MDF Commerce to acquire Parthenon-backed Periscope

MDF Commerce has agreed to acquire Periscope Intermediate Corp, an Austin, Texas-based procurement software and services provider backed by Parthenon Capital Partners.

MDF Commerce has agreed to acquire Periscope Intermediate Corp, an Austin, Texas-based procurement software and services provider backed by Parthenon Capital Partners. The purchase price is about C$259.9 million. As part of the deal, Parthenon will invest C$4 million in MDF. Fonds de solidarité FTQ and Investissement Québec will invest C$52.6 million to help fund the acquisition. Montreal-based MDF is a provider of software-as-a-service commerce technology solutions.

PRESS RELEASE

MONTREAL, Aug. 11, 2021 (GLOBE NEWSWIRE) — mdf commerce inc. (“mdf commerce”) (TSX: MDF), a leader in SaaS commerce technology solutions, is pleased to announce that it has entered into a definitive agreement with Periscope Parent Holding, L.P. to acquire the business of Periscope Intermediate Corp. (“Periscope”) (the “Acquisition”), a portfolio company of Parthenon Capital Partners (“Parthenon Capital”). The purchase price is approximately $259.9 million, on a cash-free debt-free basis, subject to customary closing and post-closing adjustments (the “Purchase Price”).

Periscope is a leading eProcurement solution provider with over 20 years of history that offers a fully integrated, end-to-end procurement solution to both state and local government agencies and suppliers in the U.S. Periscope’s end-to-end eProcurement solution—offered through both a SaaS and a transaction fee solution—is built specifically for the public sector, allowing government agencies to more efficiently purchase goods and services, source contracts, analyze spend, post bids and transact on a public procurement platform that offers a consumer-like shopping experience. Periscope operates from its two offices in Austin, Texas, and American Fork, Utah.

Legacy procurement systems are hindering U.S. state and local government agencies from efficiently and transparently getting the most value of over US$1.8 trillion in taxpayer funds for procurement purposes. Government agencies transacting through Periscope’s network spend approximately US$20 billion per year, with opportunities to grow significantly as governments seek to optimize their procurement process. Together, mdf commerce and Periscope are well positioned to capitalize on governments’ critical need to rapidly digitize procurement workflows, as well as on massive increases in government spending arising from the approximately US$1 trillion U.S. infrastructure spending bill, among others.

Periscope’s solutions, through its ePro product suite, are offered as both a SaaS solution and a transaction fee solution. Under its SaaS solutions, Periscope acts as a vendor to government agencies and suppliers and receives a fixed annual subscription fee. Periscope’s transaction fee solution provides government agencies with an innovative way to self-fund their eProcurement solution. The transaction fee solution provides significant scalability as revenue becomes a function of statewide transaction spend. The successful onboarding of new customers on SaaS and transaction fee solutions has already driven increased growth, as seen through the first six months of 2021 revenues growing by 32.2% year-over-year, from US$10.9 million to US$14.4 million. Given year-to-date performance and high near-term visibility for contracted revenue and pipeline developments, management believes Periscope can achieve revenues of approximately US$33 million in calendar year 2021, compared to US$23.1 million in calendar year 2020, implying a year-over-year growth rate of 43.4%. Management believes strong industry tailwinds, including current trends toward eProcurement adoption, will underpin significant growth over the long term.

“This is a very interesting day in the history of mdf commerce. The acquisition of Periscope marks a turning point in our transformation plan and solidifies our commitment to profitable growth. Periscope will strengthen our leading position in the North American public eProcurement industry. This accelerates our vision to become a leading player enabling the flow of commerce for the B2B and B2G markets,” said Luc Filiatreault, President and Chief Executive Officer of mdf commerce.

“With this transformational acquisition, we see a tremendous amount of accelerated growth across our combined platform. I’m very excited about the opportunity to lead mdf commerce’s Strategic Sourcing operations as we evolve into full eProcurement, positioning us well for this new chapter of growth,” said Mark Eigenbauer, President of mdf commerce Strategic Sourcing.

