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EX-23.1 - EX-23.1 - Highland Acquisition Corp | d149782dex231.htm |
| Potential for the Highland Group to add value. We will target businesses where we believe the Highland Group, especially its in-house operations team, could add value by bringing resources to bear over and above a companys existing capabilities. The Highland Groups in-house operations team has a track record of implementing cost reduction and revenue enhancement programs. |
| Sound business fundamentals. We will target businesses with dominant market positions, unique franchises, secure market niches or distinctive products or services. |
| Experienced management team. We will target businesses that have experienced management teams with a proven track record for delivering top line growth and bottom line profits through strategic business management and effective team building. |
| Diversified customer and supplier base. We will target businesses that have a diversified customer and supplier base. Companies with a diversified customer and supplier base are generally better able to endure economic downturns, industry consolidation, changing business preferences and other factors that may negatively impact their customers, suppliers and competitors. |
| Downside protection through asset values. We will target businesses with assets that have historically held value in downturns, thereby providing protection to our stockholders. Companies with such assets tend to find a floor in value and may provide a more stable market valuation as a result. |
| Opportunity for spin off opportunities in target companies. We will target businesses that may present an opportunity to create value by selling or spinning-off business units which the market may not be fully valuing as a part of the larger entity. The value created as a result of the sale or spinoff can then be used for various initiatives that benefit our stockholders, including (i) stock repurchases, (ii) acquisitions, (iii) debt repayment and (iv) capital improvements. |
| Opportunity for future bolt-on acquisitions. We will target businesses that provide opportunities for future bolt-on acquisitions as a means to deliver enhanced value. Through the use of strategic bolt-on acquisitions, we believe we may be able to create value in several ways, including (i) reducing operating costs and driving operational efficiencies; (ii) improving economies of scale; (iii) increasing valuation of the aggregate enterprise; (iv) complementing capabilities and/or management; (v) filling strategic gaps and diversifying the business; (vi) complementing organic growth initiatives and/or reducing time constraints of growing organically; (vii) improving competitive position; and (viii) applying best practices across combined entities. |
Competitive Strengths
We believe we have the following competitive strengths:
Established deal sourcing network.
We expect to be well positioned to source an initial business combination as a result of our access to the Highland Groups sizable existing infrastructure, which includes over 180 employees and 6 offices globally. The
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Highland Group employs a team of professionals who focus on sourcing and evaluating middle market private equity deals. This team sources middle market private equity opportunities from a wide variety of sources including: (i) the Highland Groups network of industry executive contacts; (ii) lawyers, accounts and other intermediaries; and (iii) deep relationships with middle market investment banks and trading desks. Furthermore, the Highland Groups position as one of the leading debt managers in the U.S. provides numerous additional opportunities to source middle market private equity deals.
Disciplined investment process.
In identifying potential target businesses, we will apply the Highland Groups rigorous and consistent investment process. This includes analysis of: (i) the acquisition multiple; (ii) the fundamental soundness and viability of the business; (iii) historic and projected financials; (iv) the key drivers of revenues and cost components; (v) forecasted performance under sensitized assumptions; (vi) capital expenditures; (vii) working capital needs; (viii) the level of downside protection through asset values; (ix) micro and macroeconomic trends that impact the business and the industry; (x) the businesss products and sales channels; (xi) qualitative analysis of company management; (xii) the competitive dynamics of the industry and the target companys position; (xiii) input from third-party advisors; and (xiv) other factors based on the specific opportunity.
Deep sector expertise in the target sectors.
The Highland Group has deep expertise in the media, telecommunications, entertainment, healthcare and energy industries located in the United States. The Highland Group employs eight analysts focused on these specific industries. Healthcare and energy are the largest sector verticals at the Highland Group with over $3 billion and $1 billion, respectively, invested in those sectors across the platform.
We will have access to noted industry experts that are employed by the Highland Group, such as Michael Gregory, who was named Category King in Healthcare by the Wall Street Journal in 2010 and later named Best Up and Comer in 2011. In addition, Jim Dondero sits on the board of directors of Metro-Goldwyn-Mayer, a leading film and television company. Moreover, Mark Okada has been named a CNBC Squawk Master and is regularly featured on CNBC Squawk Box, Fox Business Opening Bell and other media outlets to discuss his industry views.
The Highland Groups deep sector expertise will help us identify attractive acquisition opportunities and identify and implement key strategic changes post-acquisition.
Experience with middle market companies.
The Highland Group has over 19 years of experience investing in private middle market companies. Over that time period, the Highland Group has invested in over 7,500 private companies. The various groups within the Highland Group oversee a portfolio of investments in more than 1,400 companies, most of which are private middle market companies.
In-house team of operating professionals.
