Gores Holdings III — SPAC Merger (November 2019)
44 slides from Gores Holdings III's SPAC merger presentation, Nov 1, 2019
Slide 1: PAE Investor Presentation October 2019
PAE Investor Presentation October 2019
Slide 2: Disclaimer
Disclaimer This presentation is for informational purposes only and does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation to purchase any equity, debt or other financial instruments of PAE Holding Corporation (“PAE” or the “Company”) or Gores Holdings III, Inc.
Slide 3: Presenters and Senior Leadership
Presenters and Senior Leadership PAE Gores Holdings III John Heller Charles Peiffer Alec Gores Mark Stone CEO CFO Sponsor / Director Sponsor / Director Joined PAE in December Joined PAE in April 2014 Chairman of Gores CEO of Gores Holdings III 2013 Holdings III Previously SVP and CFO Previously CEO
Slide 4: Overview of Gores Holdings III and Platinum Equity
Overview of Gores Holdings III and Platinum Equity Gores Holdings III Platinum Equity Success to date on first two SPACs: Gores Holdings and its Founded in 1995, headquartered in Beverly Hills with principal acquisition of Hostess Brands (“Hostess”) as well as Gores offices in New York, Greenwich, B
Slide 5: PAE is a Highly Attractive Asset Built for Success
PAE is a Highly Attractive Asset Built for Success Key highlights Leading provider of mission-critical services to US Government and Armed 15% 97% Forces backed by a highly respected 2013A – 2018A Revenue CAGR1 Industry-leading FCF conversion2 brand with a 60+ year history of success Diversified cus
Slide 6: Agenda
Agenda 1 Business Overview 2 Growth Strategy 3 Financial Detail 4 Transaction Summary 5
Slide 7: 1. Business Overview
1. Business Overview
Slide 8: PAE Provides a Broad Range of Mission-Critical Services
PAE Provides a Broad Range of Mission-Critical Services to US Government, Armed Forces and International Partners $2,725mm 2019E revenue $161mm1 2019E Adj. EBITDA Global Mission Services (“GMS”) National Security Solutions (“NSS”) Logistics & Stability Infrastructure Force Counter-Threat Information
Slide 9: Global Mission Services: Mission-Critical Global Logistics, Infrastructure Management and Force Readiness
Global Mission Services: Provides Mission-Critical Global Logistics, Infrastructure Management and Force Readiness Solutions Key financials – 2019E Service area – segment details Logistics & Stability Operations Infrastructure Management Force Readiness Revenue $2,017mm 29% of GMS Revenue1 43% of GM
Slide 10: National Security Solutions: Counter-Threat Missions and Information Optimization
National Security Solutions: Enables Counter-Threat Missions and Information Optimization Key financials – 2019E Service area – segment details Counter-Threat Solutions Information Optimization Revenue $708mm 38% of NSS Revenue1 62% of NSS Revenue1 Training Support: Provides training services suppor
Slide 11: Deep Global Reach Across ~60 Countries
PAE Has Established Deep Global Reach With Significant Investment in Infrastructure and Presence Across ~60 Countries Europe Middle East Workforce 1,376 Contracts 21 Workforce 2,343 North America % Revenue 1% Contracts 52 Operations Center Workforce 14,016 % Revenue 25% Tokyo, Japan Contracts 292 %
Slide 12: Key Investment Highlights
Key Investment Highlights Positioned to Deliver Growth and Drive Value Creation 1 2 3 4 5 6 7 Highly Premier Well- Industry- Proven Attractive World-Class Recurring Brand Established Leading FCF Growth Sector Management Business Recognition Platform Conversion Strategy Dynamics Team Model Trusted pr
Slide 13: Demonstrated Ability to Leverage Brand and Expertise to Win Contracts
1 Demonstrated Ability to Leverage Brand and Expertise to Win Contracts Recent performance Why we win Key focus areas Lean, highly competitive cost structure Smart services Close relationships with customers provide competitive advantage Tech enterprise integration $15.4bn High quality, capture and
Slide 14: Well-Established Relationships With Key Government Agencies
2 Well-Established Relationships With Key Government Agencies Built Over Decades, Unique Domain Knowledge, Global Scale and Access to World-Class Qualified and Vetted Personnel Trusted brand and reputation for delivering critical services to support vital US priorities around the world forged over s
Slide 15: Deeply Entrenched Customer Relationships and Long-Tenured Contracts
3 PAE’s Deeply Entrenched Customer Relationships and Diverse Portfolio of Long-Tenured Contracts Create a Sticky Base Business Long-term customer base Geographic diversity2 Average contract length1: 7.3 years Africa South America 6% 2% Europe Other 1% 7% DHS Asia Pacific 8% 15+ Years US 53% Middle E
