Mosaic Acquisition Corp. (MOSC), the $345 million SPAC led by David Maura, announced this morning that they have entered into a definitive agreement to merge with Vivint Smart Home, Inc. (“Vivint”), a leading smart home technology company with whopping initial enterprise value of $5.6 billion. In fact, this transaction represents the largest business combination to-date by a U.S. listed SPAC.  Vivint is anticipated to have revenues of $1.3 billion for fiscal year 2020E and Adjusted EBITDA of $530 million, implying an Adjusted EBITDA multiple of approximately 10.5x.  Vivint intends to use proceeds from the transaction to immediately pay down debt and position the Company to further capitalize on growth initiatives

For those unfamiliar with Vivint, it is one of the largest smart home companies in the world, delivering integrated smart home products and cloud-enabled services to 1.5 million subscribers across 98 percent of the zip codes in the U.S., and in Canada. Vivint offers a suite of smart home products that differentiates itself from competitors such as Nest, by also incorporating professional installation, a nationwide in-home service, and 24/7 professional monitoring and customer care.

As for the additional particulars of the transaction, Mosaic’s forward purchase agreement of $150 million kicks in at $10.00 per share, but this deal also rounded up two additional PIPEs with Blackstone and Fortress Investment Group at $10.00 per share.  Blackstone will be investing $100 million and Fortress Investment Group (a subsidiary of SoftBank Group Corp.), will be investing $125 million.   However, Fortress also was part of the Forward Purchaser group (at $25 million), so their total investment is $150 million.  And just to put a cherry on top of all this additional financing, David Maura, the Chairman and CEO of Mosaic, has committed to purchase $5 million under a 10b5-1 trading plan.

Following the closing of the merger, Vivint will continue to be led by its founder and Chief Executive Officer Todd Pedersen, President Alex Dunn and Chief Financial Officer Mark Davies. All existing Vivint directors will serve on the board of directors of the combined company, joined by David Maura from Mosaic and, after the closing and subject to regulatory approval, by a director from the SoftBank Vision Fund.

Quick Takes:  This is a BIG transaction at $5.6 billion. Yes, it is clearly a de-leveraging transaction, but with a 2020E adjusted EBITDA of $530 million, the remaining $2.4 billion of debt is adequately covered. Additionally, there are no real, meaningful public comparables, but the “Smart Home” space is hot — Google snapped up Nest in 2014 for $3.2 billion.  However, just two days ago there was an article on Cnet.com about just how painful setting up Nest is….which ties in nicely with Vivint, which has differentiated itself from Nest and other Smart Home companies by addressing that pain point via installation and support. Nobody enjoys setting up these devices, so having a business model that does all that for you and provides support addresses one of the biggest barriers to purchase. Plus, you have additional investment from Blackstone and Softbank (Vivint probably looks a lot better than the We Company, eh?) and existing investors in Vivint are rolling over $2.3 Billion in equity.  This deal has legs.  Mosaic will need to extend since they run out of time October 23rd, but post-extension vote this deal should do very well.

KEY TRANSACTION TERMS

The merged company is anticipated to have an initial enterprise value of approximately $5.6 billion and an initial market capitalization of approximately $3.1 billion.

In connection with this transaction:

• Investment funds affiliated with The Blackstone Group Inc. (“Blackstone”) and other existing investors of Vivint, including management, are retaining their full existing investment.
• Blackstone has agreed to invest an additional $100 million in Vivint through an investment in the common stock of Mosaic immediately prior to the closing of the merger.
• Affiliates of Fortress Investment Group LLC (“Fortress”), a subsidiary of SoftBank Group Corp., have agreed to invest an additional $125 million in Vivint through an investment in the common stock of Mosaic immediately prior to the closing of the merger. This investment is in addition to the existing investments in Mosaic held by Fortress affiliates.
• The remaining outstanding shares of Vivint will be held by the current stockholders of Mosaic and certain other investors who are investing $150 million in connection with the merger pursuant to forward purchase commitments obtained in connection with Mosaic’s IPO, which includes $25 million from Fortress. Additionally, David Maura is committing to purchase $5 million under a 10b5-1 trading plan.
• Pro forma net leverage reduced from 5.5x to 4.3x LTM 6/30/2019 Covenant Adjusted EBITDA, with substantially all net proceeds expected to be used to repay debt.

Earnout:

Current Vivint equity holders will be entitled to an earnout of 25 million shares split equally if share price targets of $12.50 and $15.00 are achieved, subject to following vesting conditions and performance criteria:

• • 50% of founder shares will vest immediately at closing
  • 25% of remaining Founder shares will vest if share price target of $12.50 is achieved and remaining 25% of Founder shares will vest if share price target of $15.00 is achieved. Unvested Founder shares shall be subject to forfeiture if such conditions are not met by the fifth anniversary of closing
  • 50% of Founder warrants will vest if share price target of $12.50 is achieved and remaining 50% of Founder warrants will vest if share price target of $15.00 is achieved. Unvested Founder warrants shall be subject to forfeiture if such conditions are not met by the fifth anniversary of closing

CONFERENCE CALL

Vivint and Mosaic intend to host a joint conference call providing further details on the transaction today, September 16, 2019, at 10:00AM ET.

• 1-833-235-7641 (U.S. and Canada)
• 1-647-689-4162 (International)
• Passcode: 2044499

Webcast: www.investors.vivint.com/events-presentations/events

A replay of the webcast will be made available for 30 days on the investor relations page of Vivint’s website at www.investors.vivint.com.

ADVISORS

• J.P. Morgan Securities LLC, Evercore and Blackstone Capital Markets are acting as financial advisors and capital markets advisors to Vivint.
• Deutsche Bank Securities, Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC and RBC Capital Markets LLC are acting as financial advisors and capital markets advisors to Mosaic.
• Simpson Thacher & Bartlett LLP is acting as legal counsel to Vivint.
• Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as legal counsel to Mosaic.
• Fried, Frank, Harris, Shriver & Jacobson LLP is acting as legal counsel to Fortress.