IOU Financial Inc. today announced that it has entered into an arrangement agreement with 9494-3677 Québec Inc. , a corporation created by a group composed of funds managed by Neuberger Berman , Palos Capital and Fintech Ventures for the acquisition of IOU through a statutory plan of arrangement .
Under the terms of the Arrangement Agreement, the Purchaser has agreed to acquire all of the issued and outstanding common shares in the capital of IOU other than Shares to be re‐invested by Neuberger, Palos, FinTech and certain representatives of management of IOU, for an all-cash consideration of C$0.22 per Share . The Consideration represents a 83.3% premium to the closing price of the Shares on the TSX Venture Exchange on July 13, 2023, the last trading day immediately prior to the announcement of the Arrangement, and a 90.6% premium to the 30-day volume-weighted average price of the Shares on the TSX-V for the period ended on July 13, 2023, the last trading day immediately prior to the announcement of the Arrangement. The Rolling Shareholders, taken together, own, control or direct an aggregate of 48,621,313 Shares (representing approximately 46.1% of the issued and outstanding Shares on a non-diluted basis) and will be re-investing in IOU an aggregate of 42,487,414 Rolling Shares (representing approximately 40.3% of the issued and outstanding Shares on a non-diluted basis).
Evan Price, Chairman of IOU, stated “This transaction provides our shareholders with immediate liquidity at a compelling premium to our current trading price, and serves to unlock the long-term value that we have been building through the elaboration of our solid business model.”
Robert Gloer, President and Chief Executive Officer of IOU, added “We are excited about this vote of confidence from our business partner Neuberger Berman and our long-term shareholders, and about the prospects for taking this partnership to the next level by developing new market opportunities together.”
Peter Sterling, head of Neuberger’s Specialty Finance team, said “We are excited to expand our relationship with Robert and the entire IOU team. We believe our collective strengths and funding stability will enable IOU to unlock significant market opportunities.”
Philippe Marleau, the CEO of Palos, a founder of the Company, expressed “We are proud to continue participating in the success of IOU.”
“We see this as an important opportunity for IOU to provide a meaningful return to its shareholders and to position itself for future growth as a private company,” added Lucas Timberlake, Co-Founder and General Partner of FinTech.
Special Committee and Board Recommendations
The Arrangement Agreement was approved unanimously by the IOU board of directors (with Philippe Marleau and Lucas Timberlake abstaining from voting due to their relationships with Palos and FinTech, respectively, and Robert Gloer abstaining from voting due to his participation in the Arrangement as a Rolling Shareholder), after taking into account, among other things, the unanimous recommendation of a special committee of the Board comprised of Evan Price, Yves Roy, Neil Wolfson and Kathleen Miller, each an independent director of the Company. The Special Committee and the Board determined that the Arrangement is in the best interests of IOU and recommend that shareholders of IOU vote in favour of the Arrangement at the Meeting . In making their respective determinations, the Special Committee and the Board each considered, among other factors, a valuation from Evans & Evans, Inc. and an opinion of Evans & Evans, Inc. to the effect that the cash purchase price of C$0.22 per Share to be received by IOU shareholders under the Arrangement is fair, from a financial point of view, to the IOU shareholders.
Details of the Arrangement
The Arrangement is to be effected by way of a court-approved plan of arrangement pursuant to the Business Corporations Act and is expected to close in the third quarter of 2023, subject to shareholder, court and regulatory approvals and other customary closing conditions. Completion of the Arrangement is not subject to any financing condition.
The Arrangement Agreement includes customary provisions relating to non-solicitation, subject to customary “fiduciary out” provisions that entitle the Board to consider and, subject to certain conditions, accept a superior proposal if the Purchaser does not match the superior proposal. A termination fee of C$885,000 (representing approximately 3.5% of undiluted equity value of the Company) will be payable by IOU to the Purchaser in certain customary circumstances.
