H.I.G. Capital to acquire Converge Technology Solutions in C$1.3bn all-cash deal

In a transformative move within the IT services sector, H.I.G. Capital has announced plans to acquire Converge Technology Solutions Corp. in an all-cash transaction valued at approximately C$1.3 billion. This acquisition is set to deliver immediate liquidity to Converge’s shareholders, with each common share priced at C$5.50 in cash—a premium of 56% over the company’s closing price and 57% above its 30-day volume-weighted average price on the Toronto Stock Exchange (TSX) as of February 6, 2025.

The transaction has received unanimous approval from Converge’s Board of Directors, excluding one interested director who abstained from voting. This endorsement follows an extensive review process led by an independent special committee. Shareholders holding around 24% of Converge’s outstanding shares have already committed to support the deal through voting agreements, signaling strong investor confidence in the strategic direction of the company.

Why is H.I.G. Capital acquiring Converge Technology Solutions?

The acquisition of Converge Technology Solutions by H.I.G. Capital is driven by the strategic goal of expanding both firms’ capabilities in the fast-evolving IT landscape. Converge has carved out a strong position as a services-led, software-enabled IT and cloud solutions provider, offering expertise in advanced analytics, artificial intelligence, cloud platforms, cybersecurity, and digital infrastructure. H.I.G. Capital’s interest in Converge reflects the company’s proven track record in delivering tailored, outcome-driven technology solutions to businesses across industries. The deal will integrate Converge with Mainline Information Systems, LLC, an H.I.G.-owned IT solutions provider specializing in enterprise servers, hybrid cloud environments, cybersecurity, and digital infrastructure. By combining resources, the two companies aim to create a powerful entity capable of addressing the growing demand for comprehensive, future-ready IT solutions.

The complementary nature of both companies’ offerings will allow the combined entity to serve a broader customer base with diversified technology solutions. Converge’s innovative approach to digital transformation, coupled with Mainline’s strong infrastructure capabilities, creates an opportunity to deliver more robust, integrated solutions in cloud services, cybersecurity, and data infrastructure. This strategic alignment will also enhance operational efficiencies and drive long-term growth, positioning the new company as a competitive force in the IT services market.

What does this mean for Converge shareholders?

For Converge shareholders, the acquisition represents an opportunity for immediate financial gain and long-term strategic value. The offer of C$5.50 per share in cash represents a significant premium compared to recent trading prices, reflecting H.I.G. Capital’s confidence in Converge’s growth potential. The deal is structured to provide liquidity while preserving value for shareholders through the potential growth of the combined entity. Notably, certain Converge shareholders, referred to as “Rollover Shareholders,” will exchange their shares for equity interests in an affiliated H.I.G. entity, maintaining a stake in the newly formed company’s future success.

Shareholders will have the opportunity to vote on the transaction at a special meeting scheduled for April 2025. The approval process will require support from at least two-thirds of the votes cast by shareholders, in addition to meeting regulatory and court approval requirements. This structure ensures that the acquisition aligns with shareholder interests while complying with Canadian corporate governance regulations.

How will Converge’s leadership change after the acquisition?

Leadership continuity is a key focus in the post-acquisition strategy. Converge’s current Chief Executive Officer, Greg Berard, will assume the role of CEO of the combined business, while Mainline’s President and CEO, Jeff Dobbelaere, will serve as President. This leadership structure aims to blend the strengths of both organizations, ensuring strategic alignment and operational efficiency. Berard emphasized the transformative nature of the deal, stating that the partnership not only ensures meaningful value for shareholders but also lays the foundation to enhance how Converge serves its customers. He noted that as technology continues to reshape industries worldwide, delivering comprehensive and forward-thinking solutions is vital to helping clients succeed.

Dobbelaere echoed this sentiment, highlighting the complementary nature of Converge’s and Mainline’s services. He explained that Mainline’s specialization in hybrid cloud, on-premises infrastructure, cybersecurity, and software solutions aligns perfectly with Converge’s established expertise. Together, the combined company is poised to create meaningful growth opportunities for employees, expand service offerings, and enhance the value delivered to customers. This leadership collaboration is expected to drive the company’s strategic goals while fostering innovation across the IT services landscape.

What are the financial implications of the acquisition?

Financially, the acquisition values Converge at an enterprise value-to-adjusted EBITDA multiple of approximately 7.4x, based on trailing twelve-month financials through September 30, 2024. This valuation underscores Converge’s strong performance, with the company expected to report fourth-quarter fiscal 2024 gross profit and adjusted EBITDA at the high end of its projected ranges—C$165–C$178 million in gross profit and C$36–C$47 million in adjusted EBITDA. The robust financial outlook highlights Converge’s ability to generate consistent revenue and profitability, making it an attractive acquisition target for H.I.G. Capital.

As part of the arrangement agreement, Converge will suspend its regular quarterly dividend during the transaction process. This decision reflects the company’s focus on ensuring a smooth transition and maintaining financial flexibility during the acquisition. Additionally, a termination fee of C$34.4 million will apply if Converge accepts a superior proposal under specific conditions outlined in the agreement. This fee serves as a protective measure to secure the terms of the transaction and safeguard the interests of both parties involved.

What are the next steps in the acquisition process?

The acquisition will proceed through a statutory court-approved plan of arrangement under the Canada Business Corporations Act. The deal requires approval from two-thirds of Converge’s shareholders at the special meeting, in addition to regulatory and court clearances. The process has been guided by a comprehensive, competitive negotiation overseen by Converge’s special committee of independent directors. This committee, along with legal and financial advisors, ensured that the transaction terms are fair and in the best interest of shareholders. Both Canaccord Genuity Corp. and Origin Merchant Partners provided fairness opinions confirming that the consideration is financially fair to shareholders, excluding the Rollover Shareholders.

In addition to shareholder approval, the transaction will be subject to customary closing conditions, including regulatory and court approvals. The special committee played a critical role in overseeing the negotiation process, ensuring that the deal reflects the company’s strategic goals while protecting shareholder interests. The company plans to provide additional details in its management information circular, which will be distributed to shareholders ahead of the special meeting. This document will outline the transaction terms, the rationale behind the board’s recommendation, and instructions on how shareholders can participate in the voting process.

What does this mean for the future of IT services?

The acquisition of Converge Technology Solutions by H.I.G. Capital reflects a broader trend in the IT sector, where consolidation is reshaping how companies deliver technology solutions. As digital transformation accelerates globally, businesses are seeking integrated, end-to-end solutions that combine cloud, cybersecurity, and AI-driven insights. By merging Converge’s customer-centric approach with Mainline’s robust infrastructure capabilities, the combined entity is well-positioned to meet these evolving demands.

This strategic partnership is expected to drive innovation, expand service offerings, and enhance operational efficiencies. The deal underscores the importance of strategic collaborations in navigating the complexities of modern IT environments. As the IT landscape continues to evolve, the combined company aims to play a pivotal role in helping businesses adapt to emerging technologies, optimize their operations, and achieve sustainable growth. The acquisition not only strengthens the competitive position of both companies but also sets the stage for future growth opportunities in the rapidly changing technology sector.