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NewtekOne (NEWT) Agrees to Divest Newtek Technology to Paltalk
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NewtekOne, Inc. (NEWT - Free Report) has agreed to sell its wholly-owned subsidiary, Newtek Technology Solutions, to Paltalk. The closing of the deal, subject to approval by Paltalk’s stockholders, regulatory approvals and the satisfaction of other closing conditions, including the completion of the divestiture of certain specified assets by Paltalk, is expected in the fourth quarter of 2024 or the first quarter of 2025.
It was previously disclosed that in connection with NewtekOne’s acquisition of Newtek Bank and transition to a financial holding company, NEWT had made a commitment to the board of governors of the Federal Reserve System to divest or terminate the activities of NTS.
Terms of the Deal
After the closure of the agreement, Paltalk will pay $4 million in cash to NewtekOne, subject to certain purchase price adjustments. Also, it will issue 4 million shares of a newly created series of Paltalk non-voting preferred stock, the Series A Non-Voting Common Equivalent Stock, to NEWT.
Upon the occurrence of certain specified transfers of the preferred stock, each share of preferred stock will automatically convert into one share of common stock of Paltalk, subject to certain anti-dilution adjustments.
In addition to the cash and stock consideration, NewtekOne may be entitled to receive an earn-out amount of up to $5 million, payable in cash or preferred stock (or a combination thereof, determined in Paltalk’s discretion), based on the achievement of certain cumulative average adjusted EBITDA thresholds for 2025 and 2026.
The issuance of the preferred stock to NewtekOne as stock consideration or as consideration for the earn-out, if any, shall be subject to the limitation that any such issuance of preferred stock may not result in the company’s equity interest in Paltalk exceeding one-third of Paltalk’s total equity, and to the extent necessary a corresponding increase in the cash consideration in respect of the earn-out will be made.
Upon the closure of the deal, based on the number of shares of Paltalk common stock outstanding as of Aug 8, 2024, NEWT’s equity interest in Paltalk would represent, on an as-converted and fully-diluted basis, 30.3% of Paltalk’s total equity.
Management Comments
Barry Sloane, the chairman, president, and CEO of NewtekOne, said, “Having owned NTS for more than 20 years, it was very important to us to find the right home for NTS, with the right management team to continue to grow NTS, as well as continue to manage the Company’s and many of our clients’ IT, including IT security, hardware and technology. That is why we chose Paltalk and its CEO Jason Katz. Importantly, the current management team at NTS, led by NTS’ president Jared Mills, will remain intact.”
Sloane added, “We are also pleased that through retaining a non-voting ownership interest in Paltalk, we will have the ability to participate in the potential economic upside of what we see as principally a pure play company managing business IT security and managed technology solutions in one of the most important markets in the United States economy today. Equally important is for us to continue to allow our clients to access the high-quality IT service and solutions from NTS that NewtekOne and NTS’ 17,000 existing customers have come to enjoy.”
Jason Katz, the chairman and CEO of Paltalk, said, “This is a transformational acquisition for Paltalk that we believe will provide excellent value for our stockholders. We expect that the Acquisition, once completed, will have an immediate and meaningful impact on our revenue, since NTS’ revenue in 2023 was approximately three times greater than Paltalk’s 2023 revenue. We also expect the Acquisition to provide enhanced opportunities for future growth and optimization. We are extremely excited to enter the cloud infrastructure and cybersecurity sectors with the acquisition of a business we deem ripe for growth both organically and through potential accretive acquisitions in the future.”
Over the past six months, NEWT shares have gained 6.2% compared with the industry’s 0.2% rally.
This June, Citigroup Inc. (C - Free Report) completed the sale and migration of its onshore China-based consumer wealth portfolio to HSBC Holdings plc (HSBC - Free Report) China. More than 300 employees of Citigroup were transferred to HSBC as part of the deal.
Per the previously signed agreement, Citigroup will transfer its remaining credit card portfolio in China to Fubon Bank in 2024.
The divestment is part of C’s broader strategy to exit consumer banking operations in 14 markets across Asia, Europe, the Middle East and Mexico.
