Business Context and Reporting Period
This Form 8-K, dated August 31, 2021, reports the completion of a business combination between RumbleOn, Inc. (the "Company") and RideNow Powersports, the nation's largest powersports retailer group. The transaction, effective August 31, 2021, creates the first omnichannel customer experience in the powersports sector. The filing also details the entry into a new credit agreement, the issuance of equity and warrants, and the appointment of new directors and executive officers.
Key Financial Metrics and Transaction Details
- Transaction Consideration: RideNow equity holders received approximately $400.4 million in cash (subject to post-closing adjustments) and 5,833,333 shares of RumbleOn Class B Common Stock.
- Financing Sources: The cash consideration was funded by approximately $130 million from a public offering of 5,053,029 shares of Class B Common Stock (gross proceeds ~$167 million) and approximately $280 million from a new Credit Agreement.
- Debt Structure: The Credit Agreement provides for a $280.0 million Initial Term Loan Facility and a $120.0 million Delayed Draw Term Loans Facility. Borrowings mature five years after the Closing Date.
- Interest Rates: Loans bear interest at either the Bloomberg BBAM1 rate (with a 1.00% floor) plus 8.25%, or an adjusted base rate plus 7.25%. Up to 1.00% of interest may be payable in kind.
- Related Party Leases: The Company entered into leases for 24 properties with entities controlled by new directors William Coulter and Mark Tkach. The initial aggregate base rent is approximately $1.2 million per month with 2% annual increases over 20-year terms.
- Executive Compensation: New employment agreements were executed for five executives. Annual salaries range from $220,000 to $500,000, with potential cash bonuses up to 125% of base salary for most executives.
Material Changes and Covenants
The filing marks a significant structural change through the acquisition of RideNow's 21 operating entities. The Company has assumed substantial new debt obligations secured by a first-priority lien on substantially all assets of the Company and its domestic subsidiaries. The Credit Agreement imposes strict financial covenants, including:
- Consolidated Total Net Leverage Ratio: Must not exceed 4.25 to 1.00.
- Consolidated Senior Secured Net Leverage Ratio: Must not exceed 3.75 to 1.00.
- Liquidity Requirement: Must maintain unrestricted cash and cash equivalents of at least $25,000,000.
- EBITDA Definition: The covenant definition of Consolidated EBITDA includes adjustments for integration expenses and pro forma synergies, limited to no more than 25% of Consolidated EBITDA.
Guidance, Outlook, and Risks
The filing does not provide specific forward-looking revenue or profit guidance for the combined entity. However, it notes that supplemental pro forma combined company information regarding historical financial results was posted to the Company's website on September 7, 2021. Key risks and contingencies include:
- Debt Service and Covenants: The Company must meet strict leverage and liquidity tests; failure to do so could trigger an Event of Default, leading to the acceleration of debt.
- Prepayment Penalties: Mandatory and voluntary prepayments are subject to significant premiums, particularly within the first 36 months of the Closing Date (ranging from 2.00% to a discounted value calculation).
- Related Party Transactions: Significant ongoing lease obligations with entities controlled by new directors and officers.
- Integration: The success of the transaction depends on the ability to integrate RideNow's operations and realize projected synergies.
Investor Verification Checklist
- Verify the final post-closing adjustments to the $400.4 million cash consideration for net working capital and closing indebtedness.
- Review the supplemental pro forma financial statements (Exhibit 99.1 and 99.7) to assess the combined entity's leverage ratios and liquidity position immediately post-transaction.
- Confirm the specific terms of the "Delayed Draw Term Loans Facility," including the conditions precedent required to draw the remaining $120 million.
- Examine the related party lease agreements to ensure the $1.2 million monthly rent aligns with market rates for the 24 properties.
- Monitor the Company's ability to meet the 4.25x Total Net Leverage and 3.75x Senior Secured Net Leverage covenants in the first full fiscal quarter following the closing.