Brian Utley, President and Chief Executive Officer of Periscope, said: “Today marks an important milestone in the history of Periscope since I founded the company in 2001. I am thrilled to join the mdf commerce team. Together, with our combined operational strengths, I am convinced we can accelerate the transformation of the public eProcurement industry.”

As part of the Acquisition, Parthenon Capital agreed to re-invest $4 million in mdf commerce shares, the maximum allowed under the applicable private placement rules given the concurrent investment by Investissement Québec and Fonds de solidarité FTQ. Zachary Sadek, Partner at Parthenon Capital, said: “We believe that Periscope is a great strategic fit for mdf commerce and are pleased to participate in the upside potential as a new shareholder of mdf commerce going forward. We are appreciative of our successful seven year partnership with Brian Utley and the entire Periscope team and are excited to see them continue to support their customers and bring value to every dollar spent.”

The Acquisition has been approved by the board of directors of both mdf commerce and the governing entity of Periscope Parent Holding L.P. The Acquisition, which remains subject to certain customary closing conditions and receipt of applicable antitrust approval under Hart Scott Rodino Antitrust Improvements Act, is expected to be completed in the second quarter of mdf commerce’s fiscal year 2022.

Acquisition Rationale

Becoming a Public eProcurement Leader in North American Market with Untapped Opportunities

Combined company powers government procurement systems for 8 U.S. state customers, while solidifying its presence in 40 U.S. states and all Canadian provinces
Combined platform enables over 6,000 government agencies, as well as harnesses a large database of approximately 1,000,000 suppliers, of which 500,000 have actively pursued opportunities in the last twelve months
Fully Integrated, End-to-End Solution Servicing the Full Spectrum of Government Agencies

Broadens mdf commerce’s SaaS offering with a leading fully integrated, end-to-end procurement solution purpose-built for the public sector, which provides an innovative and intuitive consumer-like shopping experience
Expands mdf commerce’s total addressable market and improves the company’s ability to fully cater to existing and prospective customers’ evolving needs
Innovative Transaction Fee Solution Providing Highly Scalable and Attractive Economics

Only public sector eProcurement provider actively managing transaction fee solutions at the U.S. state level
Opportunity to leverage Periscope’s ePro and Marketplace solutions under a transaction fee solution—in which revenues are driven by the volume of highly scalable and recurring statewide government spend—to existing and prospective government agency customers
Highly Synergistic Acquisition Expected to Provide Significant Revenue and Cost Saving Opportunities

Estimated annual revenue synergies of at least $15 million expected within 3 years, primarily driven by Periscope’s ePro transaction fee solution
mdf commerce and Periscope to leverage each other’s customer base, as well as key government relationships, to sell ePro to additional U.S. states and Canadian provinces
mdf commerce to offer Periscope’s Marketplace solution to its existing network of over 3,500 government agencies and 300,000 active suppliers
Estimated annual cost synergies of approximately $5 million expected within 3 years, primarily driven by (i) workforce-related initiatives alleviating the need to hire additional talent for sales, product development, and other key functions, (ii) efficiencies gained through the harmonization of content aggregation systems and processes, and (iii) product integration eliminating reliance on third parties
Compelling Combined Financial Profile Positioned for Enhanced Growth

Revenues of $84.7M for mdf commerce increase by 36.6% to combined revenues of $115.7M2, with Strategic Sourcing platform accounting for over half3 of total combined revenues
Year-over-year growth in revenues of 13.1% for mdf commerce increases to 18.0% combined4
mdf commerce’s recurring revenue as a percentage of revenues increases from 76% to 80%5
Financing of the Acquisition

The Purchase Price will be financed through a combination of:

