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H.I.G. Capital to pump $49M equity into Comverge

by Taina Rosa | Published March 27, 2012 at 12:21 PM

H.I.G. Capital is rescuing struggling energy management systems provider Comverge Inc., providing about $49 million in equity through a $1.75 per share offer, the company said Monday.

H.I.G.'s offer comes some 18 months since Comverge hired J.P. Morgan Chase Bank NA to advise on strategic options as a cash crunch loomed. On March 15, the Norcross, Ga., company, which sells demand response, smart metering, and advanced metering products to commercial and residential clients, warned of its ability to continue as a going concern.

The business, operating through two divisions handling residential and commercial energy, said in its 10-K that its cash position at $23.6 million could fall below $20 million and breach loan covenants. It said primary and secondary lienholders have issued amortization and default notices, which had made it more difficult to raise capital.

But some analysts believe shareholders may be disappointed with the takeout offer, which the company said represents a premium of about 18% over its average closing price of $1.48 over the past 30 days. Between March 20 and March 23, Comverge's stock price closings ranged between $1.76 and $1.88 per share.

H.I.G.'s price is "lower than would have been expected, so I don't think shareholders will be pleased," said Ben Schuman, an analyst with Pacific Crest Securities.

Comverge shares opened Monday at $1.91 apiece, but closed at $1.79, down 4.79%. Market capitalization was about $45.5 million.

Schuman suggest other offers may surface during the 30-day go-shop period expiring on April 25.

Potential bidders could include other private equity firms as well as strategics such as Johnson Controls Inc., Honeywell International Inc., Siemens AG and Schneider Electric SA, Schuman added.

Another analyst, Walter Nasdeo, managing director and director of research at Ardour Capital Investments, said he had a target price of $1.75 for the company's shares. "I think it is a fair offer," he said. "However, shareholders may not like the offer because the company's share price were trading higher."

Under the terms, H.I.G. Capital will provide $12 million in debt financing to Comverge, which is not contingent on the closing of the acquisition. The Miami sponsor is expected to commence a tender offer for all outstanding shares of Comverge not earlier than 10 business days or no later than 20 business days after the date of the agreement. If the tender offer is completed, H.I.G. will acquire all remaining shares through a second-step merger.

Comverge carried total debt of $26.25 million as of Dec. 31.

Lender Silicon Valley Bank provided $11.3 million in first-lien facility, comprising a $6.75 million term loan and a $4.5 million revolver. Under the terms of that facility, Comverge had to maintain $20 million minimum in cash on the balance sheet.

SVB, through Partners for Growth III LP, also provided $15 million in second-lien convertible notes, whose terms relied on a minimum revenue of $139 million. Comverge said that on Feb. 24 and March 8, Grace Bay Holdings bought the second-lien notes.

A failure to pay "could result in a default under the SVB loan and security agreement and, as a result, could cause cross-defaults in our other borrowing arrangements, such that all of our outstanding debt could become due and payable," Comverge said.

Earlier in the month Comverge said it settled with hedge fund investor Ardsley Advisory Partners, which had taken a 12.7% stake earlier in the company. Comverge gave the activist three seats on a reconstituted board, according to a 13D filing March 1.

In 2011 Comverge posted adjusted Ebitda of $791,000 on revenue of $136.4 million, up from an adjusted Ebitda loss of $8.5 million on revenue of $119.4 million.

Robert W. Stone, an analyst with Cowen & Co., said in a March 19 research note that a financial restructuring was "unavoidable."

Calls to the company and H.I.G. were not returned.

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Tags: Comverge Inc. | H.I.G. | PE

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H.I.G. Capital to pump $49M equity into Comverge

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