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Q4 Inc. (TSX: QFOR) today announced that it has entered into a definitive arrangement agreement (the “Arrangement Agreement”) with an entity (the “Purchaser”) controlled by Sumeru Equity Partners (“Sumeru”), a leading technology-focused investment firm that provides growth capital, operating expertise, and scaling partnership to enterprise technology companies in North America and Europe. Pursuant to the Arrangement Agreement, the Purchaser will acquire all of the outstanding common shares of the Company (“Common Shares”) for $6.05 per Common Share, other than those held by certain shareholders rolling their equity interests, by way of an arrangement transaction (the “Arrangement”). Pursuant to the Arrangement Agreement, funds associated with Ten Coves Capital (“Ten Coves”), Darrell Heaps, the Founder, President and Chief Executive Officer of the Company, Neil Murdoch, a director of the Company, and another individual shareholder (collectively, the “Rolling Shareholders”) will exchange an aggregate of 13,715,467 Common Shares for equity interests in the Purchaser having an equity value equivalent to the cash purchase price payable under the Arrangement. Completion of the Arrangement is subject to obtaining shareholder and other customary approvals. The Arrangement represents an aggregate total equity value of approximately $257 million on a fully-diluted, in-the-money basis, inclusive of the Common Shares to be sold by the Rolling Shareholders (the “Rollover Shares”). Upon completion of the Arrangement, Q4 will become a privately held company.
The cash purchase price represents a premium of approximately 36% to the closing price of the Common Shares on the Toronto Stock Exchange (the “TSX”) on November 10, 2023, the last trading day prior to the announcement of the Arrangement, a premium of approximately 43% to the 20 day volume-weighted average trading price of the Common Shares as at that date, and a premium of approximately 46% to the 60-day volume-weighted average trading price of the Common Shares on the TSX.
Julie Silcock, Independent Director of the Q4 Inc. Board said, “We are pleased to have reached this agreement with Sumeru Equity Partners, which delivers significant, immediate value to shareholders. The Board is unanimous in its belief that today’s transaction appropriately reflects the Company’s innovative and strong business while maximizing shareholder value, and I am immensely proud to have worked alongside Q4’s outstanding management team and my fellow Directors to transform Q4 at this time.”
“I am very pleased about this significant milestone in our journey,” said Darrell Heaps, Founder and CEO of Q4 Inc. “Sumeru’s belief in our vision and their exceptional track record in supporting founders and management teams speaks volumes. I am excited to collaborate with them and drive category-defining growth, building the next great capital markets platform company. Q4 has become a central force in how thousands of public companies communicate and engage with the market. The Q4 Platform, fueled by innovative technology, data, and insights, empowers our customers to communicate their investment story to the world. It enables them to identify and target investors strategically, helping them build a strong shareholder base. The Sumeru team possesses a deep understanding of our business and their support will enable us to further build on our exceptional culture, while investing in our strategic initiatives, and expanding our platform to help our customers win in the capital markets.”
“We have long admired Q4’s innovation leadership in the investor relations market—offering unified capital markets access software for IR organizations of all sizes,” said Sumeru’s Mark Haller, Managing Director, and Jack McCabe, Principal. “Q4 is well-positioned for growth given its single, integrated platform across IR websites, virtual events, investor targeting and real-time analytics. We are excited to partner with Darrell Heaps and the Q4 team to accelerate the Company’s growth, expand its product capabilities and broaden customer relationships.”
Transaction Details
The Arrangement resulted from a review process undertaken by the Company following inbound interest from Sumeru and several others since the Company completed its initial public offering in 2021. The process and negotiation of the Arrangement with Sumeru were supervised by a committee of independent directors (the “Special Committee”). The Company entered into the Arrangement Agreement based on the unanimous approval of the Company’s board of directors (the “Board”), with conflicted directors abstaining, and the unanimous recommendation of the Special Committee that the Arrangement is in the best interests of the Company and fair to the holders of the Common Shares (the “Shareholders”) (other than the Rolling Shareholders). The Arrangement Agreement was the result of a comprehensive negotiation process that was conducted at arm’s length with the supervision and involvement of the Special Committee, as advised by independent and highly qualified legal and financial advisors.
The Rolling Shareholders are rolling an aggregate of 13,715,467 Rollover Shares (the “Rollover”) at an implied value per Common Share equal to $6.05 per Common Share. The Rollover Shares represent approximately 34.1% of the issued and outstanding Common Shares.
