TPG Pace Holdings Announces Combination with Accel Entertainment

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TPG Pace Holdings Announces Combination with Accel Entertainment

Jun 13, 2019 INTEL by SPACInsider

TPG Pace Holdings Corp. (TPGH), announced Thursday morning that they have entered into a definitive business combination agreement with Accel Enterntainment, Inc., a gaming-as-a-service provider.  The combined company will retain the Accel Entertainment name and will be a publicly listed company with an anticipated initial enterprise value of approximately $884 million. Closing is expected to occur in September, 2019.

Per the press release, Accel will be the only pure-play listed company to focus on the gaming-as-a-service opportunity. As for what does “gaming-as-a-service” entail, the offering provides a full suite of products and games from manufacturers to bars, restaurants, gaming cafes, convenience stores and truck stops.

Accel operates more than 8,000 live slot machines in over 1,700 locations, making it the largest video gaming terminal operator in the United States on an EBITDA basis.  Furthermore, TPG Pace expects Accel to generate more than $100 million of Adjusted EBITDA in 2020. In addition, Accel enters into long-term contracts with location owners with an average remaining contract life of 7.5 years.  Those contractual agreements represent more than $3 billion of revenue.

Accel’s management team, led by Co-Founder and CEO Andy Rubenstein, will continue to lead the company following the close of the transaction. Gordon Rubenstein, Accel Co-Founder, will remain on the Company’s board of directors.  It is also expected that upon closing of the transaction, Karl Peterson, TPG Pace President and CEO, will join the Company’s board as Chairman. Hollie Haynes, the Founder and Managing Partner of Luminate Capital Partners, and Kathleen Philips, former CFO and Chief Legal Officer of Zillow Group, will also be joining Accel’s board of directors subject to any applicable regulatory approvals.

Quick Takes:  If you like gaming and believe in the growth prospects of that sector, this looks like a pretty good deal. Plus, those long-term contracts at an average life of 7.5 years are very attractive. One of the key bullets points in the presentation that stood out was “Secular growth opportunity as states find that gaming increases tax base especially in times of fiscal constraint → VGT (video gaming technologies) provides a material revenue opportunity and enables municipalities to participate in localized tax generation“. This represents a real, potential future growth opportunity as additional states adopt more liberal gaming laws (as evidenced by Illinois’ recent gaming expansion bill).  Another interesting little nugget is that, “TPG Pace’s sponsor will contribute 500,000 of its shares to a foundation created for charitable efforts in the communities in which Accel operates, or anticipates operating.”  It’s a nice bit of greasing those municipal wheels as well as perhaps getting a nice tax benefit.  All told, this transaction should do well.


KEY TRANSACTION TERMS

Consideration:

The consideration payable to the Accel shareholders (in addition to cash) will consist of common stock of TPG Pace and warrants to purchase common stock of TPG Pace. Accel’s founders and management team are rolling at least 80% of their current Accel stake into the newly formed company.

After giving effect to any redemptions, the combined balance of the cash held in TPG Pace’s trust account and proceeds from the private placement, of approximately $505 million ($460mm from Pace cash in trust, including interest, and $45mm PIPE raise), will be used to pay existing Accel shareholders and transaction expenses, with the remaining cash on the balance sheet to be used to repay existing debt or for accretive capital deployment.

    • $350mm cash consideration to existing Accel shareholders
    • Transaction fees of ~$39mm, including Pace deferred underwriting fees
    • $116mm for develeraging
    • Remaining cash on balance sheet for accretive capital deployment

Founders Shares and Private Placement Warrants:

    • TPG Pace’s sponsor will retain 7.3 million founder shares and approximately 4.9 million private placement warrants (4,888,889)
      • 1.25mm founder shares cancelled; 2mm deferred as earnout shares
      • Pace Sponsor will transfer 0.5mm sponsor shares into a foundation created for charitable efforts in the
        communities Accel currently operates or plans to operate in.
      • 1/3 of private warrants cancelled (2,444,444)
    • Accel shareholders who roll in excess of 30% of their shares will be entitled to their pro rata portion of 2.4 million warrants and 3.0 million earnout shares

 

PIPE:
    • $45 million in a private placement of common stock (the “PIPE”) at $10.22 per share.
    • The PIPE capital commitment is coming from the management team of TPG Pace, other partners of TPG, certain institutional investors as well as other senior industry executives from TPG’s network.

 

Earnout:

The earnout shares will be exercisable upon the achievement of certain EBITDA or stock price thresholds of TPG Pace.

    • Sponsors: 2.0 million earnout shares
    • Accel Shareholders: 3.0 million earnout shares

Accel and Pace earnouts vest in 3 equal tranches based on the following triggers:

    • 2021 Earnout Tranche – $12 share price or LTM $120mm EBITDA achieved
    • 2022 Earnout Tranche – $14 share price or LTM $140mm EBITDA achieved
    • 2023 Earnout Tranche – $16 share price or LTM $160mm EBITDA achieved

 


CONFERENCE CALL REPLAY

A replay of the call will be available from 5:00pm ET on June 13, 2019, until 11:59pm ET on July 13, 2019.

To access the replay:

  • The domestic toll-free access number is (855) 213-8235
  • The international toll-free access number is (571) 982-7683
  • Participants should provide the pin code of 61034# and request access to the TPG Pace Investor Call.

ADVISORS

  • The Raine Group acted as exclusive financial adviser to Accel.
  • Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC acted as financial advisors and capital markets advisors to TPG Pace.
  • Goldman Sachs & Co LLC served as capital markets advisor to TPG Pace.
  • Fenwick & West LLP acted as the legal advisor to Accel.
  • Much Shelist, P.C. represented the Accel shareholders
  • Weil, Gotshal & Manges LLP acted as the legal advisor to TPG Pace.

 

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