A special meeting of IOU shareholders to consider and, if deemed advisable, approve the Arrangement is expected to be held on or about September 15, 2023. In order to be approved by IOU shareholders at the Meeting, the Arrangement will need the approval of at least two‐thirds (66 ⅔%) of the votes cast at the Meeting in person or by proxy by holders of Shares and by a simple majority of the votes cast at the Meeting in person or by proxy by holders of Shares (other than Shares required to be excluded under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions and applicable TSX-V rules). Additional details regarding the Arrangement, the background to the Arrangement, the reasons for the Board’s and Special Committee’s recommendations of the Arrangement, and how IOU shareholders can participate in and vote at the Meeting, together with a copy of the Evans & Evans, Inc. valuation and fairness opinion, will be set out in IOU’s management information circular and other proxy-related materials to be prepared, filed and sent to IOU shareholders in connection with the Meeting.
In connection with the Arrangement, the Rolling Shareholders and certain other shareholders, directors and officers of IOU, who hold in aggregate 50,808,054 Shares (or approximately 48.1% of the issued and outstanding Shares, have entered into voting support agreements with the Purchaser providing for such shareholders to vote all Shares beneficially owned by them in favour of the Arrangement.
Additional Disclosure, including under National Instrument 62-103 -The Early Warning System and Related Take-Over Bid and Insider Reporting Issues
In connection with the Arrangement Agreement, in addition to the voting support agreements described above, the Purchaser and the Rolling Shareholders have entered into a letter agreement and rollover agreements, each dated July 13, 2023, whereby each of NB Specialty Finance Fund LP an entity managed by Neuberger Berman Investment Advisers LLC, Palos IOU Inc. and Fintech Ventures Fund, LLLP , acting jointly, have agreed to contribute 15,665,839 Rolling Shares, 14,321,575 Rolling Shares and 12,500,000 Rolling Shares, respectively, to the Purchaser in exchange for common shares of the Purchaser upon the completion of the Arrangement.
Both immediately before and immediately after the execution of the Arrangement Agreement: (i) NBIA, through NBSF-1, held or exercised control or direction over 15,665,839 Shares, representing approximately 14.8% of the issued and outstanding Shares; (ii) Palos and its affiliates held or exercised control or direction over 19,362,803 Shares, representing approximately 18.3% of the issued and outstanding Shares , and Philippe Marleau, Robert Gloer, Madeline Wade and Carl Brabander, each an affiliate, associate and/or joint actor of Palos IOU, held options to acquire an aggregate of 4,785,000 Shares, and (iii) Fintech Ventures Fund held or exercised control or direction over 13,592,671 Shares, representing approximately 12.9% of the issued and outstanding Shares, and Lucas Timberlake, principal of Fintech Ventures Fund, held options to acquire an aggregate of 185,000 Shares. The Shares held by Palos and Fintech Ventures Fund that are not Rolling Shares will be disposed of pursuant to the Arrangement under the same terms as for the other IOU shareholders.
In connection with the Arrangement Agreement, on July 13, 2023, Palos IOU entered into a share exchange agreement with certain shareholders of the Company whereby Palos IOU acquired from the Palos IOU Rolling Shareholders 14,321,575 Shares at a price of $0.22 per Share in exchange for common shares in the capital of Palos IOU at a deemed price of C$0.22 per Palos IOU Share on a one-for-one basis . Prior to the Acquisition, the Palos Group owned, controlled or directed, directly or indirectly, 10,041,228 Shares, representing approximately 9.5% of the issued and outstanding Shares. After giving effect to the Acquisition, the Palos Group owned, controlled or directed, directly or indirectly, 19,362,803 Shares, representing approximately 18.3% of the issued and outstanding Shares .
In addition, NBSF 1 and IOU are party to an Investor Rights Agreement dated as of December 3, 2020, pursuant to which, among other things, (i) for such time as NBSF 1 owns at least 7.5% of the issued and outstanding Shares, NBSF 1 has the right, subject to customary requirements, to nominate one (1) nominee to be included in the list of nominees proposed as directors by IOU, and (ii) for such time as NBSF 1 owns at least 7.5% of the issued and outstanding Shares or continues to purchase loans under and in accordance with the terms of that certain loan purchase agreement dated October 22, 2020 between NBSF 2018-2 and IOU Central Inc., a subsidiary of the Company, NBSF 1 has the right, subject to customary requirements, to designate one (1) individual to attend meetings of the Board as a non-voting observer.