UPDATED: Pivotal Announces Combination with KLDiscovery

Combination

UPDATED: Pivotal Announces Combination with KLDiscovery

May 21, 2019 INTEL by Kristi Marvin

**THIS POST HAS BEEN UPDATED (SCROLL TO THE BOTTOM)**

Pivotal Acquisition Corp. (PVT), announced Monday evening that they have entered into a definitive agreement to merge with KLDiscovery (“KLD”). KLD is a global provider of electronic discovery and information governance services to Fortune 500 companies with an enterprise value of approximately $800 million.  Under the terms of the proposed transaction, KLD will become a subsidiary of Pivotal, with shareholders and management of KLD retaining 100% of their equity in the combined company. At closing, the current shareholders of KLD and current shareholders of Pivotal will hold approximately 56% and 44%, respectively, assuming no stockholders of Pivotal exercise their redemption rights.

Per the press release, “KLD provides software and services that help protect corporations from a range of information governance, compliance and data issues. Its electronic discovery tools and products, including information governance, forensic collections, secure on-line hosting and advanced analytics—all available through its proprietary private cloud based solution called Nebula—can be deployed on the cloud, on premise, or behind a client’s firewall. It is one of only a few providers that can service complex cross-border matters in a manner compliant with data privacy laws.”

In layman’s terms, it’s a lot of data scraping for legal professionals as well as corporations that want to sift through vast amounts of documents or electronic data and then pull out the relevant information, index it, file and/or review it. That’s a really simplified version and KLDiscovery does a whole bunch of other things such as on-line hosting and analytics. Plus, the name KLDiscovery used to be “Kroll Discovery” up until 2017, when it was re-branded.  Many bankers will recognize the name “Kroll”, if they’ve ever had to do background checks on a management team since Kroll is a leading provider of due diligence services.

However, having said all that, Pivotal just broke Churchill Capital’s record for announcing a deal post-IPO faster than you can say “Ledecky” three times.  In fact, Churchill announced their transaction with Clarivate Analytics in 130 days.  Pivotal? 110 days.  There are possibly other SPACs that have announced in less time, but if we focus on just the modern SPACs, Pivotal has been fastest on the trigger (to-date).

As for the transaction details, a full 8-k and investor presentation have not been filed yet, but this is what we know so far:

  • At closing, the current shareholders of KLD will receive an aggregate of 34,800,000 shares of Pivotal common stock.
  • KLD shareholders will also have the right to receive up to 2,200,000 shares of Pivotal common stock if the reported closing sale price of Pivotal’s common stock exceeds $13.50 per share for any 20 consecutive trading days during the five-year period following the closing of the transaction.
  • Condition to closing: Pivotal is required to have at least $175,000,000 available to it from any financing source, including from its trust account and up to $50 million that may come from the forward purchase contract.
  • The transaction is expected to close in the third quarter of 2019

So far, this transaction looks pretty interesting.  However, full details should be filed in the morning ahead of the scheduled conference call (details below), so we’ll be updating this post after a full review.

Conference Call Scheduled

Pivotal will host a conference call to discuss the proposed business combination with the investment community on Tuesday, May 21, 2019, at 11:00 AM EDT.

  • Investors may listen to the conference call by dialing (844) 730-1968 toll-free in the U.S. or (614) 335-7546 internationally. Please use the conference identification 5359788.
  • The presentation slides will be available at www.pivotalac.com.
  • A replay will also be available two hours after the call. To access a replay of the conference call, investors can dial (800) 585-8367 toll-free in the U.S. or (404) 537-3406 internationally and provide the replay code 5359788.

**UPDATE**

Quick take:  Pivotal filed their 8-K and investor presentation this morning providing additional information on their transaction with KLDiscovery and this transaction looks pretty good.  As far as valuation, there are some nice discounts to the peer group and KLDiscovery measures up well against the comps when looking at growth and performance, particularly against the Information Software & Services group. In addition, this SPAC has PLENTY of time left and it’s in a really interesting tech space where predictive coding technology is changing the landscape of ediscovery document reviewers. Plus, the cloud model is compelling in that provides scalable solutions for clients.  While writing this, Pivotal opened at $10.17 and is currently trading at $10.25, up from yesterday’s close at $9.90, or 3.5%.  That’s a nice pop.  Clearly shareholders like this deal too, but the real pop is in the warrants which zoomed 63.5% to $1.30. Remember…Pivotal’s unit structure included a FULL warrant, so that’s a straight $1.30.  All signs point to another well received transaction.

THE TRANSACTION

LD Topco, Inc. (“LD” or the “Company”) is the owner of KLDiscovery.

CONSIDERATION:

Under the Merger Agreement, the stockholders of LD will receive an aggregate of 34,800,000 shares of Pivotal common stock

EARNOUT:
  • The stockholders of LD will also have the right to receive up to 2,200,000 shares of Pivotal common stock if the reported closing sale price of Pivotal’s common stock exceeds $13.50 per share for any 20 consecutive trading days during the five-year period following the closing of the Transactions.
LOCK-UPS:
  • PIVOTAL: Pivotal’s sponsor, will subject 1,100,000 shares of Class B common to an additional lockup that will be released only if the last reported sale price of Pivotal’s common stock equals or exceeds $15.00 for a period of 20 consecutive trading days during the five-year period following the closing of the Transactions.
  • LD: The stockholders of LD will be subject to a 12-month lockup period for all shares of Pivotal’s common stock, which period may be earlier terminated if the reported closing sale price of Pivotal’s common stock equals or exceeds $12.00 for a period of 20 consecutive trading days during a 30-trading day period commencing at least 150 days after the closing of the Transactions. This lockup is identical to the lockup previously agreed to by Pivotal’s sponsor and other holders of its Class B common stock issued prior to Pivotal’s initial public offering.
CONDITIONS TO CLOSING:
  • Pivotal having at least $175,000,000 available to it after payment to holders of Pivotal Class A common stock that seek redemption in connection with the Transactions and net of certain other expenses

Additionally, the Transaction may be terminated by either Pivotal or LD if the Transaction is not consummated on or before October 30, 2019.


ADVISORS

  • Cantor Fitzgerald and BTIG, LLC acted as capital markets and financial advisors to Pivotal.
  • Graubard Miller acted as legal advisor to Pivotal.
  • Latham & Watkins LLP acted as legal advisor to KLD.

 

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