Holley, one of the largest and fastest growing platforms in the enthusiast branded performance automotive aftermarket category, and Empower Ltd., a publicly traded special purpose acquisition company, have entered into a definitive merger agreement that will result in Holley becoming a publicly listed company on the NYSE under the new ticker symbol “HLLY.”
Empower’s management team is led by Matt Rubel, CEO, and Graham Clempson, president. Holley is controlled by Sentinel Capital Partners, one of the nation’s leading midmarket private equity firms, which will remain the company’s largest shareholder upon closing. Holley’s President and Chief Executive Officer, Tom Tomlinson, and the current management team will continue to lead the combined company, while Rubel is expected to serve as chairman of the board.
Founded in 1903, Holley is a leading designer, marketer and manufacturer of high-performance automotive aftermarket products, featuring the largest portfolio of iconic brands serving car and truck enthusiasts. Holley’s brands are woven into the fabric of car culture in the United States, covering electronic fuel injection (Holley EFI), electronic tuning (APR, DiabloSport, Edge and Superchips), electronic ignition (MSD and ACCEL), carburetion (Holley), exhaust (Flowmaster and Hooker), safety (Simpson and Stilo) and other product categories. Holley’s omni-channel go-to-market strategy reaches enthusiasts wherever they choose to shop, including high-growth direct-to-consumer and e-commerce channels.
Holley’s net sales are estimated at $583 million for the fiscal year ended on Dec. 31, 2020, representing year-over-year growth of more than 25% and fueling solid estimated pro forma EBITDA margins of over 25% and strong free cash flow.
“Holley was built by automotive enthusiasts for automotive enthusiasts, a passionate and active market that spends on the products that they love. Today’s announcement marks the beginning of the next chapter of Holley’s journey to fuel our customers’ automotive passion,” said Tomlinson. “We’re excited to team up with Empower to deliver on our mission to bring innovation and inspiration to automotive enthusiasts. With our flexible capital structure, we expect to accelerate growth across existing products and channels, as well as continue to pursue attractive opportunities in adjacent categories, both organically through developing innovative new products and making strategic acquisitions.”
“We set out on this road to find a growing and forward-thinking consumer company to help bring public, and we found it in Holley. Tom and his team have built a true powerhouse of innovation, designed to serve their enthusiast customers,” added Rubel. “The performance automotive aftermarket is vibrant and growing, and enthusiasts of performance vehicles are amazingly engaged. Holley has become a leader in its digital and direct-to-consumer efforts, the fastest growing channels for the company. We’re also very excited about Holley’s emerging opportunities in connection with future technologies. Holley has the ability to grow organically and by making strategic acquisitions to broaden and diversify its market. We look forward to working with Tom and the Holley team and Sentinel to help drive Holley’s next phase of growth.”
“We are enthusiastic about Holley’s future prospects and believe the Company will be able to execute its compelling growth plans as a public company,” said Jim Coady, a partner at Sentinel. “We have helped Holley to grow organically and through transformational acquisitions and are immensely proud of what we have achieved in our partnership with Holley’s hugely talented management team. We are excited to continue supporting Tom and his team while leveraging the experience of our new partners at Empower.”
The transaction implies an enterprise valuation for Holley of $1.55 billion, or 9.8x projected 2021 pro forma Adjusted EBITDA of $159 million. Estimated cash proceeds from the transaction are expected to consist of Empower’s $250 million of cash in trust, plus a $50 million Forward Purchase Agreement from MidOcean Fund V. In addition, investors led by Wells Capital Management, Inc. and Wasatch Global Investors have committed to invest $240 million in the form of a PIPE at a price of $10.00 per share of common stock of Empower immediately prior to the closing of the transaction.
The company expects to use the proceeds from the transaction to invest in Holley’s growth initiatives, substantially reduce existing debt, support marketing efforts, and provide additional working capital. It is anticipated that the combined company will have approximately $485 million of net debt on its consolidated balance sheet.
The Empower sponsors and members of its board of directors and management team have agreed to a lock-up period of up to one year following the closing, subject to termination as early as approximately 180 days after closing if certain trading price targets are met. Upon the closing of the transaction, and assuming none of Empower’s public stockholders elect to redeem their shares, existing Holley shareholders are expected to own 49.9% of the combined company, the Empower sponsors are expected to own 3.5% of the combined company, PIPE participants are expected to own 20.7% of the combined company, MidOcean Fund V is expected to own 4.3% of the combined company, and public stockholders are expected to own 21.6% of the combined company.
The boards of directors of each of Empower and Holley have unanimously approved the transaction. The transaction will require the approval of the stockholders of Empower and of Holley, and is subject to other customary closing conditions, including the receipt of certain regulatory approvals. The transaction is expected to close in the second quarter of 2021.
William Blair & Company, Jefferies LLC, and Lazard Middle Market are acting as financial advisors and Willkie Farr & Gallagher LLP is acting as legal advisor to Holley. J.P. Morgan Securities LLC and Jefferies LLC are acting as co-lead placement agents on the PIPE and J.P. Morgan Securities LLC is acting as capital markets advisor to Empower, and Gibson, Dunn & Crutcher LLP is acting as legal advisor to Empower. Kirkland & Ellis is acting as legal counsel to J.P. Morgan Securities LLC and Jefferies LLC.