Union Street Acquisition Corp. (stock symbol: [t]USQ[/t]), which raised $100 million when it went public in February 2007, has announced that is has signed agreements to acquire RAZOR Business Strategy Consultants, self-descriibed as a "a rapidly growing direct and interactive retail marketing agency" and Archway Marketing Services, self-described as a "a leading provider of Marketing Operations Management solutions."
Union Street Acquisition Corp. to Acquire RAZOR Business Strategy Consultants, LLC and Archway Marketing Services, Inc.
Wednesday February 27, 7:06 am ET
Highlights
-- Combination of complementary businesses will establish Marketing Operations Management platform with a unique fully-integrated service offering
-- 2007 combined unaudited revenue and EBITDA was $106.1 million and $14.9 million, respectively
-- Two-year historical revenue and EBITDA CAGR of 18.4% and 109.5% from 2005 to 2007, respectively
-- Diversified client roster of leading national marketers with no client accounting for greater than 10% of revenue
-- Highly visible, recurring revenue with greater than 90% of estimated 2008 revenue under contract
-- Total consideration of $110.3 million to include $97.3 million of cash and $13.0 million of stock
-- Attractive valuation: lower Enterprise Value to EBITDA multiple and P/E/G ratio than publicly-traded comparables, based on Union Street's liquidation value of approximately $8.00 per share
ALEXANDRIA, Va.--(BUSINESS WIRE)--Union Street Acquisition Corp. (AMEX: USQ - News, USQ.U - News, USQ.WT - News) (“Union Street”) announced today that it has entered into definitive agreements to acquire privately held RAZOR Business Strategy Consultants, LLC (“RAZOR”), a rapidly growing direct and interactive marketing agency, and Archway Marketing Services, Inc. (“Archway”), a leading provider of marketing operations management services, which is a subsidiary of AHL Services, Inc. (“AHL”). Both RAZOR and Archway have emerged as industry-leading outsourced marketing service providers and each has built a solid business around its core competencies.
RAZOR Business Strategy Consultants, LLC
Headquartered in Dallas, TX, RAZOR is a rapidly growing direct and interactive retail marketing agency that uncovers smarter ways for clients to build their businesses. Founded in 2003, RAZOR has approximately 165 employees and serves leading national marketers that include Domino's Pizza, Rent-A-Center, GameStop, Baskin-Robbins, Wendy's, Wireless Toyz and Habitat for Humanity. RAZOR is focused on heavy data analytics and program design services, including customer and transaction analytics, media mix modeling, segmentation, and ROI analysis, and transaction-level communications, such as database marketing/CRM, direct mail, promotion, web development and digital communications.
This strategy has translated into significant top line and bottom line growth, as gross revenue and EBITDA grew to $17.1 million and $4.5 million in 2007, respectively, both representing a two-year compound annual growth rate of 37%. RAZOR has been recognized by Ad Age as the #1 growth Marketing Services Agency in 2006 and was among its Top 40 Marketing Services Agencies in 2007. For more information, visit www.razordriven.com.
Archway Marketing Services, Inc.
Based in Minneapolis, MN, Archway Marketing Services Inc., a subsidiary of AHL Services, is a leading provider of Marketing Operations Management solutions. Founded in 1953, Archway has grown to approximately 580 employees across eight North American facilities and six on-site locations. The company is primarily focused on the operational components of outsourced marketing services, including program budgeting, logistics management, vendor management, sales portals, inventory management, fulfillment and distribution, customer care and analytics. The company offers a comprehensive suite of marketing solutions to meet the needs of clients across a broad range of industries, including food & beverage, retail, automotive, life sciences, financial services, consumer products, and technology.
Over the past 50 years, the company has built a strong portfolio of clients and serves leading national marketers that include Target, General Motors, AstraZeneca, General Mills, JP Morgan Chase and Microsoft. Archway has experienced rapid growth in recent years, growing revenue by a two-year compound annual growth rate of 16% to $89.0 million in 2007 and increasing EBITDA from $1.0 million to $10.4 million between 2005 and 2007. For more information, visit www.archway.com .
Overview of the Combined Businesses
RAZOR and Archway are highly complementary businesses. The combination of their operations is anticipated to create a uniquely positioned provider of end-to-end solutions from marketing strategy to outsourced execution.
Fully-integrated provider of end-to-end marketing solutions. Archway and RAZOR have built core competencies in different segments of the marketing services supply chain. Together, Archway and RAZOR will be uniquely positioned to offer clients the opportunity to outsource the full scope of responsibilities for a marketing program, including:
-- Marketing strategy development;
-- Program budgeting;
-- Creative design;
-- Marketing communications design;
-- Marketing materials procurement;
-- Marketing materials distribution;
-- Measurement and reporting of campaign results; and
-- Evaluation and analysis of marketing effectiveness.
Diversified client roster across a broad range of industries. Archway and RAZOR serve a list of leading North American marketers across a wide range of industries. No client represents greater than 10% of combined revenue and the top five clients account for less than 45% of revenue.
Visible, recurring revenue. Revenue is highly visible, as clients generally plan and budget their expenditures on annual cycles. Client contracts for RAZOR and Archway typically range from two to four years and more than 90% of estimated 2008 revenue is currently under contract.
Platform for consolidation in a large, highly-fragmented market. The combination of RAZOR and Archway creates a solid platform in a $175 billion industry* that is highly fragmented, creating significant opportunities to expand the geographic footprint, provide entry into new industry verticals or increase penetration with strategically important clients.
