Key Highlights:
- H.I.G. Capital to acquire Converge in an all-cash transaction, providing immediate liquidity to shareholders while establishing a strategic partner for Converge to execute its long-term growth strategy.
- Shareholders will receive C$5.50 per share in cash, representing approximately 56% and 57% respective premiums to the closing price and 30-day volume weighted average price of the shares on the TSX on February, 6 2025, the last trading day prior to the date of the announcement of the transaction.
- The Board of Directors of Converge (with an interested director abstaining), after receiving the unanimous recommendation from a special committee of independent directors, unanimously determined that the transaction is fair and in the best interests of the Company.
- Shareholders representing 24% of Converge’s outstanding shares have entered into voting support agreements in favor of the transaction.
Converge Technology Solutions Corp. (“Converge” or the “Company“) (TSX: CTS) (FSE: 0ZB) (OTCQX: CTSDF) is pleased to announce it has entered into an arrangement agreement (the “Arrangement Agreement“) with an affiliate of H.I.G. Capital (“H.I.G.“), whereby H.I.G has agreed to acquire all of the issued and outstanding common shares (the “Common Shares“) of the Company (the “Transaction“). Under the terms of the Arrangement Agreement, shareholders will receive C$5.50 per Common Share in cash, other than Common Shares held by certain shareholders who enter into rollover equity agreements (the “Rollover Shareholders“). The purchase price of the Transaction values Converge at an enterprise value of approximately C$1.3 billion. Upon completion of the Transaction, the Company intends to apply to delist the Common Shares from all public markets and cease to be a reporting issuer under Canadian securities laws.
Additionally, as a result of the Transaction, Converge will join the current H.I.G. owned entity, Mainline Information Systems, LLC (“Mainline“). Headquartered in Tallahassee, FL, Mainline is a diversified IT solutions provider specializing in enterprise server, hybrid cloud, cyber storage, and network & security solutions, along with providing associated professional and managed services. Converge and Mainline offer complementary products and services, and their joining will permit the combined companies’ to better serve customers with a broader and more diverse variety of solutions in areas such as cybersecurity, cloud, and digital infrastructure. The combined business will be led by a proven management team that reflects the strengths and capabilities of both organizations. Following the closing, Converge Chief Executive Officer Greg Berard will serve as Chief Executive Officer of the combined business and Mainline President and Chief Executive Officer Jeff Dobbelaere will serve as President.
“Converge stands out as an organization that understands where technology trends are going in the IT market and has aligned its business accordingly, and it has a proven reputation as a trusted advisor to its customers,” said Aaron Tolson, Managing Director at H.I.G. Capital. “We are excited to combine Converge with H.I.G.-owned Mainline, a company that has advised IT decision-makers in handling their most mission-critical workloads for decades. The combined company will bring a breadth and depth of technology and services capabilities to its customers and OEM partners that is differentiated in the areas of core data center infrastructure, networking, security, and hybrid cloud.”
“Converge is proud to begin a new chapter alongside H.I.G. Capital,” stated Greg Berard, Chief Executive Officer of Converge. “This partnership not only ensures meaningful value for our shareholders but also lays the foundation to enhance how we serve our customers. As technology continues to reshape industries worldwide, delivering comprehensive and forward-thinking solutions is vital to helping our clients succeed. We’re excited to continue leading the way as a transformative force in the IT industry.”
“We are excited to be joining forces with Converge as we enter the next phase in our growth journey,” said Jeff Dobbelaere, President and Chief Executive Officer of Mainline. “Our specialization in hybrid cloud, on-premises infrastructure, cybersecurity, and software solutions complements Converge’s established expertise. Together, we’re poised to create meaningful growth opportunities for our employees and enhance the value we deliver to customers, leveraging our combined capabilities to expand our service offerings and provide sought after solutions in the marketplace.”
The Company intends to release preliminary Q4 FY2024 results on Monday, February 10, 2025. Gross profit and Adjusted EBITDA[1] for the fourth quarter of 2024 are expected to be at the high end of our previously provided range of gross profit of $165 – $178 million and Adjusted EBITDA of $36 – $47 million.
