OmniLit Acquisition Corp. (NASDAQ:OLIT) has entered into a definitive agreement to combine with precision optics-maker Syntec for initial equity consideration of $316 million.
Rochester, New York-based Syntec provides lenses and other optical equipment to the defense, medical and consumer sectors.
OmniLit has about $13.8 million in its current trust after seeing about 90.6% of shares redeemed in an earlier extension vote. It is to issue 31,600,000 shares to Syntec shareholders as consideration for the deal.
Syntec shareholders will have the opportunity to nearly double their holdings via 26,000,000 shares issued in a company earnout. These are to vest in equal thirds if combined company stock trades at $12.50, $14 and then $15.50 for 20 of 30 trading days within five years of close.
The company’s management stands to earn 2,000,000 more shares over the next two years if Syntec meets its operational goals. Half of these will vest if it generates $75 million in revenue and $22.6 million in EBITDA in 2024, and the other half if it hits $196 million in revenue and $50.6 million in EBITDA in 2025.
The parties have not yet filed an investor presentation, but OmniLit’s profile page will be updated once more details are made available.
Both sides have agreed to a one-year lock-up and OmniLit must maintain more than $5 million in cash in order for the deal to close.
Either side may terminate the deal if it has not closed within nine months of its May 9 signing.
Quick Takes: SPACs have increasingly opted not to publicize their deal news in recent weeks, with several transaction announcements tucked into routine filings unaccompanied by press releases.
OmniLit did file its merger documents upfront in a standalone 8-K, but has not yet started the work of educating the public on its terms.
What Syntec’s website tells us is that the 42-year-old company has grown into the largest independent custom manufacturer of polymer optics in the US. This includes everything from fingerprint scanners to medical sensors and the optical eyes of smart bombs for the military.
Without more materials go to on, investors eyes may gravitate first toward the interpersonal connections within this deal. Syntec Optics Chairman and majority shareholder Al Kapoor is none other than the Chairman and CEO of OmniLit. Such internal deals are not without precedent, but they have a mixed track record.
It has long been a basic rule that SPACs cannot pre-negotiate a deal and must begin their search in earnest only after listing. But, at least a couple SPACs recently have been open about a target on their mind in their initial S-1.
Alpine Acquisition Corp. listed in August 2021 naming its express purpose to combine with entertainment venue company Two Bit Circus, which its CEO used to run. Similarly, Gaming Hospitality Acquisition Corp. IPO’d in February of that year to merge with the casino property its management team also steered.
Interestingly, although Alpine did get to a definitive agreement with Two Bit Circus, neither of these SPACs wound up completing a deal and both liquidated.
Happier endings have come from Landcadia Holdings II and Rice Acquisition Crop., which each merged with portfolio companies of their sponsors, but had separate dealmaking teams on each side of the conversation.
The targets of each of these deals were later acquired by larger strategic peers, with Rice’s de-SPAC Archaea Energy going for a cool $26 per share to BP (NYSE:BP).
OmniLit’s deal with Syntec would seem to have more commonalities with Alpine and Gaming Hospitality’s approach on the face of it given that the leaders of the SPAC and target are the same person.
OmniLit touted Syntec’s success as a both a sign of the strength of its management team and the promise of the precision manufacturing sector in its prospectus, but left no hint that the company might be the SPAC’s ultimate combination partner.
That raises a few questions about OmniLit’s process, as it has been searching since its November 2021 IPO and has already had to extend its deadline. Coming as it did in December 2022, that vote wiped all but $13.8 million from its trust.
OmniLit did tease an LOI before that vote with an unnamed “manufacturer of optics and photonics components”, which certainly meets the description of Syntec. December was a difficult month for votes across the board, but this description may have also tipped investors as to where this was going.
Either way, OmniLit had been searching for a deal for more than a year at that point. If it had been running a broad search process during this time and Syntec was not among its first choices, it bears asking, “Why not?”
Now that Syntec is the deal and redemptions have been high, most of the shares in this transaction are going the same direction.
OmniLit/Syntec CEO Al Kapoor already owns the majority of Syntec and holds all 4,166,667 of OmniLit’s promote shares, none of which are being forfeited in the deal. These promote shares now outnumber public SPAC shares three-to-one.
By virtue of being Syntec’s majority owner and top executive, Kapoor also stands to take the lion’s share of the deal’s earnout shares should the company hit its targets.
Of course, if all of these targets are hit and Syntec more than doubles revenue and EBITDA between 2024 and 2025 and boosts its stock 55% in the process, then there will be plenty of reason for other investors to want to come along for the ride with Kapoor.
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