two (NYSE:TWOA) has entered into a definitive agreement to combine with developer LatAm Properties at an enterprise value of $578 million, or 26x its 2022 EBITDA.

San Jose, Costa Rica-based LatAm Logistic owns and leases a range of industrial properties in Central and South America.

The combined company is expected to trade on the NYSE under the symbol “LLP” once the deal is completed in the fourth quarter of 2023.

Transaction Overview

two has an estimated $51.2 million in its trust after seeing 76.7% of shares redeemed in a March extension vote, but it currently has until January 1, 2024 to complete a deal. The parties expect the trust to be further reduced by 70% to $15 million, but, one way or the other, the parties plan to raise a $25 million PIPE, which the presentation indicates may come as either common equity financing or equity line commitments.

Should a $25 million PIPE be achieved, two is to forfeit $1.2 million-worth of promote shares, or more if this benchmark is not achieved.The SPAC must provide at least $25 million in cash in order for the deal to close and the parties expect the combined entity to hold about $215 million in corporate debt and $15 million in cash on its balance sheet at close.

LatAm shareholders are expected to own 77% of the company at close with public two shares in a 70% redemptions scenario representing 10%. The PIPE and converting noteholders would have 7% at close with the SPAC sponsor seeing its shares convert to a 6% stake.

Quick Takes: The SPAC known as “one” was involved in one of the major SPAC trends of the recent years in combining with additive manufacturing firm Markforged (NYSE:MKFG) in July 2021.

With “two”, the same team is playing it somewhat safer by proposing to take a non-REIT industrial landlord to market.

This has a lot to speak for it. LatAm Logistic has 28 facilities in Costa Rica, Colombia, and Peru with an emphasis on ecommerce fulfillment and other high-growth sectors. This totals about 650,000 square meters with 99.4% occupancy. Many of its clients are household brands like IKEA and Peruvian grocery chain Alicorp.

In terms of square footage, the company’s biggest footprint is in Costa Rica but about half of its total spread is in Colombia and Peru with an overall average lease length sitting at 5.1 years.

For SPACs, very few things are guaranteed that far into the future LatAm is already generating EBITDA – the key measure in today’s market.

The company generated $375 million in operating revenue in 2022 for a 69% EBITDA margin, but this makes for a debt-to-EBITDA ratio of 9.1x. The company seems to expect this to drop slightly and has done 8.7x in the first half of the year while expanding overall margins to 75%, but it generated $22 million EBITDA in 2022.

It expects demand for its facilities to continue to grow as ecommerce takes on more market share in the region. Costa Rica and Colombia are both expected to grow ecommerce sales by about 11% between now and 2026, while Peru sales are projected to grow 7% over this time.

Overall, ecommerce represents just 12.6% of consumer sales there compared to 25.2% in North America, so, logically, there is going to be movement there. LatAm’s core markets have also largely been spared some of the macro factors that lean heavily on property margins.

The three countries where LatAm has thus far operated are expected to have inflation between 4.2% and 8% over the next year and generally have lower levels of state debt compared to the neighborhood. Seventy-eight percent of LatAm’s payments are also in US dollars, reducing some currency risk.

Most of the company’s debt is set to mature beyond 2031 and 83% of it is also in dollars. Many of its advantages appear priced into the deal price, however.

Vesta (NYSE:VTMX) is LatAm’s closest competitor both by business and geography and it currently trades at about 20.3x EBITDA with a 1.25x debt to equity ratio. This deal meanwhile values LatAm at about 26x its 2022 EBITDA but the company claims big things are in the pipeline with revenues projected to hop from $31.9 million in 2022 to $50.8 million in 2024E.

If it achieves this, it will have expanded its EBITDA margin from 69% in 2022 to 78%, which is plenty attractive as long as the LatAm industrial market doesn’t stall the way the US housing market appears to have.

For the full investor presentation, click here.

ADVISORS

• Company
  • BTG Pactual is acting as exclusive M&A advisor.
  • Baker & McKenzie LLP is acting as U.S. counsel.
• SPAC
  • Cohen & Company Capital Markets, a division of J.V.B. Financial Group, LLC (“CCM”), is acting as exclusive financial advisor and lead capital markets advisor.
  • Ellenoff Grossman & Schole LLP is acting as U.S. counsel.