Everest Consolidator Acquisition Corp. (NYSE:MNTN) has entered into a definitive agreement to combine with consumer debt servicer Unifund at an enterprise value of $238 million, or 4.5x its 2022 revenue.
Cincinnati-based Unifund acquires consumer debts from lenders and provides users means of paying them off over time.
Everest Consolidator has about $181.7 million in its current trust and has not yet supplemented this with additional committed financing.
Unifund’s sale consideration is to include 7,500,000 shares issued to CEO David Rosenberg, 2,250,000 to ZB Limited and 250,000 to TER Trust.
The SPAC must maintain at least $40 million in cash available after transaction expenses in order for the deal to close.
Both sides have agreed to a one-year lock-up, but may be released early if the combined company trades at or above $12 for 20 of 30 trading days at least 150 days out from close.
Everest Consolidator also plans to seek approval for an amendment to its warrant agreement that would make each warrant convertible into the right to receive $0.50 at the deal’s close.
The parties have not yet filed an investor presentation, but Everest Consolidator’s profile page will be updated once additional terms are made available.
Quick Takes: Everest Consolidator continues a new trend that has cropped up recently of SPACs and de-SPACs seeking to clean up their warrant overhangs sooner rather than later.
Calling warrants immediately at close is rare, but RMG III (NASDAQ:RMGC) revealed earlier this month that it intended to seek a vote to convert all warrants to cash at a ratio of 0.075x the company share price at the close of its combination with H2B2 Electrolysis.
That would be $0.75 at $10 per share and Everest Consolidator is cutting lower at $0.50, but it also has a lower bar to clear in terms of the vote. RMG III will need 65% of warrant holders to vote in favor of the exchange, while Everest Consolidator requires only a simple majority of warrants in favor.
It remains to be seen whether these measures are going to be popular with holders, but the news has already been profitable to some as Everest Consolidator warrants (NASDAQ:MNTN-WT) are up about +75% with the news. The warrants closed Friday trading just over $0.05 but are now trading above $0.10.
Nonetheless, both of these warrant offers at close provide significantly less goodies than the last prominent SPAC to make such a move. When Trinity Merger Corp. combined with Broadmark (NYSE:BRMK) in 2019, it offered warrant holders $1.60 in cash and an additional ¼ warrant as it cleared its own overhang at close.
Trinity also had a compelling reason to do so because Broadmark is a REIT and warrant overhangs can trigger anti-dilution adjustments when a company seeks to issue dividends.
In the case of RMG III and now Everest Consolidator, the cash in the exchange is much smaller and there do not appear to be dividends coming right around the corner either.
Should the combined Unifund opt to go the dividend route, those would be paid from debts that the company has been busy collecting for on a long 36-year run. Founded in 1986, the company collects debts held by its partners in the financial services industry and works to collect them from consumers, offering online, phone or mail payment options.
The company displays little other information about itself on its website, but Everest Consolidator’s 8-K notes that Unifund generated total revenue of $52.8 million in 2021 and $52.2 million in 2022. That’s a slight decline, of course, but those years may also represent a somewhat uneven snapshot of the company’s long lifetime.
The pandemic saw the number of Americans with debt in collections drop about 6% from 68 million to 64 million likely due to stimulus payments and a student loan freeze allowing some consumers to wipe some debts off the books.
That is likely a double-edged sword for a company like Unifund, which needs debts to be paid to get paid itself, but there may be less cheap debt out there for it to gather and collect upon.
Nonetheless, even with the drop, about 28% of Americans with an active credit score still had a debt in collections as of March 2022. And, scooping those up continues to be a generally lucrative business.
The parties have not yet shared financials on Unifund’s profitability, but should it seek to use its warrant-clearing to become a dividend stock, it would join some listed debt collection peers that have done the same.
Debt collector MIND CTI (NASDAQ:MNDO) offers a 12.3% dividend while RELX (NYSE:RELX) has yielded dividends slightly above 2%. RELX boasted 30% EBITDA margins over the past twelve reported months and smaller Israel-based MIND last reported free cash flow margins of 10.9%.
This transaction would seem to value Unifund between these two peers at 4.5x its 2022 revenue. MIND trades at about 1x and RELX at 8.2x current revenue.
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