When Little Rock-based MDH Acquisition Corp. entered the SPAC fray earlier this year, officials were confident they would find a quality under-the-radar company for its first acquisition. Earlier this summer, officials announced a deal that would do just that.
MDH is bringing together two entities, Olive.com and PayLink Direct, the payment services division of Olive.com, together as a public entity Olive Venture Holdings. The combined company will continue to operate under the Olive.com nameplate.
Beau Blair, MDH’s chief executive officer, said the dynamics of the deal included a close cultural match among all parties involved.
“This could not be more center of the batter’s box as to what we set out to do,” he said. “We talked about looking at the transportation and logistics ecosystem, companies with strong free cashflow and an exceptional public-company-ready management team, and this checks all of those boxes.”
“Rebecca Howard, the CEO and founder of the company, I want to give a tip of the hat to her. The company has been profitable every year since she founded it 15 years ago. She’s got an exceptional management team with Justin Thomas as president.”
Olive deals in post-warranty auto protection plans, with a platform that allows consumers to shop from home among a variety of providers. According to information provided by the company, the potential for such services is substantial: 59 percent of sales are first-time buyers in a market where a third of adults report not being able to afford $500 to $600 in automotive repairs and 60 percent would have difficulty covering a $1,000 expense. Olive’s sales are serviced by PayLink Direct, a financial services company specializing in providing interest-free payment plans for the purchase of service contracts.
Olive.com has grown rapidly with 144.5 percent growth in net premium over the last four quarters, and PayLink Direct has a 15-year track record of profitability. The combined business generated 2020 Adjusted EBITDA of $35.5 million and net income of $13.5 million Both firms were founded by Rebecca Howard, who will remain CEO of the new public entity.
Performance like that meant MDH wasn’t Olive’s only suitor, even as it pursued other opportunities itself.
“I was told that we were among 12 other companies who were pursuing a transaction with Olive,” Blair said. “At the same time, we were pursuing numerous transactions at the time. Because of our process, we had to run a parallel track where we were holding other discussions while we were pursuing this one, but ultimately at the end of March, we submitted a letter of intent.
“There was a negotiation back and forth and we came to an agreement and we executed that letter of intent, which as part of that agreement we went into exclusivity with Olive.com. We stopped all of the conversations at that point.”
By late July, parties entered into a definitive agreement which by which the business combination values Olive.com at a pro forma enterprise value of approximately $960 million. That represents approximately 2.3x 2023 estimated revenue and 6.4x 2023 estimated Adjusted EBITDA. A total of up to approximately $291 million in proceeds from MDH’s trust account, including $15 million in PIPE investment, will be used, among other things, to pay down certain existing debt of PayLink Direct and Olive.com, redeem preferred units, purchase common stock of the new public company, pay transaction expenses and to capitalize the new public company’s balance sheet.
Existing shareholders of PayLink Direct and Olive.com are expected to own approximately 74 percent of equity of the new combined company following the consummation of the proposed business combination.
MDH completed the venture as a SPAC (special purpose acquisition company) a blank-check public firm that exists solely to buy other companies, thereby taking them public. MDH Acquisition Corp., founded in July 2020, raised $276 million in a February 2021 IPO.
“From my side, it’s very much like a traditional IPO, it’s just sequenced a little differently,” said Franklin McLarty, executive chairman of MDH Acquisition Corp., in an interview with Arkansas Money and Politics earlier this year. “There is a meaningful amount of regulatory requirement from every facet – legal, accounting and all of that – when you launch a SPAC. The company, when we do a deal with somebody and they take over our shell and take over the stock ticker, they’re still going to have to go out and build enthusiasm with analysts and deliver results and so forth and so on.”
“It’s just really exciting how this all came together, very organically and naturally. We’ve been able to be successful in the heartland of the United States, where a lot of the big, bold bracket investors from the coast aren’t really established anymore. That’s where we think we have a competitive advantage, or loaded dice, to say it another way.”
Blair wouldn’t cite a definitive timeline for the completion of the Olive.com deal, citing regulatory restrictions on such statements. McLarty will serve as chairman of the new entity.