To quote Fleetwood Mac: “Thunder only happens when it’s raining.”  So did they make it rain?

Thunder Bridge Acquisition Ltd. (TBRG), announced this morning that they have signed a definitive merger agreement with REPAY Holdings, for an implied enterprise value at closing of $653 million.

REPAY, a provider of vertically-integrated payment solutions, processed approximately $7 billion of payment volume in 2018 across verticals such as personal loans, automotive loans and receivables management. The company serves more than 3,000 clients via a proprietary, omni-channel payment platform that reduces complexity for merchants and enhances the consumer experience.

REPAY’s management team, led by John Morris, Co-Founder and Chief Executive Officer, Shaler Alias, Co-Founder and President, and Tim Murphy, Chief Financial Officer, will continue to lead the Company.  Additionally, REPAY’s existing majority equity holder, Corsair Capital, is expected to remain the Company’s largest stockholder.

Quick takes:  Payment processing is hot.  And there has been a lot of consolidation in the space over the past few years.  Most recently, Fiserv’s acquisition of First Data for $22 billion.  First Data (which was noted in this morning’s newsletter) acquired CardConnect for $15.00 per share, and if you recall, CardConnect was Fintech Acquisition Corp.’s business combination in July of 2017. Could something similar happen with REPAY?  Well, it looks like Thunder Bridge has already contemplated that since they added this to the merger agreement (also asterisked below in red):

“If there is a Company Sale during the twenty-four (24) months following the Closing, where the implied per share consideration received by the shareholders of the Company is greater than $10.00 per share, then all of the remaining unpaid Earn Out Units will be deemed to be earned and will paid out to the REPAY Equity Holders.”

At first blush, the multiples make this transaction look a little pricey, but REPAY has shown really strong growth.  Plus, the fact that REPAY could be gobbled up in the next few years certainly makes this combination attractive.

THE TRANSACTION

The merger consideration will be an amount equal to $600,000,000, subject to adjustment, paid in a mix of cash (the “Cash Consideration”) and units representing limited liability company interests of REPAY as the surviving company following the Merger (“Post-Merger REPAY Units”), each of which will be exchangeable on a one-for-one basis for shares of Class A common stock of the Company (the “Unit Consideration”).

Cash Consideration: 

The Required Cash Consideration Amount required to be paid to the REPAY Equity Holders at the completion of the Transactions is $283,801,405.

If Thunder Bridge fails to meet the Cash Consideration Condition, REPAY may waive such Cash Consideration Condition and require Thunder Bridge to deliver a lower amount of Cash Consideration at Closing, provided that the Unit Consideration payable by Thunder Bridge at Closing is commensurately increased.

Unit Consideration:

The remainder of the Merger Consideration will be in Post-Merger REPAY Units (valued at $10.00 per unit) less the Escrow Units (as described below).

Additionally, each REPAY Equity Holder will receive one share of Class V common stock of the Company, which will have no economic rights in the Company but will entitle the holder to vote as a stockholder of the Company.  The number of votes will be equal to the number of Post-Merger REPAY Units held by the REPAY Equity Holder.

After the Closing, each REPAY Equity Holder will be permitted to exchange its Post-Merger REPAY Unit for a share of Class A common stock of the Company on a one-for-one basis.

Additional info:

The Merger Consideration of $600,000,000 will be reduced (or increased if such amount is negative) by an amount equal to the sum of certain Closing Adjustment Items (as defined in the Merger Agreement) and may be increased by any amounts remaining of the following, which will be deducted from the Merger Consideration and escrowed or otherwise set aside under the Merger Agreement:

(a) The Escrow Units referred to under “Escrow Units; Purchase Price Adjustment” below
(b) $2,000,000 in cash (the “REPAY Securityholder Representative Amount”) to be held by the REPAY Securityholder Representative to pay its costs and expenses
(c) $14,048,595 in cash (the “NCP Escrow Amount”) to be held in escrow to cover certain contingent earn-out obligations of REPAY
(d) $150,000 in cash (the “Additional Indemnity Amount”) to be held in escrow to cover certain specified indemnity matters under the Merger Agreement.

EARNOUT

Up to an additional 7,500,000 Post-Closing REPAY Units (the “Earn Out Units”) after the Closing based on the stock price of the Company during the twenty-four (24) months following the Closing:

• 50% of the Earn Out Units:  If during the twelve calendar months following closing, the VWAP of the Class A common stock is greater than or equal to $12.50 over any 20 trading days within any 30 trading day period.
• 100% of the Earn Out Units:  If during the twenty-four (24) calendar month following the Closing the VWAP of the Class A common stock is greater than or equal to $14.00 over any 20 trading days within any 30 trading day period.

* if there is a Company Sale during the twenty-four (24) months following the Closing, where the implied per share consideration received by the shareholders of the Company is greater than $10.00 per share, then all of the remaining unpaid Earn Out Units will be deemed to be earned and will paid out to the REPAY Equity Holders.

DEBT FINANCING

Each of Thunder Bridge and Merger Sub have agreed to use their reasonable best efforts to obtain debt financing on the terms and conditions of the debt commitment letter that they received from SunTrust Bank and SunTrust Robinson Humphrey, Inc. (the “Debt Commitment Letter”).

The debt financing will consist of:

• A six-year senior secured term loan facility in an aggregate principal amount of $170.0 million (the “Term Loan Facility’)
• A five-year senior secured revolving credit facility in an aggregate principal amount of $20.0 million (up to $5.0 million of which will be made available as swingline loans)

The debt financing is expected to bear interest at either:

• A base rate based on the highest of the prime rate, the federal funds rate plus 0.50% and an adjusted LIBOR rate for a one-month interest period plus 1.00%, in each case plus an applicable margin, per annum, or;
• An adjusted LIBOR rate plus an applicable margin per annum.

The documentation governing the debt financing has not been finalized.

In addition, Thunder Bridge is permitted to seek equity financing, subject to approval by REPAY.

ADVISORS

• Morgan Stanley, Cantor Fitzgerald, and CLSA acted as capital markets advisors to Thunder Bridge.
• Ellenoff Grossman & Schole LLP acted as legal counsel to Thunder Bridge.
• Financial Technology Partners served as strategic and financial advisor to REPAY.
• Credit Suisse acted as capital markets advisor to REPAY.
• Simpson Thacher & Bartlett LLP and Troutman Sanders acted as legal counsel to REPAY.