SunTrust Bank and KeyBanc Capital Markets committed to providing e-mail security experts Zix with a new five-year $175 million term loan and a $25 million revolving credit facility.
The term loan will be used to partially fund Zix’s $275 million cash acquisition of AppRiver, a provider of cloud-based cybersecurity solutions. The revolver will be used for general corporate purposes.
The facilities’ interest rate is expected to be LIBOR plus 3.50%, subject to potential flex options, with future step-downs as Zix’s leverage reduces. The term loan is expected to require 0.25% per quarter amortization, with annual excess cash flow prepayments if Zix’s total leverage ratio exceeds certain thresholds.
The debt financing will include a maximum total net leverage ratio covenant, but will not require a prepayment fee.
“Over the past two years, Zix has been successfully executing on its strategy of becoming a leading provider of email security for compliance,” said David Wagner, Zix CEO. “This acquisition helps us expand our customer base, enhance our advanced threat protection position, and accelerate our high-velocity go-to-market strategy through AppRiver’s numerous and longstanding channel partnerships. Most importantly it further accelerates our offerings into the cloud at the point of initial cloud application purchase.”
The annual recurring revenue (ARR) of the combined company is expected to be approximately $180 million at closing. Zix is targeting ARR of approximately $200 million to $207 million at fiscal 2019 year end, representing a growth rate of approximately 11% to 15% year-over-year.
The debt financing is expected to close simultaneously with the closing of the AppRiver acquisition.
Additionally, private equity firm True Wind Capital is expected to invest $100 million in a convertible preferred equity investment that will be funded contemporaneously with closing of the AppRiver acquisition
RBC Capital Markets acted as lead financial advisor to Zix, with additional financial advisory services provided by Cowen. Baker Botts acted as Zix’s legal advisor. Evercore acted as lead financial advisor and DCS Advisory as co-financial advisor to AppRiver, while Kirkland & Ellis acted as its legal advisor. PJT Partners acted as financial advisor to True Wind Capital, while Simpson Thacher & Bartlett acted as its legal advisor.