Transaction Approval
The Board, with Mr. Heaps, Mr. Murdoch and nominees of Ten Coves, being Messrs. Ned May and Dan Kittredge, declaring their conflicts of interest and abstaining from voting, unanimously approved the Arrangement Agreement following receipt of the unanimous recommendation of the Special Committee. The Special Committee was appointed by the Board to, among other matters, review the potential transaction and potential alternatives and consider the Company’s best interests and the implications to Shareholders and other stakeholders. The Board unanimously, with the conflicted directors abstaining from voting, recommends that Shareholders vote in favour of the Arrangement. The Company intends to call and hold a special meeting of Shareholders in the first quarter of 2024 (the “Special Meeting”), where the Arrangement will be considered and voted upon by Shareholders of record. Further information regarding the Special Meeting, including the record and meeting date will be made available in December.
In making its determination to unanimously recommend approval of the Arrangement to the Board, the Special Committee, and in the Board’s determination to approve the Arrangement, the Board, considered, as applicable, the following reasons for the Arrangement:
- Compelling Value and Immediate Liquidity – the all-cash consideration provides Shareholders with certainty of value and immediate value, and is of particular benefit given the limited trading volume and lack of liquidity in the Common Shares. The consideration to be received by Shareholders pursuant to the Arrangement represents a 36% premium to the closing price of the Common Shares on the TSX on November 10, 2023, a 43% premium to the 20-day volume-weighted average trading price of the Common Shares on the TSX as of November 10, 2023 and a 46% premium to the 60-day volume-weighted average trading price of the Common Shares on the TSX as of November 10, 2023.
- Formal Valuation – the formal valuation prepared by Stifel Nicolaus Canada Inc. (“Stifel Canada”), independent valuator to the Special Committee, which concluded that, based upon and subject to the assumptions made, procedures followed, matters considered, limitations and qualifications set forth therein, as of November 12, 2023, the fair market value of the Common Shares was in the range of $5.50 to $6.80 per Common Share on a fully diluted basis, with the cash purchase price payable by the Purchaser falling within this range;
- Fairness Opinions – the receipt of the fairness opinions from Stifel Canada, independent valuator, and Raymond James & Associates Inc. (“Raymond James”), exclusive financial advisor to the Special Committee, each of which concluded that, based upon and subject to the assumptions made, procedures followed, matters considered, limitations and qualifications set out in their respective opinions, that the consideration to be received by the Shareholders (other than the Rolling Shareholders) pursuant to the Arrangement is fair, from a financial point of view, to such Shareholders;
- Go-Shop Provision – the Arrangement Agreement includes a go-shop provision during which the Company, with the assistance of its financial advisors, will be permitted to actively solicit, evaluate and enter into negotiations with respect to potential superior acquisition proposals during an initial 35-day period, with the possibility of a further 5-day extension under certain circumstances;
- Support for the Arrangement – each of the Rolling Shareholders and each of the directors and executive officers of the Company has entered into a voting support agreement, pursuant to which they have agreed to, among other things, vote their Common Shares, which represent approximately 37.2% of all of the Common Shares, in favour of the Arrangement at the Special Meeting.
- Arrangement Agreement Terms – the Arrangement Agreement is the result of a comprehensive process that was conducted at arm’s length with the involvement and supervision of the Special Committee as advised by independent and highly qualified legal and financial advisors and resulted in terms and conditions that are reasonable in the judgment of the Special Committee and the Board, including a customary “fiduciary out” that will enable the Company to enter into a Superior Proposal (as defined in the Arrangement Agreement) in certain circumstances.
- Ability to Respond to Superior Proposal – Under the Arrangement Agreement, the Board, in certain circumstances both during the go-shop period and thereafter until Shareholder approval is obtained, is able to consider, accept and enter into a definitive agreement with respect to a superior proposal, and withdraw, modify or amend its recommendation that Shareholders vote to approve the Arrangement Agreement. The voting and support agreements provide the ability to support a superior proposal.
- Break Fee and Reverse Break Fee – the break fee payable by the Company of $9.00 million, or $4.88 million if terminated during the go-shop period, is reasonable in the circumstances and only payable in customary and limited circumstances, and the Company is entitled to a reverse break fee of $12.25 million in certain circumstances if the Arrangement Agreement is terminated; and
- Minority Vote and Court Approval – the Arrangement must be approved by not only two-thirds of the votes cast by Shareholders, but also by a majority of the minority in accordance with Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”), and by the Ontario Superior Court of Justice (Commercial List), which will consider the fairness and reasonableness of the Arrangement to all Shareholders.
Valuation and Fairness Opinions
In connection with their review and consideration of the Arrangement, the Special Committee engaged Raymond James as its exclusive financial advisor based on their expertise and familiarity with the Company to assist the Committee in, among other things, conducting a limited outreach to potential interested parties. The Committee subsequently retained Stifel Canada as its independent valuator for the Arrangement. Stifel Canada has verbally delivered to the Special Committee the results of its formal valuation prepared in accordance with MI 61-101, which concluded that, based upon and subject to the assumptions made, procedures followed, matters considered, limitations and qualifications set forth therein, as of November 12, 2023, the fair market value of the Common Shares was in the range of $5.50 to $6.80 per Common Share on a fully diluted basis. In addition, each of Raymond James and Stifel Canada each provided an opinion to the Special Committee that, based upon and subject to the assumptions, limitations and qualifications set out in their respective opinions, the consideration to be received by the Shareholders (other than the Rolling Shareholders) pursuant to the Arrangement is fair, from a financial point of view, to such Shareholders. Written copies of the formal valuation and fairness opinions will be included in the materials sent to Shareholders in connection with the Special Meeting.
