Paltalk, Inc. Enters Into an Agreement to Acquire Newtek Technology Solutions, Inc. From NewtekOne, Inc.

Paltalk

Paltalk, Inc., a communications software innovator that powers multimedia social applications, announced that it has entered into a definitive agreement, pursuant to which Paltalk will acquire Newtek Technology Solutions, Inc., a wholly owned subsidiary of NewtekOne, Inc. NTS provides dedicated server hosting, cloud hosting, data storage, managed security, backup and disaster recovery, and other related services including consulting and implementing technology solutions for enterprise and commercial clients across the U.S.

Pursuant to the Acquisition Agreement, Paltalk has agreed to (i) pay Newtek an amount in cash equal to $4,000,000, subject to customary purchase price adjustments (the “Closing Cash Consideration”), and (ii) issue Newtek 4,000,000 shares of a newly created series of Paltalk’s preferred stock, the Series A Non-Voting Common Equivalent Stock (the “Preferred Stock” and such shares issued at the closing of the Acquisition, the “Closing Stock Consideration” and together with the Closing Cash Consideration, the “Closing Consideration”) (in each case, subject to adjustment as further described below). The Preferred Stock will automatically convert into one share of Paltalk common stock (subject to certain customary anti-dilution adjustments) upon the occurrence of certain qualifying dispositions by Newtek.

The parties expect to consummate the Acquisition in the fourth quarter of 2024 or the first quarter of 2025, and the Acquisition is subject to approval by Paltalk’s stockholders, regulatory approvals, the closing of the Divestiture Transaction (discussed below) and the satisfaction of other customary closing conditions.

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At the closing of the Acquisition, based on the number of shares of Paltalk common stock outstanding as of August 8, 2024, Newtek’s equity interest in Paltalk would represent, on an as-converted and fully-diluted basis, approximately 30.3% of Paltalk’s total equity.

Jason Katz, Paltalk’s Chairman and Chief Executive Officer, commented: “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. Given our management team’s extensive technology expertise that has been demonstrated throughout the years, we are confident in our ability to integrate, operate and grow this business and enhance stockholder value.

Barry Sloane, Newtek’s Chairman, President and Chief Executive Officer, commented: “We believe we have found a great party to own and operate NTS and grow what we have spent many years developing into a premier managed technology solutions provider. The current marketplace for a company like NTS managing business IT security and managed technology solutions has never been better with the expected growth of artificial intelligence. We believe that the Paltalk management team is positioned to take the reins of NTS and grow our vision. Moreover, the management team of NTS, which has demonstrated their technological knowledge and expertise over many years, is expected to continue to serve all of Newtek’s IT compliance needs and protect Newtek’s and our client’s sensitive data with the same dedication and proficiency we have come to expect. We expect to continue to refer our business clientele to NTS directly or under a white-labeled brand.”

Strategic Rationale

  • Following Newtek’s acquisition of National Bank of New York City (which has been renamed Newtek Bank, National Association) in January of 2023, Newtek became a financial holding company subject to the regulation and supervision of the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the Federal Reserve Bank of Atlanta. As a result of commitments made to the Federal Reserve in connection with its acquisition of National Bank of New York City, Newtek is required to divest or otherwise terminate the activities conducted by NTS.
  • As a communications software innovator, Paltalk has expertise in cybersecurity and cloud infrastructure, having almost a decade of experience building and operating its own cloud infrastructure. In addition, Paltalk’s management understands the technology landscape in which NTS operates and believes the Acquisition lends itself to further growth and scalability. Further, Paltalk’s management considers its ManyCam product to be a logical complementary product for NTS’s offerings.

