PRWT Services Inc. (No. 57 on the B.E. Industrial/Service 100 list with $76 million in revenues) reported that it is planning to combine with publicly traded KBL Healthcare Acquisition Corp. III. PRWT is a diversified enterprise of pharmaceutical manufacturing and distribution, business process outsourcing services, and facilities management and maintenance services.
In the transaction, valued at $140.2 million, KBL will merge into a newly formed, wholly owned subsidiary of PRWT. PRWT will then be recapitalized and all outstanding common stock and warrants of KBL will automatically convert into the same number of securities of PRWT. As a result, PRWT’s African American shareholders will retain their majority stake, with former shareholders of KBL and public investors holding a minority interest.
The deal includes the assumption of up to $45 million of PRWT’s net debt. “There’s several rationales [for the transaction], one of which was an infusion of capital,” explains Jerry Johnson, PRWT’s vice chairman. “It also allows us to maintain our existing management team, maintain control of the corporation, and maintain control of our strategy. In this environment it is almost a perfect vehicle for us.”
The merger is expected to close in the third quarter of 2009, and PRWT’s shares are sought to be listed on the New York Stock Exchange or NASDAQ. In January 2008, the company acquired the Cherokee chemical manufacturing plant in Riverside, Pennsylvania from Merck & Co. of Whitehouse Station, New Jersey. The deal included a five-year supply agreement with Merck for an estimated value of $100 million to $200 million annually.
KBL Healthcare Acquisition is a special purpose acquisition company (SPAC). Essentially, it’s a shell company formed to effect either a merger, capital stock exchange, stock purchase, asset acquisition, or combine with an operating business in the healthcare industry.
Investors purchase shares of the SPAC and ideally, receive a return on that investment when the shell acquires or combines with the actually operating company or assets. “It’s a form of a reverse merger, only you’re not merging with a going entity, you’re merging with a financial entity,” Johnson says. “We become the operating entity going into that. And what is different with this is because it is important for us to retain our minority ownership, control, and operations — we become the surviving entity.”