Foley Trasimene Acquisition Corporation (NYSE:WPF) has entered into a definitive agreement to combine with workforce software firm Alight Solutions, valuing the combined entity at about $7.3 billion.

Alight software handles payroll and employee benefits with AI-backed personalized approaches and currently serves about 14% of the US working population.

The combined entity is expected to trade on the NYSE under the symbol “ALIT” following the transaction’s close, expected in the second quarter of 2021.

Transaction Overview

Foley Trasimene brings $1.035 billion from its current trust into the deal along with a $300 million forward purchase agreement (FPA) and a $1.55 billion PIPE. Cannae Holdings funded both the FPA and $250 million of the PIPE.

Other PIPE investors include Fidelity National Title Insurance Co., Chicago Title Insurance Co. and Commonwealth Land Title Insurance Co., Hedosophia, Suvretta Capital, and Third Point LLC.

In recent terms, this is the largest transaction as far as cash to seller since this same team’s last deal. Foley Trasimene II (NYSE:BFT) announced its $9 billion combination with PaySafe on December 7 and that deal brought in $3.6 billion across the SPAC’s trust, PIPE and FPA. However, Churchill III (now Multiplan – MPLN) has them both beat with two $1.3 billion dollar PIPEs ($2.6 billion in aggregate) and $1.1 billion in trust for a combined $3.7 billion.

Foley Trasimine now brings $2.88 billion across all funding types into Alight.

In exchange for all that cash, Foley Trasimene shareholders are set to receive 19.2% of the combined entity’s equity while 28.8% goes to PIPE investors, 5.6% to the Cannae via the FPA, and 4.3% to the SPAC sponsor. Existing Alight shareholders are expected to own 42.1% of the post-transaction company.

As with PaySafe, Blackstone is and will remain among the largest investors in Alight following the transaction along with other institutional investors ADIA, GIC, New Mountain Capital.

Foley Trasimene Executive Chairman Bill Foley is to become expected to step in as chairman of the combined entity and the SPAC will have the right to choose two more Board members.

Quick Takes: With Foley Trasimene II opening this morning at $19.26 on the continued optimism around PaySafe, it’s no wonder the Foley team decided to talk to another Blackstone portfolio company for its next deal.

Alight has scaled an impressive platform that provides payroll as well as health and wealth benefits to about 70% of the Fortune 100 and 50% of the Fortune 500, covering over 30 million employees.

This brought it over $2.6 billion in revenue in 2020E with 81% coming via recurring subscriptions allowing for adjusted EBITDA margins of 20%. Unlike many SPAC targets which look to use deal proceeds to bridge them to profitability, Alight gathered $506 million in free cash flow in 2019 and expects $439 million in 2020E.

Alight attributes this slight downturn to a falloff in bookings early in the pandemic, but expects growth to pick back up with total gross profit to expand from $867 million in 2020E to over $1 billion in 2022E.

It has achieved these marks by being the processing point for most of its client’s interactions with their employees and their health care and savings. It processes about $100 billion in premiums annually and directly manages $6.8 billion in employee retirement accounts through its brokerage platform.

Policy changes under a Biden administration might cause some sensitivity in Alight’s numbers, as it currently generates 45% of its revenue through the provision of health benefits. While a major change such as a Medicare-for-all plan may not be likely, the prospect of a simplified healthcare landscape will continue to hang around for the time being.

Having added in these capabilities through various internal divisions and add-on acquisitions, Alight now aims to cluster its features together and as a single cloud-based “business process-as-a-service” (BPaaS) platform. Most of its contracts are three to five years in length, so this transition will necessarily take time, but it expects about 50% of its bookings will be made with the BPaaS model by the end of 2023.

In November, it signed a BPaaS contract with Federal Thrift Savings Plan, putting its 6.1 million employees under that umbrella and Alight is hiring 120 additional sales workers to push this product specifically.

Valued at 12.2x 20221E EBITDA, Alight comes at just a modest discount to listed peers. But, given the low level of risk inherent in its established business, I’m not sure Foley Trasimene would have been able to talk the price down any further.

Peers ADP (NASDAQ:ADP), Paychex (NASDAQ:PAYX) and Broadridge (NYSE:BR) trade at a range of 16.5x to 18.5x 2021E EBITDA while HealthEquity (NASDAQ:HQY) trades at 27.1x. All are growing at comparable rates of 5% to 6% revenue growth projected in 2022E, with Alight slightly outpacing the cohort at 7%.

ADVISORS

• J.P. Morgan Securities LLC is acting as lead financial advisor and capital markets advisor to Alight.
• Credit Suisse is acting as financial and capital markets advisor to Alight.
• Barclays and Morgan Stanley & Co. LLC are also acting as financial and capital markets advisors to Alight.
• BofA Securities is acting as financial advisor to Foley Trasimene.
• Credit Suisse and J.P. Morgan Securities LLC acted as lead placement agents on the private offering.
• BofA Securities also acted as placement agent.
• Kirkland & Ellis LLP is acting as legal counsel to Alight.
• Weil, Gotshal & Manges LLP is acting as legal counsel to Foley Trasimene.

Source: https://spacinsider.com/2021/01/25/foley-trasimene-acquisition-corp-to-combine-with-alight-solutions/