This morning, Gores Holdings III, Inc. (GRSH), announced their third SPAC combination with PAE, a portfolio company of Platinum Equity. PAE is a provider of outsourced solutions and mission-critical services to the U.S. government, armed forces and international customers, operating in approximately 60 countries across all seven continents. Upon closing, this transaction will introduce PAE as a publicly listed company, with an anticipated initial enterprise value of approximately $1.55 billion or 8.9x the Company’s estimated 2020 pro forma Adjusted EBITDA of approximately $174 million.
The consideration payable to the stockholders of PAE will consist of a combination of cash and shares of Gores Holdings III common stock. In addition to the $400 million of cash held in Gores Holdings III’s trust account, additional investors have committed to participate in the transaction through a $220 million private placement at $9.20 per share, led by Alec Gores, Chairman and CEO of The Gores Group. Subscribers of the SPACInsider site can find the complete details of the transaction on the Gores Holdings III profile page.
Quick takes: PAE is a portfolio company of Platinum Equity, which was founded by Tom Gores, the brother of Gores Holdings II’s Chairman, Alec Gores. If you recall, Verra Mobility (VRRM), the company acquired by Gores II, was also a portfolio company of Platinum Equity. VRRM is a success by all measures and it’s currently trading around $14.95, but its starting to feel a little incestuous to have the team repeatedly dipping into the family well. However, if the combination is a winner, investors will be perfectly fine with the arrangement.
Additionally, if you also recall, Gores III IPO’d back on September 7th, 2018, and the only SPAC to incorporate the Crescent Term at that point was Megalith Financial. The term hadn’t become “de rigueur” yet. However, it’s interesting that Gores III will do their PIPE at the $9.20 price which is the typical threshold at which the Crescent Term kicks in. Clearly they were cognizant of investor perception. However, while the $9.20 threshold is meant to protect warrant holders from PIPEs done below $10.00 (at which point, the exercise price is reset), investors are generally not happy to see PIPEs below $10.00 regardless. However, looking at PAE, they do have nice predictable cash flows due to long-term, very sticky contracts (mostly with governments), which is a big plus and very reminiscent of Verra Mobility (VRRM), the acquisition company of Gores II. Nonetheless, this is a de-leveraging transaction and the comps to the primary peers are just okay, but could be better. Plus, that $530 million cash at closing condition is a pretty high bar. This one might be a slow burn until they hit the road. The Gores team has a solid SPAC reputation so there are high hopes for another winner, but it still takes work to get there.