Mr. A. Clayton Perfall, Chief Executive Officer and Chairman of Union Street and Chief Executive Officer of AHL Services, stated, “We believe that the combination of RAZOR and Archway will create a uniquely positioned provider of integrated marketing operations management services. This new platform is expected to create significant value through increased scale, a greater breadth of complementary services, an expanded roster of clients, and a deeper pool of talent. Both RAZOR and Archway have strong track records of growth and we expect solid industry fundamentals to continue to support demand for outsourced marketing solutions in the years ahead. In addition, this transaction will provide capital in order to enhance organic growth and enable the company to leverage the newly established platform to pursue attractive acquisition opportunities in a highly fragmented marketplace.”
Mr. Mike Moroz, President of Archway, added, “We are very excited to be partnering with Union Street and RAZOR, as we expect it to add significant value to our existing offering. The combination will allow us to provide a greater breadth of marketing operations management services to our clients and will further differentiate Archway in the marketplace.”
Mr. Tom Cole, Co-President of RAZOR, continued, "We are very pleased to have the opportunity to partner with Archway in order to offer a true end-to-end marketing solution. We are extremely excited about this transaction, as it will allow us to offer a more complete marketing solution, serve a broader portfolio of clients, and enable us to continue our strong growth in the future. We expect many cross-selling opportunities between these complementary businesses and are excited to remain a part of the new team going forward. We believe this is a positive step for the future of RAZOR and will leave us well positioned for the opportunities that lie ahead.”
Combined RAZOR/Archway Historical Financial Highlights and 2008 Outlook
Gross revenue for the combined RAZOR/Archway businesses grew from $75.7 million in 2005 to $106.1 million in 2007, representing a two-year compound annual growth rate of 18.4%. Combined earnings before interest, taxes, depreciation and amortization (“EBITDA”) increased from $3.4 million in 2005 to $14.9 million in 2007, reflecting a compound annual growth rate of 109.5%. EBITDA as a percent of gross revenues expanded from 4.5% in 2005 to 14.0% in 2007.
Based on current customer contracts and business trends, the combined companies’ gross revenue for the full year 2008 is expected to be approximately $116.5 to $122.8 million, representing a 9.8% to 15.7% increase from 2007. In addition, the combined companies’ EBITDA is expected to be in the range of $17.8 to $18.8 million, including approximately $750,000 of estimated incremental public company expenses, representing a 19.5% to 26.2% increase from 2007. 2008 revenue and EBITDA guidance excludes any benefits associated with cross-selling or elimination of redundant costs and does not include any potential acquisitions.
Summary of the Transaction
Under the terms of the acquisition agreements, Union Street will acquire RAZOR Business Strategy Consultants, LLC & Archway Marketing Services, for an aggregate purchase price of $110.3 million, of which $13.0 million will be paid in Union Street common stock. This implies a transaction multiple of 7.4 times 2007 combined EBITDA and 5.8 times projected 2008 combined EBITDA based on the midpoint of the guidance range of $17.8 to $18.8 million.
Archway Marketing Services, Inc.
Union Street will acquire Archway from AHL Services for a purchase price of $80.3 million, or 7.7 times Archway’s 2007 EBITDA and approximately 5.9 times projected 2008 EBITDA based on the midpoint of the guidance for Archway of $13.1 to $13.9 million. Mr. A. Clayton Perfall, who is the Chief Executive Officer and 5% shareholder of AHL and the Chief Executive Officer and Chairman of Union Street, will invest 100% of his after-tax proceeds into Union Street Common stock at a value of $8.00 per share. These after-tax proceeds are estimated to be approximately $3.0 million, bringing the total investment of Union Street management to $6.0 million. Shares purchased by Mr. Perfall will be restricted from sale, hedge or pledge for one year.
RAZOR Business Strategy Consultants, LLC.
Union Street will acquire RAZOR for a purchase price of $30.0 million, of which $10.0 million will be paid in Union Street common stock at a value of $7.60 per share. This implies a purchase price multiple of 6.7x RAZOR’s 2007 EBITDA and approximately 5.5 times projected 2008 EBITDA based on the midpoint of the guidance for RAZOR of $5.4 to $5.6 million. Common shares issued to RAZOR in connection with the transaction will be restricted from sale, hedge or pledge for two years.
Union Street expects to fund the RAZOR and Archway acquisitions with cash that is currently held in trust and the proceeds of a $30.0 million revolving credit facility under a signed commitment from Bank of America.
Upon consummation of the acquisitions, Mr. A. Clayton Perfall, Chief Executive Officer and Chairman of Union Street will remain Chief Executive Officer and Chairman of the newly formed company.
The transaction is currently expected to close in the third quarter of 2008. The closing of the acquisitions are subject to customary closing conditions, including the simultaneous closing of each transaction and approval of the acquisition agreements by the stockholders of Union Street. In addition, the closing is conditioned on holders of less than 20% of the shares of Union Street common stock voting against the acquisitions and electing to convert their Union Street common stock into cash, as permitted by the Union Street certificate of incorporation.
Following the completion of the transaction, the board of directors of Union Street will remain unchanged.
Conference Call Information
Union Street will host a conference call to discuss the transaction at 4:30 p.m. Eastern Time today Wednesday, February 27, 2008. Investors may listen to the call via telephone by dialing (888) 801-6494 (pass code 5531474), or for international callers, (913) 312-1456. A telephone replay will be available shortly after the call and can be accessed by dialing (888) 203-1112 (pass code 5531474), or for international callers, (719) 457-0820. The replay will be available until March 12, 2008, at 11:59 p.m. Eastern Time.
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More financial information can be found at:
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