Slide 16: Robust Backlog Supports Long-Term Visibility
3 Robust Backlog Supports Long-Term Visibility into Recurring and Growing Revenue Base High backlog / sales coverage ($bn)1 Historical backlog ($bn) 2.2x 28.3% increase $6.1 $6.1 $6.0 $5.5 $5.6 $4.8 $0.5 $1.4 $1.3 $1.5 $0.8 $2.7 $5.0 $4.6 $4.8 $3.9 $4.1 Backlog PF LTM Revenue 2015A 2016A 2017A 2018A
Slide 17: Compelling Free Cash Flow Generation With Minimal Capital Requirements
4 Compelling Free Cash Flow Generation With Minimal Capital Requirements Supports De-Leveraging and Incremental Acquisition Capacity Free cash flow ($mm) Maintains high free cash flow % FCF as % of Adj. EBITDA Adj. EBITDA CapEx conversion with an average yield of 97%+ $5 $5 $6 $5 1 Predictable cash
Slide 18: Proven Strategy for Expanding Customers and Capabilities
5 Proven Strategy for Expanding Customers and Capabilities With Opportunity to Further Penetrate Adjacent Markets 2013A 2018A +2020E members in global ~8,100 ~20,350 $50bn+ Total Addressable Market workforce  Consistent organic growth in PAE’s core markets, supported by the government’s contra
Slide 19: Strong Cyclical Resiliency and Stable Growth Tailwinds
6 Strong Cyclical Resiliency and Stable Growth Tailwinds Support Attractive Sector Dynamics… US government base budget appropriations by selected segments Consistent federal services budget Department of Homeland Security DHS budget growth bolstered by growth in recent years accompanied by +6.2% pos
Slide 20: Driving Confidence in the Overall Spend Outlook
6 …Driving Confidence in the Overall Spend Outlook Across PAE’s Service Offering End Markets Spend outlook by service offering end markets ($bn) Key customers: Army, DoS, Other DoD, UN, USAF, Navy 22% of Key macro trends & drivers: $5.4 $6.2 PAE Ongoing requirement for embassy services EBITDA1 Evolv
Slide 21: World-Class Management Team
7 PAE’s World-Class Management Team With Track Record of Outstanding Execution and Delivery Management team has successfully scaled business: Revenue growth ($bn)1 Executed and integrated six acquisitions since 2011 $2.6 Public-company-ready management team $1.3 Enduring customer relationships and r
Slide 22: 2. Growth Strategy
2. Growth Strategy
Slide 23: Multiple Drivers of Growth for PAE
Multiple Drivers of Growth for PAE 1 2 3 4 Strong Industry On-Contract Expanded M&A Tailwinds Growth Contract Opportunities Increased TAM, Spend Outlook by PAE’s Example: Adj. EBITDA for PAE Bid Submits Growth and Margin Expansion Service Offering End Markets Project B Contracts through M&A TAM GFY2
Slide 24: Federal Services Market Shows Steady Growth and Positive Outlook
The Federal Services Market Has Shown Steady Growth and Maintains a Positive 1 Outlook, on the Backbone of Stable Overall Defense Spending Contracted Services Spending by Federal Department ($bn) Commentary  Rise of enduring threats has driven sustained growth in defense spending $600 $560 $513 C
Slide 25: Track Record of Growth and Margin Enhancement on Current Contracts
2 Exceptional Track Record of Year-Over-Year Growth and Margin Enhancement on Current Contracts Contract Adj. EBITDA ($mm) Commentary and key actions taken Project A Negotiated highly profitable scope increases including: Increased waste management responsibility Renovations at existing facilities S
Slide 26: Positioned to Capitalize on Attractive Growth Prospects
3 PAE is Positioned to Continue Capitalizing on Attractive Growth Prospects Total bids submitted will continue PAE has a robust pipeline of opportunities which to drive future growth does not include vast IDIQ value potential GMS NSS +936% $15.4bn $32.8bn Qualified pipeline $6.6bn $12.6bn Proposal p
Slide 27: Developed IDIQ Growth Strategy Offers Upside Potential
3 PAE’s Developed IDIQ Growth Strategy Offers Significant Upside Potential IDIQ contract summary Notable PAE IDIQ vehicles Market segment Ceiling value ($mm) Period of Performance (PoP) CFT Force Readiness $11,400 2016 – 2023 AFCAP Lifecycle Logistics Operations $5,000 2015 – 2020 ETSC Training Supp
Slide 28: Increasing Total Addressable Market Through M&A
4 Proven Ability to Increase Total Addressable Market, Drive Growth and Expand Margin Through M&A Acquisitions have added higher value, margin enhancing contracts in new markets for PAE TAM GFY 20131 TAM GFY 20181 TAM GFY 20231 GMS NSS Information Optimization Logistics & Stability Information Logis
Slide 29: Robust Pipeline of Actionable M&A Opportunities
