Platinum Eagle Acquisition Corp. (EAGL), announced Tuesday evening that they have entered into merger agreements with Target Logistics Management, LLC and RL Signor Holdings, LLC, to create the largest provider of specialty rental accommodations with premium catering and value-add hospitality services in the U.S. Target Lodging, headquartered in The Woodlands, Texas, is the largest provider of turnkey accommodations in the U.S., featuring a vertically-integrated model that provides premium catering and value-add hospitality solutions.

As further background, on September 10, 2018, Target Lodging entered into an agreement to operate and manage Signor Lodging, a leading provider of specialty rental accommodations to oil and gas customers in Texas. This transaction expanded Target Lodging’s footprint and broadened its offerings in the Permian and Anadarko Basins. Target Lodging and Signor Lodging collectively own and/or operate 22 communities in the United States with approximately 13,000 total beds, supporting oil and gas, as well as government agencies and contractors.

The combined company will be led by Target Lodging’s management team, including President and Chief Executive Officer Brad Archer, Chief Financial Officer Andy Aberdale and Chief Commercial Officer Troy Schrenk, who will continue to serve in their respective roles. Stephen Robertson, Co-Founder of TDR Capital, the private equity firm that owns Algeco, the parent of Target Lodging, and also owns Signor Lodging, will serve as Chairman of the combined company and will be joined on the board by Gary Lindsay, a Partner at TDR Capital, and Jeff Sagansky, CEO of Platinum Eagle.

Quick takes:  This deal was announced late and without a filed presentation.  The pre-recorded call is scheduled for Wednesday morning at 10:00 a.m. ET, so without both of those items it’s challenging to fully understand this company.  However, based on the structure of this transaction, the earn-outs for the founders shares certainly incentivize the founders nicely (read below and the link provided for further details). Additionally, it’s always good to see a PIPE done at $10.00 and include Blackrock, and a minimum of $225 million cash in Platinum’s trust at closing is reasonable and puts a whip to the capital markets advisors.  Anything less than $225 million and completing the transaction would be a mistake.  The structure looks sounds, but we’re holding off on evaluating the company until the call and presentation.

INVESTOR CONFERENCE CALL

Investors may listen to a pre-recorded call regarding the proposed transaction at 10:00 am EST on November 14, 2018.

November 14, 2018 Call
Domestic: 1 (888) 820-4544
International: 1 (470) 279-3876
Entry Code: asset89

Replay (available 1:00 pm EST on November 14, 2018 to 11:59 pm EST on December 4, 2018)
Domestic: 1 (855) 213-8235
Entry Code: 33503#

THE TRANSACTION

The transaction reflects an initial enterprise valuation for the combined entity of $1.397 billion, representing a fully diluted multiple, including transaction expenses, of approximately 8.4x estimated 2019 pro forma Adjusted EBITDA(1).

The total amount payable will be $1.311 billion (which amount is inclusive of the amounts required to pay third party and inter-company indebtedness at the closing of the business combination and net of transaction expenses).

Cash:  $562 million
Shares: $749 million in shares of Target Hospitality

The cash component of the purchase price to be funded by:

• Platinum Eagle’s cash in trust:  $328.9 as of 9/30/18
• $80 million PIPE at $10.00 per share:
  • Large institutional investors, including funds and accounts managed by investment advisor subsidiaries of Blackrock, Inc.
• Newly raised debt financing
• The balance of the purchase price will be paid in common equity of Platinum Eagle.
• TDR Capital will be contributing Signor Lodging in exchange for common equity of Platinum Eagle. (TDR Capital is the private equity firm that owns Algeco, the parent of Target Lodging, and also owns Signor Lodging)

FOUNDERS SHARES/EARNOUT

The Sponsor and Harry E. Sloan (the “Founders”) will deposit into escrow certain of their founder shares at the Closing. Pursuant to the Earnout Agreement, the founder shares will be released from escrow to the Founders and/or transferred to Arrow Seller upon the achievement of certain earnout targets. Upon the expiration of the three year earnout period, any founder shares remaining in escrow that were not released in accordance with the Earnout Agreement will be transferred to the Company for cancellation.

In the event that the Company delivers at least the Minimum Proceeds at Closing (at least $225 million cash in trust):

• At any time during the period of three (3) years following the date hereof, if the closing price of the shares of the Company’s Common Stock exceeds $12.50 per share for twenty (20) of any thirty (30) consecutive Trading Days, fifty percent (50%) of the Restricted Founder Shares will be released from the Escrow Account.
• At any time during the period of three (3) years following the date hereof, if the closing price of the shares of the Company’s Common Stock exceeds $15.00 per share for twenty (20) of any thirty (30) consecutive Trading Days, the remaining fifty percent (50%) of the Restricted Founder Shares will be released from the Escrow Account.

There are additional conditions to the earnout agreement based on whether EAGL delivers less than the Minimum Proceeds at Closing and whether a Backstop Transaction is or isn’t completed.  It’s too extensive to post here, but you can click this link to read the details under section 2.03

HIGHLIGHTS

• Combined company to be called Target Hospitality and expected to be listed on the Nasdaq Stock Market
• Transaction reflects an initial enterprise valuation for the combined entity of approximately $1.4 billion, or approximately 8.4x estimated 2019 pro forma Adjusted EBITDA⁽¹⁾, fully diluted and including transaction expenses
• Merger to create the U.S.’s largest provider of specialty rental accommodation space combining most attractive elements of premium catering and hospitality value-add services
• Combined company to be well-positioned to capitalize on the strong demand drivers for flexible accommodation and culinary solutions
• Current Target Lodging management team to lead combined company
• (1) Non-GAAP Financial Measures

ADVISORS

• Deutsche Bank Securities Inc. and BofA Merrill Lynch are acting as capital markets advisors and private placement agents to Platinum Eagle.
• Oppenheimer & Co. Inc. is acting as exclusive financial advisor on the transaction.
• Deutsche Bank Securities Inc. has been a general financial advisor to Platinum Eagle.
• Winston & Strawn LLP is acting as legal advisor to Platinum Eagle.
• Allen & Overy LLP is acting as legal advisor to Target Lodging and Signor Lodging.