We will have access to the Highland Groups team of six in-house operating executives. These executives bring an average of 15 years of experience and come from top tier consulting firms and operating companies like McKinsey & Company, Boston Consulting Group and Toyota. This team works exclusively for portfolio companies of the Highland Group on value creation initiatives. Team members are recruited based on their expertise in specific functional areas including lean manufacturing, strategy deployment and implementation, salesforce optimization, change management, global procurement and workforce alignment. In addition, the Highland Group makes available to its affiliated companies the opportunity to reduce overhead by grouping common expenses. Examples of such expense groups includes general insurance, health benefits, procurement and human resources management.
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Status as a public company
We believe our structure will make us an attractive business combination partner to target businesses. As an existing public company, we offer a target business an alternative to the traditional initial public offering through a merger or other business combination. In this situation, the owners of the target business would exchange their shares of stock in the target business for shares of our stock or for a combination of shares of our stock and cash, allowing us to tailor the consideration to the specific needs of the sellers. We believe target businesses might find this method a more certain and cost effective method to becoming a public company than the typical initial public offering. In a typical initial public offering, there are additional expenses incurred in marketing, roadshow and public reporting efforts that will likely not be present to the same extent in connection with a business combination with us. Furthermore, once the business combination is consummated, the target business will have effectively become public, whereas an initial public offering is always subject to the underwriters ability to complete the offering, as well as general market conditions, that could prevent the offering from occurring. Once public, we believe the target business would then have greater access to capital and an additional means of providing management incentives consistent with stockholders interests than it would have as a privately-held company. It can offer further benefits by augmenting a companys profile among potential new customers and vendors and aid in attracting talented employees.
While we believe that our status as a public company will make us an attractive business partner, some potential target businesses may view the inherent limitations in our status as a blank check company as a deterrent and may prefer to effect a business combination with a more established entity or with a private company. These inherent limitations include limitations on our available financial resources, which may be inferior to those of other entities pursuing the acquisition of similar target businesses; the requirement that we seek shareholder approval of a business combination, which may delay the consummation of a transaction; and the existence of our outstanding warrants, which may represent a source of future dilution.
Financial position
With funds in the trust account of approximately $241,250,000 (or $277,437,500 if the over-allotment option is exercised in full) available to use for a business combination (after taking into account the deferred commissions), we offer a target business a variety of options such as providing the owners of a target business with shares in a public company and a public means to sell such shares, providing capital for the potential growth and expansion of its operations or strengthening its balance sheet by reducing its debt ratio. Because we are able to consummate our initial business combination using our cash, debt or equity securities, or a combination of the foregoing, we have the flexibility to use the most efficient combination that will allow us to tailor the consideration to be paid to the target business to fit its needs and desires. However, since we have no specific business combination under consideration, we have not taken any steps to secure third party financing and there can be no assurance that it will be available to us.
Management Expertise
We will seek to capitalize on the significant investing experience and contacts of our executive officers in consummating an initial business combination. James D. Dondero, our Chairman of the Board, Chief Executive Officer and President, has over 15 years of experience investing in private equity, distressed debt and mezzanine lending. In addition, Mark Okada, our Executive Vice President, likewise has more than 15 years of experience in sourcing, evaluating, structuring and negotiating control investments and in owning businesses. The investment management team of the Highland Group is led by Messrs. Dondero and Okada, who have worked together for over 26 years and each have 33 years of corporate finance experience.
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Effecting a Business Combination
General
We are not presently engaged in, and we will not engage in, any substantive commercial business for an indefinite period of time following this offering. We intend to utilize cash derived from the proceeds of this offering and the private placement of founders warrants, our capital stock, debt or a combination of these in effecting a business combination which has not yet been identified. Accordingly, investors in this offering are investing without first having an opportunity to evaluate the specific merits or risks of any one or more business combinations. A business combination may involve the acquisition of, or merger with, a company which does not need substantial additional capital but which desires to establish a public trading market for its shares, while avoiding what it may deem to be adverse consequences of undertaking a public offering itself. These include time delays, significant expense, loss of voting control and compliance with various federal and state securities laws. In the alternative, we may seek to consummate a business combination with a company that may be financially unstable or in its early stages of development or growth. While we may seek to effect simultaneous business combinations with more than one target business, we will probably have the ability, as a result of our limited resources, to effect only a single business combination.
We Have Not Identified a Target Business
To date, we have not selected any target business on which to concentrate our search for a business combination. None of our sponsor, officers, directors, promoters and other affiliates has engaged in any substantive discussions on our behalf with representatives of other companies regarding the possibility of a potential merger, capital stock exchange, asset acquisition or other similar business combination with us. Additionally, we have not engaged or retained any agent or other representative to identify or locate such companies. As a result, we cannot assure you that we will be able to locate a target business or that we will be able to engage in a business combination with a target business on favorable terms or at all.