$92.0 million of available cash on hand
$50.2 million draw on amended and upsized revolving and term credit facilities
$67.8 million bought deal public offering (the “Offering”) of subscription receipts of mdf commerce (the “Subscription Receipts”)
$52.6 million private placement (the “Concurrent Private Placement”) of subscription receipts of mdf commerce (the “Private Placement Subscription Receipts”) with Fonds de solidarité FTQ (“FSTQ”) and Investissement Québec (together with FSTQ, the “Private Placement Subscribers”), mdf commerce’s two largest shareholders
The issuance of $4.1 million in rollover shares, as well as the creation of a $4.1 million retention bonus
Public Offering of Subscription Receipts on a Bought Deal Basis

To finance the payment of a portion of the Purchase Price and related expenses, mdf commerce has entered into an agreement with Scotiabank, as sole bookrunner, and Echelon Capital Markets, as co-lead manager, on behalf of a syndicate of underwriters (the “Underwriters”) under which they have agreed to purchase on a bought deal basis from mdf commerce 8,480,000 Subscription Receipts at a purchase price of $8.00 per Subscription Receipt (the “Offering Price”) for gross proceeds of $67.8 million. Each Subscription Receipt will entitle the holder thereof to receive, upon the satisfaction of certain conditions and without payment of additional consideration or further action, one common share of mdf commerce.

In addition, mdf commerce has granted the Underwriters an option to purchase up to 1,272,000 additional Subscription Receipts at the Offering Price at any time up to 30 days after closing of the Offering (the “Over-Allotment Option”), for additional gross proceeds of up to $10.2 million. The Subscription Receipts will be offered in all provinces of Canada pursuant to a short form prospectus to be filed by mdf commerce in accordance with National Instrument 44-101 – Short Form Prospectus Distributions.

The issuance of the Subscription Receipts pursuant to the Offering is subject to customary approvals of applicable securities regulatory authorities, including the Toronto Stock Exchange (“TSX”). Closing of the Offering is expected to occur on or about August 31, 2021. The Offering is conditional upon closing of the Concurrent Private Placement (described below) are conditional upon each other. The Offering is also conditional upon there being no termination of the Acquisition or announcement of such termination prior to the closing of the Offering.

Private Placement of Subscription Receipts

Concurrently with the Offering, mdf commerce has entered into subscription agreements pursuant to which it will complete the Concurrent Private Placement with FSTQ and Investissement Québec who will acquire, on a private placement basis and at the Offering Price, 3,587,667 and 2,989,722 Private Placement Subscription Receipts, respectively, for aggregate gross proceeds of $52.6 million. Each Private Placement Subscription Receipt will entitle the holder thereof to receive, upon the satisfaction of certain conditions and without payment of additional consideration or further action, one common share of mdf commerce. The Private Placement Subscription Receipts will be subject to a four month hold from the closing date of the Concurrent Private Placement.

The issuance of the Private Placement Subscription Receipts pursuant to the Concurrent Private Placement is subject to the approval of the TSX. Closing of the Concurrent Private Placement is scheduled to occur concurrently with the closing of the Offering. The Concurrent Private Placement is conditional upon closing of the Offering. The Concurrent Private Placement is also conditional upon there being no termination of the Acquisition or announcement of such termination prior to the closing of the Concurrent Private Placement.

Amended and Upsized Credit Facilities

mdf commerce has received a committed term sheet from Scotiabank providing for amendments and upsize of its existing credit facilities by $20 million, to $70 million (the “Upsized Credit Facilities”), in order to partially finance the payment of the Purchase Price and for general corporate purpose.

The net proceeds of the Offering, the Concurrent Private Placement and the Upsized Credit Facilities will be used by mdf commerce to finance the payment of a portion of the Purchase Price payable in respect of the Acquisition and the financing and transaction costs incurred as part of the Acquisition.

Advisors

Scotiabank acted as exclusive financial advisor to mdf commerce on the Acquisition, as sole bookrunner and co-lead manager on the Offering and as sole placement agent on the Concurrent Private Placement. Legal advice to mdf commerce is being provided by McCarthy Tétrault LLP with respect to Canadian law, and by Foley & Lardner LLP with respect to U.S. law. Legal advice is being provided to the Underwriters and the Private Placement Subscribers by Davies Ward Phillips & Vineberg LLP.

