Legacy Acquisition Corp. (LGC), filed a number of documents today announcing both changes to its Share Exchange Agreement with Blue Impact, as well as a proposal to amend its public warrants.  As stated in Legacy’s press release, this is a direct response to the “recent dislocation in the equity markets”.  So while this is the first SPAC we’re seeing having to adjust to the current reality, it won’t be the last.

As a result of the changes outlined below, the pro forma enterprise value has been reduced from $592 million to $559 million.  This represents a change in the EV/2020 Adjusted EBITDA multiple from 7.1x to the current 6.67x. It’s important to note that Blue Impact is still projecting an estimated 2020 EBITDA number of $83.8 million. That figure has not changed since their initial presentation was filed back in December 2019.

Is this enough of a haircut? Hard to say since the comparables in today’s presentation are reflecting market data as of February 14, 2020, well before the current crisis.  But even if they were to show more recent data, it still might not be very useful since we’re only at the beginning of the coronavirus impact.  It’s very challenging for any company to make projections right now.

Below is a summary of the changes to the Share Exchange Agreement, but keep reading for details on the warrant amendment proposal below.

Share Exchange Agreement Amendment

• A reduction of 6,500,000 shares of Legacy’s common stock which would have been outstanding immediately following the Closing under the terms of the previously announced business combination:
  • The shares of Legacy’s common stock payable to the Seller at the closing of the business combination (the “Closing”) will be reduced from 30,000,000 to 27,000,000 shares.
  • The Sponsor will cancel 3,500,000 outstanding shares of Legacy’s common stock.
• The Seller will be granted the right to receive such 3,000,000 shares of Legacy’s common stock after the Closing (the “Seller Post-Closing Shares”):
  • If post-Closing Legacy’s stock has a volume weighted average trading price of at least $20 per share for any 30 day period or,
  • If Legacy is sold for a share price of at least $20 per share after the Closing, or
  • Upon the 10^th anniversary of the Closing.
• The Sponsor will be granted the right to receive up to 2,000,000 shares of Legacy’s common stock after the Closing (the “Sponsor Post-Closing Shares”) as follows:
  • 1,000,000 shares, if post-Closing Legacy’s stock has a volume weighted average trading price of at least $15 per share for any 30 day period or if Legacy is sold for a share price of at least $15 per share after the Closing and
  • 1,000,000 shares, if post-Closing Legacy stock has a volume weighted average trading price of at least $20 per share for any 30 day period or if Legacy is sold for a share price of at least $20 per share after the Closing;
  • The maximum number of Sponsor Post-Closing Shares that the Sponsor can receive is 2,000,000.

Warrants

In regards to the public warrants, Legacy is proposing to amend the warrant agreement (via a warrant holder vote) whereby if it is approved with a “yes” vote of 65% of the outstanding public warrants, warrant holders will receive $1.00 in cash if the aggregate gross cash proceeds after redemptions is at least $225 million.  If it’s less than $225 million, warrant holders will receive $0.50, but they will also receive 0.055 shares of common stock per warrant.

Furthermore, Legacy has already previously obtained voting agreements from public warrant holders and per today’s 8-K, it looks like Legacy has already secured the vote:

“Legacy has obtained voting agreements from a limited number of holders of its public warrants (holding approximately 65.9% of the outstanding public warrants) agreeing to vote in favor of an amendment of the warrant agreement under which the public and private placement warrants were issued.“

Since there were three warrant holder support agreements filed, we know the names of at least three institutions that have agreed to vote yes on the warrant vote, totaling 4,270,002 public warrants:

• Alyeska Investment Group LP:  1,470,002 Public Warrants
• Kepos Alpha Master Fund L.P.:  2,600,000 Public Warrants
• Longfellow Investment Management Co., LLC:   200,000 Public Warrants

So it would seem that since the vote is secured, it’s just a matter of whether warrant holders receive $1.00 or $0.50 + 0.055 shares, based on the amount of redemptions.

Warrant Agreement Amendment 

Legacy has 30,000,000 public warrants and 17,500,000 private placement warrants outstanding, each entitling a holder thereof the right to acquire 0.5 of a share of common stock at an exercise price of $5.75. Legacy has obtained voting agreements from a limited number of holders of its public warrants (holding approximately 65.9% of the outstanding public warrants) agreeing to vote in favor of an amendment of the warrant agreement under which the public and private placement warrants were issued.

Under the warrant agreement amendment, at or as promptly as practicable after the Closing each public warrant will be cancelled in exchange for:

• $1.00 in cash per warrant, if the aggregate gross cash proceeds from the trust (after redemptions) and any PIPE Financing equals at least $225 million or,
• $0.50 in cash and 0.055 shares of common stock per warrant, if otherwise.

Lastly, Legacy’s Sponsor has also agreed that with respect to their 14,587,770 at-risk private placement warrants, which were purchased at $0.50, that they will ONLY accept shares (not cash) at a rate of 0.11 of a share of common stock per warrant (or 1,604,655 shares of common stock in total).

The remaining 2,912,230 private placement warrants beneficially owned by certain institutional investors in the Sponsor may be exchanged, at the election of their beneficial owners, for the same stock consideration or the consideration to be received by the holders of the public warrants.

All told, given the current market and coronavirus situation, this is a pretty good deal for warrant holders. It’s a little pricey for the company, but it will clean up that warrant overhang, which makes any additional financings a lot easier. However, it will still be challenging to achieve that $225 million threshold to receive $1.00 per warrant in the current environment, even with their $75 million PIPE.  As for the changes to the Share Exchange Agreement, it’s essentially pushing part of the initial valuation to an earnout, but it is noted that the Sponsor is effectively cancelling 1,500,000 of their Sponsor Shares (cancelling 3,500,000 but can receive 2,000,000 via an earnout).  The initial stock payable to the Sellers has been reduced by 3,000,000, but the Sellers can receive 3,000,000 shares subject to an earnout.

No word on a vote date yet, but sounds like they’re getting close now that they’ve amended their deal.

Stay tuned for further developments.