Leo Holdings Corp. (LHC) to Combine with Digital Media Solutions
by Kristi Marvin on 2020-04-23 at 9:01am

Leo Holdings Corp. (LHC), announced today that they have signed a definitive business combination agreement with Digital Media Solutions Holdings, LLC (“DMS”).  The Business Combination will introduce DMS to the equity capital markets as a publicly listed company with a total enterprise value of $757 million or 13.2x the Company’s fiscal year 2020 expected Adjusted EBITDA of $57 million and 10.0x the Company’s fiscal year 2021 expected Adjusted EBITDA of $75 million.

Digital Media Solutions is a martech-enabled business capitalizing on the secular shift of advertising dollars from traditional offline channels to online digital channels.  Essentially, DMS leverages proprietary technology solutions, proprietary media distribution and data-driven processes to help large brands acquire their customers. This helps clients de-risk marketing spend across digital channels through DMS’s pay-for-performance model, meaning DMS is paid to deliver customers rather than impressions across a variety of end markets including but not limited to insurance, education, health & wellness, consumer finance and home services.

Per the press release, Digital Media Solutions’ performance across their portfolio of verticals can be characterized in one of three ways:

  • A significant portion of their revenue comes from verticals that are in the early stages of transition to digital and therefore continuing on an elevated growth trajectory like Insurance, Health & Wellness and Direct-to-Consumer products.
  • Some verticals such as Education are counter-cyclical, with limited impact to client activity.
  • Certain marketplace solutions have been impacted, particularly in Consumer Finance given the reduction in demand for credit card, lending and other personal banking services. Consumer Finance represented only approximately 11% of total revenue last year, and DMS is optimistic that banks will increase marketing spend as consumer demand returns following COVID-related disruption. “We are nonetheless being disciplined on the cost side, and have multiple levers to align expenses with any changes in revenue.

TRANSACTION SUMMARY

  • Immediately prior to the closing of the Business Combination, Leo will domesticate as a Delaware corporation and additional investors will purchase $100 million of Class A common stock of Leo in a private placement at $10.00 per share.
  • In addition, cash held in Leo’s trust account, net of redemptions, and the gross proceeds of the private placement must be no less than $200 million, and such cash will be used:
    • To pay $30 million to DMS to be held on its balance sheet,
    • To pay down $10 million of DMS’s current credit facility,
    • To pay the parties’ transaction costs and
    • To pay the cash portion of the consideration payable to the current DMS equity holders.

Upon closing, the Board will be chaired by Mary Minnick, formerly the Global President of Marketing, Strategy and Innovation at The Coca-Cola Co. Ms. Minnick currently serves on the boards of the Target Corporation, Glanbia, plc and Leo.

In addition, the remaining Board members will include Robbie Isenberg (Managing Director, Clairvest Group), Lyndon Lea (Chairman & CEO, Leo), Robert Darwent (CFO, Leo), James Miller (General Counsel and Corporate Secretary, Clairvest Group), Joe Marinucci (CEO, DMS) and Fernando Borghese (COO, DMS).

The business combination is expected to close before July 31, 2020, LHC’s combination deadline.


Quick Takes:  When Leo first announced that it had signed a Term Sheet with DMS, back on February 7th (pre-Covid), it said that the total EV of the proposed transaction was $757 million, or 12.0x expected fiscal year 2020, with an expected adjusted EBITDA of $63 million.   As of today, that adjusted EBITDA number has been revised down to $57 million, but we now have a multiple of 13.2x, so this transaction is looking a little more expensive.  And while addressing the effects of Covid in both the press release and the presentation is very much appreciated, we still don’t really know just how badly the economic impact is going to be.  So even if we look at the comps or try to evaluate valuation, it’s still really difficult, if not impossible. For the most part, all of the estimates are based on a pre-Covid world.  However, the fact remains, Leo is still buying DMS at $757 million.  This transaction also has a $200 million cash closing condition (inclusive of the $100 million PIPE), but in the current climate, redemptions are more of a risk.  Having said that, this is a more modern, tech/data driven solution for advertisers and it should appeal to customers going forward since they will be looking for more effective solutions in an environment where every dollar counts.  The merger agreement has not been filed yet, so we don’t have all of the nitty gritty details of this deal yet, but the potential for a good transaction is there.  It’s just…well, Covid.  It creates a lot of guesswork.


ADVISORS

  • Citigroup Global Markets Inc. acted as financial advisor, capital markets advisor and private placement agent to Leo.
  • Kirkland & Ellis LLP acted as legal counsel to Leo.
  • Skadden, Arps, Slate, Meagher & Flom LLP acted as legal counsel to DMS.

 

 

 

 

Recent Posts
by Nicholas Alan Clayton on 2024-04-23 at 7:50am

At the SPAC of Dawn Tucked into the bill that provides $95 billion in funding to American allies passed by the House this weekend is another measure that is likely to have far more impact on at least one pending deal in SPAC world. It would appear that the timing was fortuitous for TikTok rival...

by Nicholas Alan Clayton on 2024-04-22 at 3:01pm

With the passage this weekend of $95 billion in funding for Ukraine, Israel and Taiwan by the House of Representatives, some focus has gone back towards the defense sector, which has generally had a good year as a whole. But, SPACs have not been as active in defense, despite the fact that companies in the...

by Nicholas Alan Clayton on 2024-04-22 at 7:51am

At the SPAC of Dawn As April’s sleepy month for SPAC news continues, there is only one special meeting on the docket to consider a SPAC deal approval, that being today’s vote on Pegasus Digital Mobility‘s (NYSE:PGSS) combination with equipment manufacturer Schmid. Three more SPACs are facing extension votes this week, including Pyrophyte (NYSE:PHYT), whose...

by Kristi Marvin on 2024-04-20 at 11:45am

Terms Tracker for the Week Ending April 19, 2024 Welcome to our weekly column where we discuss the findings from our IPO terms tracker based on the previous week’s pricings. Passover and school spring break starts next week, which most likely means a slowdown in SPAC filing activity. Although Churchill IX is now rumored to...

by Nicholas Alan Clayton on 2024-04-19 at 3:00pm

Despite a week of general pull-backs in the market, fintech firm Ibotta (NYSE:IBTA) nonetheless took the dive and had a good week debuting via a traditional IPO in the choppy waters. The company, which provides app-based consumer cashback discounts on purchases, priced its IPO at $88, above its proposed range of $76 to $84, and...

logo

Copyright © 2023 SPACInsider, Inc. All Rights Reserved