Key Transaction Terms

  • Paltalk will pay $4,000,000 in cash to Newtek and will issue to Newtek 4,000,000 shares of Preferred Stock (in each case, subject to adjustment as further described below and as set forth in the Acquisition Agreement);
  • In addition to the Closing Consideration, Newtek is entitled to receive up to $5,000,000 (the “Earn-Out Amount”) based on the achievement of certain cumulative average Adjusted EBITDA thresholds for the 2025 and 2026 fiscal years. The Earn-Out Amount may be paid, at Paltalk’s sole discretion, in cash (the “Earn-Out Cash Consideration”), in shares of Preferred Stock (the “Earn-Out Stock Consideration”) or in a combination thereof (subject to the Total Equity Cap described below). The issuance of the Closing Stock Consideration, the Earn-Out Stock Consideration (if any) and the shares of Paltalk common stock issuable upon conversion of the Preferred Stock is referred to herein as the “Paltalk Stock Issuance”;
  • If the issuance of the Closing Stock Consideration or the Earn-Out Stock Consideration would cause Newtek to exceed one-third of the Company’s “total equity” (as calculated under the Bank Holding Company Act of 1956, as amended) (the “Total Equity Cap”), then the number of shares of Preferred Stock issuable as Closing Stock Consideration and/or Earn-Out Stock Consideration, as applicable, will be adjusted so that Paltalk will issue to Newtek the maximum number of shares of Preferred Stock that would not cause Newtek’s total equity to exceed the Total Equity Cap, with a corresponding increase made to the Closing Cash Consideration and/or the Earn-Out Cash Consideration, as applicable;
  • As a condition to the closing of the Acquisition, Paltalk must effectuate the sale of its “Paltalk”, “Camfrog”, and “Tinychat” applications and all assets and liabilities related to such applications in one or more transactions, such that upon the completion of such transaction or transactions, Paltalk and its related persons no longer hold any right to operate or control such applications, whether directly or indirectly (such transaction or transactions, the “Divestiture Transaction”).
  • Following the Divestiture Transaction, Paltalk will retain (i) all patents, patent applications, and any rights or causes of action related to such applications, and (ii) any assets (including intellectual property) that are not exclusively related to such applications;
  • The Acquisition Agreement provides for customary deal protection provisions, including non-solicitation provisions applicable to Newtek and mutual termination rights; and
  • Certain of Paltalk’s stockholders, directors and members of its executive leadership team have entered into voting and support agreements agreeing to vote their shares of Paltalk common stock in favor of the Paltalk Stock Issuance and the Divestiture Transaction and against alternative transactions or proposals at Paltalk’s 2024 Annual Meeting of Stockholders.

Management, Board and Corporate Matters

  • Following the closing of the Acquisition, Paltalk will cause one representative nominated by Newtek to be appointed to the Paltalk board of directors (the “Paltalk Board”);
  • Paltalk expects that approximately 50 employees currently employed by NTS will become employees of Paltalk following the closing of the Acquisition; and
  • Paltalk will continue to be listed on the Nasdaq Capital Market (“Nasdaq”). Following the closing of the Acquisition, Paltalk plans to change its name from “Paltalk, Inc.” to “Intelligent Protection Management Corp.,” and change its ticker symbol such that Paltalk common stock would cease trading on Nasdaq under the ticker symbol “PALT” and would instead begin trading on Nasdaq under the ticker symbol “IPM”.

Path to Completion

The Paltalk Board has unanimously approved the Acquisition Agreement and the transactions contemplated thereby, including the Paltalk Stock Issuance, has directed Paltalk to pursue the Divestiture Transaction and to negotiate an agreement or agreements relating to the Divestiture Transaction and has agreed to recommend to Paltalk’s stockholders that they vote in favor of the Paltalk Stock Issuance and the Divestiture Transactions at Paltalk’s 2024 Annual Meeting of Stockholders.

The Acquisition is expected to close in the fourth quarter of 2024 or the first quarter of 2025. The closing of the Acquisition is subject to and conditioned upon approval by the stockholders of Paltalk of the Paltalk Stock Issuance and the Divestiture Transaction. It is anticipated that Paltalk’s 2024 Annual Meeting of Stockholders will take place in the fourth quarter of 2024.

Further information regarding the Acquisition, the Acquisition Agreement, the Paltalk Stock Issuance and the Divestiture Transaction will be contained in a proxy statement that Paltalk intends to file with the Securities and Exchange Commission (the “SEC”) and mail to stockholders of Paltalk in advance of Paltalk’s 2024 Annual Meeting of Stockholders.

SOURCE: GlobeNewsWire