Lender Foreclosure and Sale of STG Group Holdings, Inc.
On April 11, 2018, representatives of STG Group Holdings, Inc. (“Holdings”), a wholly-owned subsidiary of the Company, informed
STG Group, Inc. (the “Company”) that a
sub-agent
(“Sub-Agent”)
to the collateral agent under that certain Credit Agreement, dated as of
November 23, 2015 (the “Credit Agreement”), had sold all of the issued and outstanding stock of Holdings to SOS International Ltd. (“SOSi”) for approximately $83,000,000 pursuant to a foreclosure sale (the
“Transaction”). Representatives of Holdings also informed the Company that the proceeds of the Transaction were used to pay transaction expenses, and to repay substantially all of the $80,100,000 of outstanding principal, interest and fees
owed to the lenders under the Credit Agreement (the “Lenders”). It is unclear at the current time whether there will be any remaining net proceeds available to the Company, but even if there were it is unlikely that there would be any
proceeds available for distribution to the Company’s shareholders after payment to the Company’s creditors.
In an effort to
provide further information to the Company’s shareholders, Holdings provided the following information to the Company and has authorized us to disclose such information on its behalf. These statements are not made on behalf of the Company and
the Company cannot confirm the accuracy or completeness of this disclosure.
The Transaction was the culmination of a lengthy and thorough
process undertaken by the Board of Directors of Holdings (the “Holdings Board”) following the events of November
11-13,
2017, which are described in the Company’s Form
8-K
dated November 11, 2017 and filed November 15, 2017 (the “November Events”), Prior to the November Events, on October 20, 2017, SOSi, which engaged Cowen as its financial advisor,
submitted a
non-binding
indication of interest to acquire the Company. After the November Events, SOSi submitted another
non-binding
indication of interest on
November 22, 2017.
Following the November Events, in early December 2017, Holdings engaged Raymond James & Associates, Inc.
(“Raymond James”) to serve as its financial advisor to explore strategic options, including a possible financing, restructuring or business combination transaction, although Raymond James was instructed by the Holdings Board to focus its
efforts on a possible business combination transaction. By
mid-January
2018, Raymond James had contacted approximately 80 potential buyers accustomed to executing acquisitions in the government contracting
industry, of which approximately 50 executed
non-disclosure
agreements and received a confidential information memorandum.
By the end of January 2018, Raymond James notified Holdings that six indications of interest (excluding SOSi’s prior indication of
interest) were submitted. The valuations of Holdings reflected by the indications of interest ranged from $40,000,000 to $85,000,000, with an average midpoint of approximately $66,900,000. In the first two weeks of February 2018, management
presentations were held with four bidders, who were asked to submit
non-binding
letters of intent or, at a minimum, verbally updated valuation ranges. All four remaining bidders submitted updated indications,
one bidder in the form of a letter of intent with a specific price proposal within their initial valuation range, and three bidders in the form of updated verbal valuation guidance. Two of those three bidders updated to a valuation lower than their
previously submitted bids and one bidder reaffirmed their initial range but cited that they had not performed sufficient diligence yet to provide a more specific bid. At this time, SOSi’s offer was at the high end of the $40,000,000 to
$85,000,000 range identified above and the level of due diligence performed by SOSi and its advisors was substantially higher than the level of due diligence performed by the other bidders.
The Holdings Board met on February 23, 2018 to discuss the status of bids. Following discussion with Raymond James, and Holdings’
counsel, the Holdings Board determined that management should place its highest priority on reaching an agreement for a business combination with SOSi. SOSi and its advisors continued to perform significant due diligence and negotiations on a stock
purchase agreement proceeded.
In late March 2018, the Holdings Board formally requested that SOSi increase the purchase price to
$85,000,000. On April 8, 2018 and April 9, 2018, Cowen and the Holdings Board negotiated further and reached agreement on a $83,000,000 purchase price, which SOSi stated was its best and final offer. On April 9, 2018, the Holdings
Board approved the Transaction. On April 11, 2018, a stock purchase agreement was executed, the
Sub-Agent,
on behalf of the Lenders, sold all of the issued and outstanding stock of Holdings in a
foreclosure sale to SOSi pursuant to such stock purchase agreement.