Additional Transaction Details
Pursuant to the terms of the Arrangement Agreement, the Purchaser will acquire all of the Common Shares for a cash payment of $6.05 per Common Share, other than the Rollover Shares, which will be acquired in exchange for equity interests in the Purchaser at a valuation of $6.05 per Rollover Share.
The Arrangement is to be completed by way of a plan of arrangement under the Business Corporations Act (Ontario) and will constitute a “business combination” for purposes of MI 61-101. The Arrangement is subject to certain approvals at the Special Meeting, including by (i) at least two-thirds of the votes cast by Shareholders, voting as a single class; and (ii) a simple majority of the votes cast by Shareholders (excluding Rollover Shares and any other Common Shares required to be excluded pursuant to MI 61-101). Completion of the Arrangement is subject to other customary conditions, including receipt of Court approvals. The Arrangement is not subject to a financing condition. Assuming the timely receipt of all required approvals, the Arrangement is expected to close in the first quarter of 2024.
The Arrangement Agreement provides for a 35 day go-shop period that allows the Company, with the assistance of its financial advisor, to actively solicit, evaluate and enter into negotiations with third parties that express an interest in acquiring the Company. The go-shop period expires on December 18, 2023 subject to the availability of an extension of up to five days in certain circumstances. There can be no assurance that this process will result in a superior proposal. The Company does not intend to disclose developments with respect to the go-shop process unless and until the Board makes a determination requiring further disclosure.
The Arrangement Agreement includes customary non-solicitation provisions, which are subject to customary “fiduciary out” provisions that entitle the Company to terminate the Arrangement Agreement and accept a Superior Proposal, subject to a customary right to match in favour of the Purchaser.
The foregoing summary is qualified in its entirety by the provisions of the Arrangement Agreement, a copy of which, together with the voting support agreements, will be filed on SEDAR+ at www.sedarplus.ca.
Upon closing of the Arrangement, the Purchaser intends to cause the Common Shares to cease to be listed on the TSX and to cause the Company to submit an application to cease to be a reporting issuer under applicable Canadian securities laws.
Voting Agreements
Each of the Rolling Shareholders and the directors and executive officers of the Company has agreed to vote their Common Shares in favor of the Arrangement pursuant to voting support agreements, subject to customary exceptions. The Common Shares represented by the parties to the voting support agreements represent approximately 37.2% of the votes of all of the Common Shares.
Further information regarding the Arrangement, the Arrangement Agreement and the Special Meeting, including a copy of Stifel’s formal valuation and fairness opinion and Raymond James’ fairness opinion, will be included in the management information circular expected to be mailed to Shareholders of record in connection with the Special Meeting. Copies of the proxy materials in respect of the Special Meeting will be available on SEDAR+ at www.sedarplus.ca.
Early Warning Disclosure by the Rolling Shareholders
As of the date hereof, Ten Coves owns 10,276,836 Common Shares, all of which will be exchanged for an indirect equity interest in the Purchaser. Further to the requirements of National Instrument 62-104 – Take-Over Bids and Issuer Bids and National Instrument 62-103 – The Early Warning System and Related Take-Over Bid and Insider Reporting Issues, Ten Coves will file an early warning report in accordance with applicable securities laws.
A copy of the Ten Coves early warning report will be filed with the applicable securities commissions and will be made available on SEDAR+ at www.sedarplus.ca. Further information and a copy of the early warning reports may be obtained by contacting Tanu Suneja, Chief Financial Officer and Chief Compliance Officer of Ten Coves Capital, 1019 Post Road, Darien, CT, 06820, USA, telephone: 203-434-2034.
Advisors
Raymond James is acting as exclusive financial advisor to the Special Committee. Stifel Canada is acting as independent valuator to the Special Committee. Osler, Hoskin & Harcourt LLP is acting as legal advisor to the Company. Dorsey & Whitney LLP is acting as special U.S. legal advisor to the Company. McCarthy Tétrault LLP is acting as legal advisor to the Special Committee. Blake, Cassels & Graydon LLP is acting as legal advisor to the Rolling Shareholders. National Bank Financial Inc. is acting as exclusive financial advisor to Sumeru. Gibson, Dunn & Crutcher LLP and Stikeman Elliott LLP are acting as legal advisors to Sumeru.
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