Transaction Details
The Transaction, which was unanimously approved by the Board of Directors of Converge (the “Board“) (with an interested director abstaining from voting), after receiving the unanimous recommendation from a special committee of independent directors (the “Special Committee“), is to be carried out by way of a statutory court-approved plan of arrangement under the Canada Business Corporations Act, and will require approval of two-thirds of the votes cast by shareholders of the Company at a special meeting of the shareholders of the Company (the “Special Meeting“); and (ii) a simple majority of the votes cast by shareholders of the Company at the Special Meeting, excluding votes from Rollover Shareholders and any other required to be excluded as required under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions. The Special Meeting is expected to be held in April 2025.
The Arrangement Agreement is the result of a comprehensive and competitive negotiation process that was undertaken at arm’s length with the oversight and participation of the Special Committee. The Company and the Special Committee were advised by highly qualified legal and financial advisors and the process resulted in terms and conditions that are reasonable in the judgement of the Special Committee and the Board, including customary “fiduciary out” rights that would enable the Company to enter into a definitive agreement with respect to an unsolicited proposal that constitutes a superior proposal (as defined in the Arrangement Agreement) in certain circumstances.
A termination fee of C$34.4 million would be payable by Converge in certain circumstances, including in the context of Converge entering into a definitive agreement with respect to a superior proposal.
The all-cash transaction will provide immediate liquidity to shareholders while establishing a strategic partner for Converge to execute its long-term growth strategy. Shareholders (other than the Rollover Shareholders) will receive C$5.50 per Common Share in cash (the “Consideration“), representing approximately 56% and 57% respective premiums to the closing price and 30-day volume weighted average price of the shares on the TSX on February, 6 2025, the last trading day prior to the date of the announcement of the transaction. Based on the Company’s reported financial results for the trailing twelve months to September 30, 2024, the Consideration values the Company at an enterprise value to Adjusted EBITDA[2] multiple of ~7.4x.
As part of the Arrangement Agreement, Converge has agreed that its regular quarterly dividend during the pendency of the Transaction will not be declared.
The Rollover Shareholders will roll certain of their Common Shares in the Company for equity interests in an affiliated entity of H.I.G. All rollovers will occur at a value per Common Share equal to the cash purchase price of C$5.50. Further details will be provided in the Circular (as defined below).
The Company’s directors, senior executive officers and certain other large shareholders, holding an aggregate of approximately 24% of the outstanding Common Shares, have each entered into voting support agreements to vote their shares in favour of the Transaction.
In addition to shareholder approval, the completion of the Transaction will be subject to court and regulatory approvals and clearances, as well as other customary closing conditions. Subject to the satisfaction of such conditions, the Transaction is expected to be completed during the second quarter of 2025.
Further details regarding the terms of the Transaction are set out in the Arrangement Agreement, which will be publicly filed on Converge’s SEDAR+ profile at www.sedarplus.ca. Additional information regarding the terms of the Arrangement Agreement, the background to the Transaction, the rationale for the recommendations made by the Special Committee and the Board and how Converge’s shareholders can participate in and vote at the Special Meeting to be held to consider the Transaction will be provided in the management information circular (the “Circular“) which will be mailed to shareholders of the Company and also filed on Converge’s SEDAR+ profile at www.sedarplus.ca. Shareholders are urged to read these and other relevant materials when they become available.
Board Approval
The Board, based on the recommendation of the Special Committee, has unanimously approved (with an interested director abstaining from voting) the Transaction and determined the Transaction is in the best interest of the Company. The Board has resolved to recommend that Converge’s shareholders vote in favour of the Transaction. Each of Canaccord Genuity Corp. and Origin Merchant Partners has provided the Board and the Special Committee, respectively, with an opinion to the effect that, as of February 6, 2025, the Consideration to be received by the holders of Common Shares (other than the Rollover Shareholders) in the Transaction is fair, from a financial point of view, to such holders, in each case subject to the respective limitations, qualifications, assumptions, and other matters set forth in such opinions.
Advisors
Canaccord Genuity Corp. is acting as lead financial advisor to the Company and its Board. Houlihan Lokey Capital, Inc. is engaged as financial advisor to the Special Committee. Origin Merchant Partners was engaged as an independent financial advisor and provided a fairness opinion to the Special Committee. Goodmans LLP is acting as legal counsel to the Company.
Weil, Gotshal & Manges LLP and Stikeman Elliott LLP are acting as legal advisors to H.I.G.
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