Gores Holdings III — SPAC Merger (January 2020)
44 slides from Gores Holdings III's SPAC merger presentation, Jan 7, 2020
Slide 1: Investor Presentation January 2020
Investor Presentation January 2020
Slide 2: Disclaimer
1 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 ï® Joined PAE in December ï® Joined PAE in April 2014ï® Chairman of Gores ï® CEO of Gores Holdings III 2013 Holdings III ï® Previously SVP and CFO ï
Slide 4: Overview of Gores Holdings III and Platinum Equity
Overview of Gores Holdings III and Platinum Equity Gores Holdings III Platinum Equity ï® Success to date on first two SPACs: Gores Holdings and its ï® Founded in 1995, headquartered in Beverly Hills with principal acquisition of Hostess Brands (“Hostess”) as well as Gores offices in New York, Greenw
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 to US Government
PAE Provides a Broad Range of Mission-Critical Services to US Government, Armed Forces and International Partners $2,797mm 2020E revenue $174mm 2020E 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 – 2020E Service area – segment details Logistics & Stability Operations Infrastructure Management Force Readiness Revenue $2,095mm 26% of GMS Revenue1 42% 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 – 2020E Service area – segment details Counter-Threat Solutions Information Optimization Revenue $702mm 49% of NSS Revenue1 51% of NSS Revenue1 ï® Training Support: Provides training services sup
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 52ï,§ Operations Center Workforce 14,016 % Revenue 25% Tokyo, Japan Contracts 292
Slide 12: Key Investment Highlights
Key Investment Highlights ositioned 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 pro
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 ï® Lean, highly competitive cost structure Smart servicesï® Close relationships with customers provide competitive advantage Tech enterprise integration $15.4bnï® High quality, captu
Slide 14: Well-Established Relationships With Key Government Agencies
2 Well-Established Relationships With Key Government Agencies Built Over Decades, Unique Domain Knowledge, Global Scale and Access to World-Class Qualified and Vetted Personnel ï® Trusted brand and reputation for delivering critical services to support vital US priorities around the world forged ove
Slide 15: Entrenched Customer Relationships and Long-Tenured Contracts
3 PAE’s Deeply Entrenched Customer Relationships and Diverse Portfolio of Long-Tenured Contracts Create a Sticky Base Business Long-term customer base Geographic diversity2 Average contract length1: 7.3 years Africa South America 6% 2% Europe Other 1% 7% DHS Asia Pacific 8% 15+ Years US 53% Middle E
Slide 16: Robust Backlog Supports Long-Term Visibility
3 Robust Backlog Supports Long-Term Visibility into Recurring and Growing Revenue Base High backlog / sales coverage ($bn)1 Historical backlog ($bn) 2.5x 42.4% increase $6.8 $6.8 $6.0 $5.5 $5.6 $1.8 $4.8 $0.5 $1.4 $1.5 $0.8 $2.7 $5.0 $4.9 $4.1 $4.6 $3.9 Backlog PF LTM Revenue 2015A 2016A 2017A 2018A
Slide 17: Compelling Free Cash Flow Generation With Minimal Capital Requirements
4 Compelling Free Cash Flow Generation With Minimal Capital Requirements Supports De-Leveraging and Incremental Acquisition Capacity Free cash flow ($mm) ï® 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 ï® Predictable
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 $50bn+ Total Addressable Market workforce  Consistent organic growth in PAE’s core markets, supported by the government’s contra
Slide 19: Strong Cyclical Resiliency and Stable Growth Tailwinds
6 Strong Cyclical Resiliency and Stable Growth Tailwinds Support Attractive Sector Dynamics… US government base budget appropriations by selected segments ï® Consistent federal services budget Department of Homeland Security ï® DHS budget growth bolstered by growth in recent years accompanied by +6.
Slide 20: Spend Outlook Across PAE's Service Offering End Markets
6 …Driving Confidence in the Overall Spend Outlook Across PAE’s Service Offering End Markets Spend outlook by service offering end markets ($bn) ï® Key customers: Army, DoS, Other DoD, UN, USAF, Navy 19% of ï® Key macro trends & drivers: $5.4 $6.2 PAE ï® Ongoing requirement for embassy services EBIT
Slide 21: PAE's World-Class Management Team
7 PAE’s World-Class Management Team With Track Record of Outstanding Execution and Delivery Management team has successfully scaled business: Revenue growth ($bn)1 ï® Executed and integrated six acquisitions since 2011 $2.6ï® Public-company-ready management team $1.3 ï® Enduring customer relationshi
Slide 22: 2. Growth Strategy
2. Growth Strategy
Slide 23: Multiple Drivers of Growth for PAE
Multiple Drivers of Growth for PAE 1 2 3 4 Strong Industry On-Contract Expanded M&A Tailwinds Growth Contract Opportunities Increased TAM, Spend Outlook by PAE’s Example: Adj. EBITDA for PAE Bid Submits Growth and Margin Expansion Service Offering End Markets Project B Contracts through M&A TAM GFY2
Slide 24: The Federal Services Market Has Shown Steady Growth