We will have virtually unrestricted flexibility in identifying and selecting a prospective acquisition candidate. We have not established any other specific attributes or criteria (financial or otherwise) for prospective target businesses. Accordingly, there is no basis for investors in this offering to evaluate the possible merits or risks of the target business with which we may ultimately complete a business combination. To the extent we effect a business combination with a financially unstable company or an entity in its early stage of development or growth, including entities without established records of sales or earnings, we may be affected by numerous risks inherent in the business and operations of financially unstable and early stage or potential emerging growth companies. Although our management will endeavor to evaluate the risks inherent in a particular target business, we cannot assure you that we will properly ascertain or assess all significant risk factors.
Sources of Target Businesses
While we have not yet identified any acquisition candidates, we believe based on our managements business knowledge and past experience that there are numerous acquisition candidates. We expect that our principal means of identifying potential target businesses will be through the extensive contacts and relationships of our sponsor, officers and directors. While our officers and directors are not required to commit any specific amount of time in identifying or performing due diligence on potential target businesses, our officers and directors believe that the relationships they have developed over their careers and their access to our sponsors contacts and resources will generate a number of potential business combination opportunities that will warrant further investigation. We also anticipate that target business candidates will be brought to our attention from various unaffiliated sources, including investment bankers, venture capital funds, private equity funds, leveraged buyout funds, management buyout funds and other members of the financial community. Target businesses may be brought to our attention by such unaffiliated sources as a result of being solicited by us through calls or mailings. These sources may also introduce us to target businesses they think we may be interested in on an unsolicited
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basis, since many of these sources will have read this prospectus and know what types of businesses we are targeting. Our sponsor, officers and directors, as well as their affiliates, may also bring to our attention target business candidates that they become aware of through their business contacts as a result of formal or informal inquiries or discussions they may have, as well as attending trade shows or conventions. They must present to us all target business opportunities that have a fair market value of at least 80% of the assets held in the trust account (excluding deferred underwriting commissions and taxes payable on the income accrued in the trust account) at the time of the agreement to enter into the initial business combination, subject to any pre-existing fiduciary or contractual obligations. While we do not presently anticipate engaging the services of professional firms or other individuals that specialize in business acquisitions on any formal basis, we may engage these firms or other individuals in the future, in which event we may pay a finders fee, consulting fee or other compensation to be determined in an arms length negotiation based on the terms of the transaction. In no event, however, will our sponsor, officers, directors or their respective affiliates be paid any finders fee, consulting fee or other compensation prior to, or for any services they render in order to effectuate, the consummation of an initial business combination (regardless of the type of transaction that it is) other than the $10,000 administrative services fee, the repayment of the $150,000 loan from sponsor and reimbursement of any out-of-pocket expenses. Our audit committee will review and approve all reimbursements and payments made to our sponsor, officers, directors or our or their respective affiliates, with any interested director abstaining from such review and approval. We have no present intention to enter into a business combination with a target business that is affiliated with any of our officers, directors or sponsor. However, we are not restricted from entering into any such transactions and may do so if (i) such transaction is approved by a majority of our disinterested independent directors and (ii) we obtain an opinion from an independent investment banking firm, or another independent entity that commonly renders valuation opinions on the type of target business we are seeking to acquire, that the business combination is fair to our unaffiliated stockholders from a financial point of view.
Selection of a Target Business and Structuring of a Business Combination
Subject to the limitations that a target business have a fair market value of at least 80% of the balance in the trust account (excluding the deferred underwriting commissions and taxes payable on the income earned on the trust account) at the time of the execution of a definitive agreement for our initial business combination, as described below in more detail, and that we must acquire a controlling interest in the target business, our management will have virtually unrestricted flexibility in identifying and selecting a prospective target business. Except for the general criteria and guidelines set forth above under the caption Business Strategy, we have not established any specific attributes or criteria (financial or otherwise) for prospective target businesses. In evaluating a prospective target business, our management may consider a variety of factors, including one or more of the following:
| financial condition and results of operation; |
| growth potential; |
| brand recognition and potential; |
| experience and skill of management and availability of additional personnel; |
| capital requirements; |
| competitive position; |
| barriers to entry; |
| stage of development of the products, processes or services; |
| existing distribution and potential for expansion; |
| degree of current or potential market acceptance of the products, processes or services; |
| proprietary aspects of products and the extent of intellectual property or other protection for products or formulas; |
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| impact of regulation on the business; |
| regulatory environment of the industry; |
| costs associated with effecting the business combination; |
| industry leadership, sustainability of market share and attractiveness of market industries in which a target business participates; and |
| macro competitive dynamics in the industry within which the company competes. |