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NewtekOne (NEWT) Agrees to Divest Newtek Technology to Paltalk
NewtekOne, Inc. (NEWT - Free Report) has agreed to sell its wholly-owned subsidiary, Newtek Technology Solutions, to Paltalk. The closing of the deal, subject to approval by Paltalk’s stockholders, regulatory approvals and the satisfaction of other closing conditions, including the completion of the divestiture of certain specified assets by Paltalk, is expected in the fourth quarter of 2024 or the first quarter of 2025.
It was previously disclosed that in connection with NewtekOne’s acquisition of Newtek Bank and transition to a financial holding company, NEWT had made a commitment to the board of governors of the Federal Reserve System to divest or terminate the activities of NTS.
Terms of the Deal
After the closure of the agreement, Paltalk will pay $4 million in cash to NewtekOne, subject to certain purchase price adjustments. Also, it will issue 4 million shares of a newly created series of Paltalk non-voting preferred stock, the Series A Non-Voting Common Equivalent Stock, to NEWT.
Upon the occurrence of certain specified transfers of the preferred stock, each share of preferred stock will automatically convert into one share of common stock of Paltalk, subject to certain anti-dilution adjustments.
In addition to the cash and stock consideration, NewtekOne may be entitled to receive an earn-out amount of up to $5 million, payable in cash or preferred stock (or a combination thereof, determined in Paltalk’s discretion), based on the achievement of certain cumulative average adjusted EBITDA thresholds for 2025 and 2026.
The issuance of the preferred stock to NewtekOne as stock consideration or as consideration for the earn-out, if any, shall be subject to the limitation that any such issuance of preferred stock may not result in the company’s equity interest in Paltalk exceeding one-third of Paltalk’s total equity, and to the extent necessary a corresponding increase in the cash consideration in respect of the earn-out will be made.
Upon the closure of the deal, based on the number of shares of Paltalk common stock outstanding as of Aug 8, 2024, NEWT’s equity interest in Paltalk would represent, on an as-converted and fully-diluted basis, 30.3% of Paltalk’s total equity.
Management Comments
Barry Sloane, the chairman, president, and CEO of NewtekOne, said, “Having owned NTS for more than 20 years, it was very important to us to find the right home for NTS, with the right management team to continue to grow NTS, as well as continue to manage the Company’s and many of our clients’ IT, including IT security, hardware and technology. That is why we chose Paltalk and its CEO Jason Katz. Importantly, the current management team at NTS, led by NTS’ president Jared Mills, will remain intact.”
Sloane added, “We are also pleased that through retaining a non-voting ownership interest in Paltalk, we will have the ability to participate in the potential economic upside of what we see as principally a pure play company managing business IT security and managed technology solutions in one of the most important markets in the United States economy today. Equally important is for us to continue to allow our clients to access the high-quality IT service and solutions from NTS that NewtekOne and NTS’ 17,000 existing customers have come to enjoy.”
Jason Katz, the chairman and CEO of Paltalk, said, “This is a transformational acquisition for Paltalk that we believe will provide excellent value for our stockholders. We expect that the Acquisition, once completed, will have an immediate and meaningful impact on our revenue, since NTS’ revenue in 2023 was approximately three times greater than Paltalk’s 2023 revenue. We also expect the Acquisition to provide enhanced opportunities for future growth and optimization. We are extremely excited to enter the cloud infrastructure and cybersecurity sectors with the acquisition of a business we deem ripe for growth both organically and through potential accretive acquisitions in the future.”
Over the past six months, NEWT shares have gained 6.2% compared with the industry’s 0.2% rally.
Image Source: Zacks Investment Research
Currently, NewtekOne carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Divestitures by Other Finance Firms
This June, Citigroup Inc. (C - Free Report) completed the sale and migration of its onshore China-based consumer wealth portfolio to HSBC Holdings plc (HSBC - Free Report) China. More than 300 employees of Citigroup were transferred to HSBC as part of the deal.
Per the previously signed agreement, Citigroup will transfer its remaining credit card portfolio in China to Fubon Bank in 2024.
The divestment is part of C’s broader strategy to exit consumer banking operations in 14 markets across Asia, Europe, the Middle East and Mexico.