Pensare Acquisition Corp. (WRLS), announced this morning that they have entered into a definitive agreement to combine with TPx Communications, a provider of Unified Communications and cloud-focused Managed IT Services.

The transaction implies a combined company enterprise value of approximately $1.1 billion and a multiple of approximately 8.0x expected 2019 adjusted EBITDA. TPx’s management team, led by CEO Dick Jalkut and CFO Tim Medina, will continue to lead the combined company and Pensare CEO, Darrell J. Mays, will serve as Vice Chairman of the combined company’s board of directors.

Pensare will pay $248 million in cash and $95 million in Pensare equity to the equity holders of TPx, subject to certain adjustments contained in the Agreement. Concurrently with the consummation of the transaction, it is anticipated that certain institutional and other investors will purchase equity securities of the combined entity in a proposed private placement, which is anticipated to raise $300 million (at $10.00 per share). The net cash proceeds remaining from Pensare’s trust account and the proposed private placement are expected to be used to reduce TPx’s current net debt, fund its growth plan, and allow TPx to pursue opportunistic acquisitions.

Furthermore, Pensare released the results of their recent shareholder vote to extend their completion deadline to May 1, 2019.  At the vote, 2,796,290 shares redeemed in connection with the extension, leaving approximately $287.5 million remaining in the Trust Account.

Quick takes:  $300 million is a big PIPE and they haven’t secured investors for that yet.  Will this raise actually be done at $10.00 per share? Remains to be seen, but it would have felt a little more secure if the PIPE had already been arranged and investors were confident about what the terms would be.  However, Pensare is running out of time and while they were able to extend their deadline to May 1st, they needed to announce ASAP. Hence, the PIPE had not been arranged yet. Additionally, that $248 in cash consideration would have been preferable if some, or a significant portion of it was tied to an earn-out. Incentivizing management is preferable to a straight cash payment.  Lastly, the $440 million cash at closing condition means that based on the $287.5 million currently in trust (post-extension vote) and assuming Pensare can complete a $300 million PIPE, means Pensare needs approximately half the trust not to redeem at their completion vote.  Let’s see what happens after they get on the road.

THE TRANSACTION

Consideration:
The merger consideration consists of $248 million in cash and $95 million in shares ($343 million, in aggregate) subject to certain adjustments for the amount of net debt assumed by the Company at closing.

Additionally, Pensare will assume up to $622 million of TPx’s net debt, with an intention of maintaining TPx’s current credit agreement in place after closing. The net cash proceeds are anticipated to be used to reduce TPx’s current net debt, fund its growth plan and allow TPx to pursue additional acquisitions.

PIPE:
It is anticipated that certain institutional and other investors will participate in a PIPE.   The presentation references an assumed 30 million shares at $10.00 per share for $300 million.

Escrow of Founders Shares:
The Pensare Founder Group has agreed to keep 3,881,250 million of their Founders Shares (50%) in escrow that is released only when the stock price hits $13.00 per share for any 20 trading days within a 30-day period (50% of escrowed shares) and $15.00 per share (50% of escrowed shares), or 18 months after the closing of the transaction.

Conditions to Closing:

• Approvals from the stockholders of the Company and TPx
• The absence of any governmental order that would prohibit the Transactions
• The consents of the Federal Communications Commission (“FCC”) and State Public Utility Commission (“State PUC”) required in connection with the Transactions
• The Company having at least $415,000,000 in cash available on the closing date
• The absence of a material adverse effect relating to TPx.

ADVISORS

• EarlyBirdCapital is serving as financial and capital markets advisor to Pensare.
• Oppenheimer & Co. Inc. is Pensare’s lead placement agent for the private placement.
• Greenberg Traurig, LLP is acting as legal counsel to Pensare.
• Evercore is serving as lead financial advisor to TPx.
• Q Advisors is also serving as a financial and strategic advisor to TPx, with Credit Suisse acting as its capital markets advisor.
• Gibson, Dunn & Crutcher LLP is acting as legal advisor to TPx.