Capitol Investment Corp. IV (CIC), announced this morning that they have entered into a definitive agreement to combine with Nesco Holdings I, Inc. (“Nesco”), a provider of specialty rental equipment to the electric utility, telecom and rail end-markets. Nesco is currently a portfolio company of Energy Capital Partners (“ECP”).

Under the terms of the proposed transaction, Capitol will become the owner of all the equity of Nesco and will be renamed Nesco Holdings, Inc.  The transaction implies a combined company enterprise value of approximately $1.1 billion implying a 7.9x multiple of projected 2019 Adjusted EBITDA and a 6.4x multiple of projected 2020 Adjusted EBITDA.

Additionally, the current Nesco shareholders will also receive $75 million of cash consideration and incentive earnout shares totaling up to 1.8 million common shares, issued in 0.9 million increments when the combined company’s stock price reaches $13.00 and $16.00 per share.

Furthermore, Capitol has entered into a $400 million debt commitment agreement, the proceeds of which will be used to repay existing Nesco indebtedness. It is currently anticipated that Nesco will issue a notice of redemption with respect to its outstanding second lien notes immediately prior to the merger and that these notes would be redeemed concurrently with the close of the merger. Capitol has also secured commitments from lenders to provide a $350 million asset-based credit facility at closing.

Nesco’s current management team, led by CEO Lee Jacobson and CFO Bruce Heinemann, will continue to run the combined company post-transaction. Mark Ein and Dyson Dryden, as well as Doug Kimmelman, the Senior Partner and founder of ECP, Rahman D’Argenio, an ECP partner, and CEO Lee Jacobson will serve as directors on the combined company’s board of directors.

Additionally, William Plummer who served as the CFO of United Rentals, Inc. from 2008 until he left the company in January 2019, will be joining as Chairman of the Board of Directors.  Jeffrey Stoops will also join the combined company’s board of directors having previously served as the CEO of SBA Communications Corp. for the last seventeen years.

THE TRANSACTION

CONSIDERATION:

Nesco Owner will receive:

• $75,000,000 of cash (subject to adjustment),
• 17,464,235 shares of common stock, and
• warrants to purchase 2,500,000 shares of common stock.

NESCO EARNOUT:

Nesco Owner will also have the right to receive up to 1,800,000 additional shares of common stock, for a period of five years following the closing of the Transactions, in increments of 900,000 shares, if:

• the trading price of Capitol’s common stock exceeds $13.00 per share or $16.00 per share for any 20 trading days during a 30 consecutive trading day period, or
• a sale transaction of the combined company occurs in which the consideration paid per share to holders of common stock of the combined company exceeds $13.00 per share or $16.00 per share.

DEBT:

Executed debt commitment letter of 1) $350 million in aggregate principal amount of commitments pursuant to a first lien senior secured asset based revolving credit facility and 2) $400 million in second lien senior secured increasing rate bridge loans among:

• JPMorgan Chase Bank, N.A.
• Fifth Third Bank
• Morgan Stanley Senior Funding, Inc.
• Deutsche Bank AG New York Branch, Deutsche Bank AG Cayman Islands Branch, Deutsche Bank Securities Inc.
• Citigroup Global Markets Inc.

FORFEITURE of Founders Shares and Warrants:

The sponsors will forfeit:

• 2,000,000 Sponsor Shares and
• 2,500,000 Sponsor Warrants

An additional 2,800,000 Sponsor Shares will subject to an additional lockup that will be released upon the achievement of the $13.00 and $16.00 share triggers described in the earnout

For reference: At IPO, CIC’s sponsors owned:

• 10,062,500 Sponsor shares and
• 6,533,333 Sponsor warrants

CONDITIONS TO CLOSING:

• The amount of cash available to Capitol shall not be less than $265 million after giving effect to payment of amounts that Capitol will be required to pay to redeeming shareholders upon consummation of the business combination.

ADVISORS

• Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC served as financial and capital markets advisors to Capitol
• Morgan Stanley & Co. LLC served as exclusive financial advisor to Nesco.
• Latham & Watkins LLP and Graubard Miller acted as legal advisors to Capitol
• Kirkland & Ellis LLP acted as legal advisor to Nesco and ECP.