results or a period-over-period financial comparison. The material development is the execution of the proposed de-SPAC transaction and related financing arrangements, which would convert Hagerty into a public company.

  • New Hagerty’s post-closing board is expected to have no more than nine directors, with designation rights for Aldel, Markel, State Farm and HHC.
  • Hagerty’s officers immediately before closing are expected to continue in the same roles after closing, while Aldel’s officers will resign.
  • Existing Aldel sponsor shares will convert into New Hagerty Class A common stock on a one-for-one basis.

Guidance, Outlook, Risks and Unusual Items

  • Closing requires Aldel and Hagerty approvals, expiration or termination of the applicable Hart-Scott-Rodino waiting period, satisfaction of minimum cash requirements, NYSE approval and execution of related agreements.
  • The agreement may be terminated if the transaction is not completed by February 17, 2022, or if required approvals, conditions or contractual obligations are not satisfied.
  • The PIPE closing is contingent on the substantially concurrent completion of the business combination and may terminate if the transaction does not close by February 17, 2022.
  • Aldel sponsors agreed to support the transaction, vote in favor of it and waive redemption rights for their covered shares.
  • HHC and Markel will receive exchange rights allowing their OpCo units and Class V shares to be exchanged for New Hagerty Class A shares or cash, subject to the Exchange Agreement.
  • HHC and Markel are subject to transfer restrictions generally ending on the earlier of the applicable founder lock-up expiration and 180 days after closing, subject to exceptions.
  • Sponsor warrants will have additional exercise restrictions tied to New Hagerty’s trading price and specified periods after closing.
  • Key risks include failure to obtain approvals or regulatory clearance, stockholder redemptions causing insufficient cash, failure of the PIPE financing, inability to obtain or maintain NYSE listing, transaction costs, COVID-19 effects, litigation, execution and integration risks, competition, growth and retention challenges, and uncertainty in projected financial information.
  • Forward-looking statements regarding synergies, growth, revenue opportunities and future performance are not assurances of results.

Important Facts for Investors to Verify

  • Review the full Business Combination Agreement and subsequent Form S-4/proxy materials for final consideration, ownership percentages, adjustments and closing conditions.
  • Verify the level of stockholder redemptions, actual trust-account proceeds and whether the $450 million minimum cash condition is satisfied.
  • Confirm the final status and funding of the $703.85 million PIPE, including share and warrant terms.
  • Assess the economic impact and potential magnitude of the Tax Receivable Agreement payments.
  • Review Hagerty’s audited financial statements, forecasts, debt, liquidity, revenue growth and profitability when filed.
  • Monitor transaction approval, regulatory, NYSE-listing and termination developments through subsequent SEC filings.