The Federal Services Market Has Shown Steady Growth and Maintains a Positive 1 Outlook, on the Backbone of Stable Overall Defense Spending Contracted Services Spending by Federal Department ($bn) Commentary  Rise of enduring threats has driven sustained growth in defense spending $600 $560 $513 ï
Slide 25: Track Record of Growth and Margin Enhancement on Current Contracts
2 Exceptional Track Record of Year-Over-Year Growth and Margin Enhancement on Current Contracts Contract Adj. EBITDA ($mm) Commentary and key actions taken Project Aï® Negotiated highly profitable scope increases including: ï® Increased waste management responsibility ï® Renovations at existing faci
Slide 26: PAE is Positioned to Continue Capitalizing on 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 $5,000 2015 – 2020 ETSC Training Supp
Slide 28: Increasing Total Addressable Market Through M&A
4 Proven Ability to Increase Total Addressable Market, Drive Growth and Expand Margin Through M&A Acquisitions have added higher value, margin enhancing contracts in new markets for PAE TAM GFY 20131 TAM GFY 20181 TAM GFY 20231 GMS NSS Information Optimization Logistics & Stability Information Logis
Slide 29: Robust Pipeline of Actionable M&A Opportunities
4 PAE Possesses a Robust Pipeline of Actionable M&A Opportunities to Materially Scale, Expand Services and Increase Margin Profile Key pillars of M&A strategy Select M&A targets Strategic rationale New ï® Build scale and drive meaningful synergies through the Margin Profile Market acquisitions of si
Slide 30: 3. Financial Detail
3. Financial Detail
Slide 31: Strong and Consistent Financial Profile
Strong and Consistent Financial Profile With Predictable EBITDA and Free Cash Flow Summary financials ($mm) Commentary GMS NSS ï® Revenue growth driven by strong industry $2,912 tailwinds, continued on-contract growth and $2,722 $2,797 expanded contract opportunities mm) $2,470 $2,605 ( $ $702 $939
Slide 32: Strong September 2019 Year-to-Date Momentum
Strong September 2019 Year-to-Date Momentum Leads to Confidence in Achieving / Surpassing 2019 Plan Revenue ($mm) $2,737 $2,605 ~$450mm ~$1.7bn $2,067 Contract value of recent Contract value of new $1,935 recompete wins business wins Select Wins ï® Classified Contract – $307mm TCV ï® Diplomatic Plat
Slide 33: 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 34: 4. Transaction Summary
4. Transaction Summary
Slide 35: Transaction Terms
Transaction Terms ï® Pro forma enterprise value of $1,552 million (8.9x 2020E Adj. EBITDA)ï® Pro forma 2019E net debt / 2019E Adj. EBITDA of 3.4x1 ï® Existing PAE shareholders to be paid $435 million cash consideration3 and issued 27.1 million roll-over shares in PAE at closeï® The transaction is ex
Slide 36: Attractive Entry Point for New Investors
Attractive Entry Point for New Investors Total Enterprise Value / 2020E EBITDA Primary Peers Median: 12.1x Median: 13.6x ï® Strong cash flow yield with clear path to increase over time 15.9x ï® M&A – margin expansion + broader addressable market 14.9x 14.4x 13.6x 12.8x 12.1x 11.6x 8.9x Source: Compa
Slide 37: Significant Upside Potential for PAE
Significant Upside Potential for PAE as a Combination of Revenue Growth and EBITDA Margin Drives Valuation in Government Services  Additional upside potential in stock given its near-term opportunities to further increase revenue growth and EBITDA margins both organically and inorganically On
Slide 38: PAE Leads Peers in Free Cash Flow Efficiency
PAE Leads Peers in Free Cash Flow Efficiency CY’20E FCF1 $141 $699 $298 $545 $1,050 $1,174 $542 $169 Primary Peers Median: 89.7% Median: 89.6% 97.0% 94.0% 86.9% 89.6% 89.7% 90.9% 86.8% CY’20E FCF / 69.1% EBITDA Source: Company filings, Management materials, FactSet and Thomson Eikon as of 01/06/20 1
Slide 39: Valuation Benchmarking
Valuation Benchmarking Total Enterprise Value / 2019E EBITDA Total Enterprise Value / 2020E EBITDA Primary Peers Primary Peers Median: 13.2x Median: 12.1x 17.0x 16.3x 15.9x Median: 15.0x 15.2x Median: 13.6x 15.0x 14.9x 14.4x 13.2x 13.3x 13.6x 12.8x 12.0x 11.6x 12.1x 9.6x 8.9x Total Enterprise Value
Slide 40: Appendix: Supplemental Materials
I. Appendix: Supplemental Materials
Slide 41: Valuation Levels Continue to Rise Across Public Peer Universe
Valuation Levels Continue to Rise Across PAE’s Public Peer Universe Share price evolution Total Enterprise Value / 2020E EBITDA evolution Deal Agreement1 Deal Annoucement2 Deal Agreement1 Deal Annoucement2 s $79.67 13..9% $94.41 (3 (3 .9%) .9%) s 10.0x 1..6x x 11.9x (0 (0 .3x) .3x) r Pee Pee r y $37
Slide 42: Industry Leader With a Strong Global Brand
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 ï® Contract overview: Provide and manage training and training ï® Contract overview: Provide mission
Slide 43: Pro Forma Consolidated Adjusted EBITDA Reconciliation
Pro Forma Consolidated Adjusted EBITDA Reconciliation Fiscal Year Ended Nine Months Ended [1] Pre-acquisition results – Results of FCi, Macfadden, and TDSL, including 2017A 2018A LTM Q3 Q3 Q3 pre-acquisition due-diligence adjustments 2019A 2018A 2019A [2] Planned divestitures – Includes PAE ISR cost
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