Sponsors for CompuCom Systems and Pomeroy have entered into discussions to merge the two IT companies in a transaction that would result in significant synergies, according to three sources familiar with the situation.
CompuCom— a mid-tier provider of IT outsourcing services, including end-user computing, held desk and IT workforce— was acquired by Thomas H. Lee Partners in 2012 for USD 1.1bn. Clearlake Capital Group, meanwhile, acquired rival Pomeroy in 2015 and merged the issuer with its existing portfolio company Tolt Solutions to form a single entity.
The sponsors have been seeking financing to support the combination, which would provide increased market saturation and considerable synergies, the sources noted. The sponsors are also seeking to redo the respective capital structures, the sources added. EBITDA for the combined companies is pegged at around USD 150m, while pro forma EBITDA – after incorporating syngeries – would be north of USD 200m.
CompuCom is viewed as one of the more levered distressed names in the tech space, with yields on its illiquid unsecured bonds hovering in the double digits. Over the last several quarters the company has succeeded in partially offsetting declines in its service segment revenue with cost cuts. But CompuCom’s consolidated sales are expected to drop further by low-to-mid-single digits year-over-year for FY17. Its total revenue in 1Q17 amounted to USD 259.3m, versus USD 271.9m in the comparable period the prior year.
The 9.2x-levered IT support provider during its 1Q17 earnings release guided for USD 20m – USD 25m of free cash flow. Consensus expectations call for CompuCom to bring in annual EBITDA in the high USD 80m range, versus LTM EBITDA of USD 83.7m pegged at 1Q17.
CompuCom’s USD 225m 7% unsecured bonds due 2021 last changed hands in small lots at 50.50 to yield 28.795% on 17 May, according to MarketAxess. Its USD 605m Libor+ 325bps (1% floor) covenant-lite TL due 2020 is quoted 78.625/80.208.
In early 2016, Pomeroy placed a USD 240m L+ 600bps (1% floor) first lien loan due 2021, with underwriters Natixis and Brightwood Capital Advisors funding the debt without attempting syndication due to volatile credit markets in the prior year. Its capital structure also includes a USD 40m revolver and USD 75m second lien loan. At the time of the deal, Pomeroy’s leverage stood at 3.7x through the first lien and 4.8x total, based on USD 64.4m of LTM EBITDA as of USD 1Q16, according to Debtwire data.
Representatives from Clearlake and THL declined comment.