Stephens Inc. is the exclusive financial advisor to Periscope. Periscope received legal advice from Jackson Walker LLP, Kirkland & Ellis LLP and Blake, Cassels & Graydon LLP.

Conference Call Information

mdf commerce will hold a conference call for the financial community on Wednesday, August 11 at 5:00 p.m. (Eastern Daylight Time). The dial-in numbers are (833) 732-1201 (toll-free) or (720) 405-2161 (international). A live webcast will be available: register here. Media may hear the call in listen-in only mode or tune in to the simultaneous audio broadcast on mdf commerce’s website, which will then be archived for 30 days.

Availability of Documents

Copies of related documents, such as the preliminary short form prospectus, underwriting agreement, subscription agreements and stock purchase agreement relating to the Acquisition will be available under mdf commerce’s profile on SEDAR at www.sedar.com and on mdf commerce’s website at www.mdfcommerce.com.

General Information

In this press release, “mdf commerce” or the words “we”, “our” and “us” refer, depending on the context, either to mdf commerce inc. or to mdf commerce inc. together with its subsidiaries and entities in which it has an economic interest. All dollar amounts refer to Canadian dollars, unless otherwise expressly stated.

This press release is dated August 11, 2021 and, unless specifically stated otherwise, all information disclosed herein is provided as at June 30, 2021, the end of mdf commerce’s most recent quarter.

Currency

All dollar amounts refer to Canadian dollars, unless otherwise expressly stated. Estimated consideration to be paid was converted using an exchange rate of 1 USD = 1.2540 CAD, which represents the daily exchange rate of the Bank of Canada on August 10, 2021. The revenues of Periscope for the six-month periods ended June 30, 2021 and June 30, 2020 and the twelve-month period ended December 31, 2020 were converted using exchange rates of 1 USD = 1.2471, 1 USD = 1.3646 CAD (using constant currency) and 1 USD = 1.3415, respectively, which represent, in each case, the average daily exchange rate of the Bank of Canada for the six months ended June 30, 2021 and June 30, 2020 and the twelve months ended December 31, 2020, respectively.

About mdf commerce inc.

mdf commerce inc. (TSX: MDF) enables the flow of commerce by providing a broad set of SaaS solutions that optimize and accelerate commercial interactions between buyers and sellers. Our platforms and services empower businesses around the world, allowing them to generate billions of dollars in transactions on an annual basis. Our Strategic Sourcing, Unified Commerce and emarketplace platforms are supported by a strong and dedicated team of approximately 700 employees based in Canada, the United States, Denmark, Ukraine and China. For more information, please visit us at mdfcommerce.com, follow us on LinkedIn or call at 1-877-677-9088.

About Periscope Intermediate Corp.

Periscope is a leading eProcurement solution provider with over 20 years of industry experience that offers a fully integrated, end-to-end procurement solution to both state and local government agencies and suppliers in the U.S. Periscope’s end-to-end eProcurement solution is built specifically for U.S. government agencies, allowing them to more efficiently purchase goods and services, source contracts, analyze spend, post bids and transact on a public procurement platform that offers a consumer-like shopping experience. For more information, visit www.periscopeholdings.com

About Parthenon Capital Partners

Parthenon Capital is a leading growth-oriented private equity firm with offices in Boston, San Francisco and Austin. Parthenon Capital utilizes niche industry expertise and a deep execution team to invest in growth companies in service and technology industries. Parthenon Capital seeks to be an active and aligned partner to management, either through recapitalization transactions or by backing new executives. Parthenon Capital has particular expertise in financial and insurance services healthcare, and technology services, but seeks any service, technology or delivery business with a strong value proposition and proprietary know-how. For more information, visit www.parthenoncapital.com.