4 PAE Possesses a Robust Pipeline of Actionable M&A Opportunities to Materially Scale, Expand Services and Increase Margin Profile Key pillars of M&A strategy Select M&A targets Strategic rationale New Build scale and drive meaningful synergies through the Margin Profile Market acquisitions of simil
Slide 30: M&A Pipeline Provides Runway to Broaden Service Offerings
4 PAE’s M&A Pipeline Provides Substantial Runway to Broaden Service Offerings to Deliver Higher Margin Profile and Multiple Expansion 12.0% High-end IT services & custom solutions 10.0% 10.0% 9.9% Business process outsourcing 8.4% 8.0% 8.4% 8.0% 7.9% 7.9% Technical services Margin 6.0% Facilities ma
Slide 31: 3. Financial Detail
3. Financial Detail
Slide 32: Strong and Consistent Financial Profile
Strong and Consistent Financial Profile With Predictable EBITDA and Free Cash Flow Summary financials ($mm) Commentary GMS NSS Revenue growth driven by strong industry tailwinds, continued on-contract growth and $2,839 $2,931 $2,587 $2,725 expanded contract opportunities mm) $2,470 ( $ $821 $1,004 $
Slide 33: Strong H1 2019 Momentum
Strong H1 2019 Momentum Leads to Confidence in Achieving / Surpassing 2019 Plan Revenue ($mm) $2,728 $2,587 $450mm+ ~$1bn Contract value of recent Contract value of new recompete wins business wins Select Wins $1,369 $1,228 Classified Contract – $309mm TCV Diplomatic Platform Support Services – $6,0
Slide 34: Executing a Margin Expansion Strategy
PAE is Executing a Margin Expansion Strategy With a Proven Track Record Illustrative PAE Adj. EBITDA margin bridge A Track record of year-over-year EBITDA growth on current contracts driven by strong program 8.0%+ management with margin improvements and operating efficiency enhancements implemented
Slide 35: 4. Transaction Summary
4. Transaction Summary
Slide 36: Transaction Terms
Transaction Terms Pro forma enterprise value of $1,552 million (8.9x 2020E Adj. EBITDA) Pro forma 2019E net debt / 2019E Adj. EBITDA of 3.4x1 Existing PAE shareholders to be paid $435 million cash consideration3 and issued 27.1 million roll-over shares in PAE at close The transaction is expected to
Slide 37: Attractive Entry Point for New Investors
Attractive Entry Point for New Investors Total Enterprise Value / 2020E EBITDA Primary Peers Median: 11.4x Median: 11.9x Strong cash flow yield with clear path to increase over time M&A – margin expansion + broader addressable market 14.2x 14.3x 11.9x 11.9x 12.4x 11.4x 10.9x 8.9x Source: Company fil
Slide 38: EBITDA Margin Drives Valuation in Government Services
EBITDA Margin Drives Valuation in Government Services, Providing Significant Upside for PAE  Strong correlation between current year EBITDA margins and FY+1 EBITDA trading multiples  Additional upside potential in stock given its near-term opportunities to further increase revenue growth and E
Slide 39: PAE Leads Peers in Free Cash Flow Efficiency
PAE Leads Peers in Free Cash Flow Efficiency CY’20E FCF1 $142 $691 $300 $1,049 $547 $1,066 $543 $169 Primary Peers Median: 90.3% Median: 90.3% 97.0% 92.5% 93.6% 89.8% 90.3% 91.0% 86.8% 71.6% CY’20E FCF / EBITDA Source: Company filings, Management materials, FactSet and Thomson Eikon as of 10/28/19 N
Slide 40: Valuation Benchmarking
Valuation Benchmarking Total Enterprise Value / 2019E EBITDA Total Enterprise Value / 2020E EBITDA Primary Peers Primary Peers Median: 12.4x Median: 11.4x Median: 13.1x 15.4x 15.5x Median: 11.9x 14.2x 14.3x 13.0x 13.1x 13.4x 12.4x 11.9x 11.9x 12.4x 11.5x 11.4x 10.9x 9.6x 8.9x Total Enterprise Value
Slide 41: Appendix: Supplemental Materials
I. Appendix: Supplemental Materials
Slide 42: Industry Leader With a Strong Global Brand and Long Track Record
Industry Leader With a Strong Global Brand and a Long Track Record of Success Recent case studies underscore PAE’s successful strategy Enterprise Training Support Contract (ETSC) Kennedy Space Center Contract overview: Provide and manage training and training Contract overview: Provide mission-focus
Slide 43: Pro Forma Consolidated Adjusted EBITDA Reconciliation
Pro Forma Consolidated Adjusted EBITDA Reconciliation Fiscal Year Ended Six Months Ended [1] Pre-acquisition results – Results of FCi, Macfadden, and TDSL, including LTM Q2 Q2 Q2 pre-acquisition due-diligence adjustments 2017A 2018A 2019A 2018A 2019A [2] Planned divestitures – Includes PAE ISR costs
Slide 44: Glossary
Glossary Acronym Definition Acronym Definition ACOTA African Contingency Operations Training and Assistance Program Int’l International Organizations AFCAP Air Force Contract Augmentation Program JV Joint Venture AFRICAP Africa Peacekeeping Program LOGCAP Logistics Civil Augmentation Program ASC App