Item 1.01. Entry into a Material Definitive Agreement.
Transaction Agreement
On July 7, 2021, StepStone Group Inc., a Delaware corporation (the “Company”), StepStone Group LP, a Delaware limited partnership (the “Partnership”), and certain wholly-owned subsidiaries of the Company, entered into a Transaction Agreement (the “Transaction Agreement”) with sellers party thereto (the “Sellers”), Greenspring Associates, Inc., a Delaware corporation (“GA Inc.”) and Greenspring Back Office Solutions, Inc., a Delaware corporation (“GBOS Inc.” and together with GA Inc., “Greenspring”) and Shareholder Representative Services LLC, solely in its capacity as the initial Seller Representative.
Pursuant to the Transaction Agreement, the Company agreed to acquire Greenspring and pay to Greenspring equityholders in the aggregate approximately (1) $185 million in cash, (2) 12,643,556 shares of the Class A common stock of the Company (the “Class A Consideration”) and (3) 3,114,723 Class C units of the Partnership (the “Class C Consideration”), each of which units are intended to be exchangeable for one share of Class A common stock of the Company (the “Exchange Consideration”), in each case subject to certain adjustments (including customary adjustments for cash, debt, debt-like items, transaction expenses and net working capital at closing) (collectively, the “Transaction Consideration”). The Transaction Consideration is subject to a downward adjustment at closing to account for the percentage of clients (measured by run rate revenue) of Greenspring that do not consent to the transaction.
The Transaction Agreement also provides for the payment of up to $75 million of additional cash consideration as an earnout payment to the Sellers, which shall be payable in 2025 subject to achievement by Greenspring of certain management fee revenue targets for the calendar year 2024.
Upon issuance, the Class A Consideration and Class C Consideration will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), or other applicable securities laws, in reliance upon the exemption set forth in Section 4(a)(2) under the Securities Act. The Company has agreed to enter into a registration rights agreement upon the closing of the acquisition providing for the registration under the Securities Act of the Class A Consideration and the Exchange Consideration.
The Transaction Agreement contains customary representations, warranties and covenants of the Sellers, Greenspring and the Company. The consummation of the transactions contemplated by the Transaction Agreement is subject to customary conditions, including (among others) (i) the expiration or termination of any waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976; (ii) the absence of any law that enjoins, restrains, conditions, makes illegal or otherwise prohibits the consummation of the transactions; (iii) the approval for listing of the shares to be issued as Class A Consideration and the shares underlying the Class C Consideration; (iv) the accuracy of the parties’ representations and warranties (subject to customary materiality qualifiers); (v) the compliance by the parties with their respective covenants, obligations and agreements under the Transaction Agreement (subject to customary materiality qualifiers); (vi) the revenue run rate for all consenting clients of Greenspring being greater than 85% (in the case of the Company’s condition to closing) of the revenue run rate for such clients as of March 31, 2021 and (vii) the revenue run rate for all consenting clients of Greenspring being greater than 75% (in the case of Greenspring’s condition to closing) of the revenue run rate for such clients as of March 31, 2021. In addition, the Company has agreed to defer the closing until the earlier of (x) November 8, 2021 and (y) two business days following the date that the Company determines, in good faith, that it is no longer likely to receive a material amount of additional client consents.
The Transaction Agreement also provides that the parties may terminate the Transaction Agreement under certain circumstances, including: (i) by mutual written consent of the Company and GA Inc.; (ii) by either the Company or GA Inc. if the closing of the transaction shall not have occurred on or before January 31, 2022; (iii) by either the Company or GA Inc. for certain material breaches of the Transaction Agreement that are not cured; or (iv) by the Company if GA Inc. or GBOS Inc. fail to deliver the applicable stockholders consents approving the mergers shortly after the signing of the Transaction Agreement.
In the event the Transaction Agreement is terminated by GA Inc. due to the Company’s failure to consummate the transactions as required under the Tranasaction Agreement once all of the conditions to the Sellers’ obligation to close the transaction have been satisfied or waived (other than those conditions that, by their terms, are to be satisfied at the closing), or due to a breach by the Company of any covenant or agreement, or if any representation or warranty of the Company shall be or have become untrue or inaccurate, in either case, such that any of the closing conditions of the Company would not be satisfied, and any such breach, untruth or inaccuracy is not timely cured, under the Transaction Agreement, the Company will be required to pay Greenspring a reverse termination fee of $36,250,000.
