M&A

How the SOSi-STG deal came to be

Six companies in all submitted their interest in buying STG Inc. before the troubled defense IT contractor agreed on the $83 million sale of itself to SOS International, according to a regulatory filing posted Thursday.

But SOSi’s interest in the combination dates back to late last year when they first informed STG of interest in a transaction on Oct. 20, 2017. After creditors took over STG’s parent company over the Nov. 11-13 timeframe, SOSi submitted another indication of interest in an acquisition on Nov. 22.

Following the second indication, the publicly-held STG Group Holdings parent enlisted investment bank Raymond James to explore strategic options such as a sale. Other options on the table were financing or restructuring, although Raymond James was instructed to focus its efforts on a sale of STG.

The filing reveals more insight into how distressed the indebted STG was as the deal with SOSi is referred to as “pursuant to a foreclosure sale.” In essence, STG’s creditors sold the company to collect on debt the parent company owed to them.

Proceeds from the deal are going toward transaction expenses and repayments of $80.1 million in outstanding principal, interest and fees owed to STG Group Holdings’ lenders.

STG’s debt ballooned as its revenue shrunk and the company also saw its $119.8 million acquisition of Preferred Systems Solutions terminated in July on an inability to secure financing for the deal.

STG reported a $26.9 million net loss for the first half of last year versus a $2.8 million loss for the same period in 2016. At the same time, revenue fell 15 percent to $69.5 million for the first six months of last year compared to the same period in 2016.

Total revenue for 2016 was down 15 percent to $164.1 million on the completion of seven contracts.

According to the regulatory filing Thursday, STG received the six indications of interest by the end of January that ranged between $40 million and $85 million and that field was narrowed to four, which received management presentations.

SOSi emerged as the favorite with its offer on the high end of that range and having performed a higher level of due diligence than the other bidders, according to the filing that did not give a specific value to that bid.

Negotiations then commenced in late February between SOSi and STG Group Holdings, whom in late March sought to increase the purchase price to $85 million.

SOSi’s representative for the deal in investment bank Cowen and STG Group Holdings’ board agreed on the final $83 million price by April 9, then the deal was executed two days later.

About the Author

Ross Wilkers is a senior staff writer for Washington Technology. He can be reached at rwilkers@washingtontechnology.com. Follow him on Twitter: @rosswilkers. Also find and connect with him on LinkedIn.

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