What happened

Shares of special purpose acquisition company (SPAC) Fortress Value Acquisition II (NYSE: FAII) were trading sharply lower on Monday, after the SPAC announced a deal to merge with ATI Physical Therapy. 

As of 2:30 p.m. EST, Fortress Value’s shares were down about 13% from Friday’s closing price.

So what

Fortress Value is a SPAC sponsored by Fortress Investment Group, a New York-based private equity and hedge fund manager. ATI Physical Therapy operates over 800 clinics in the United States. The two said on Monday that they have agreed to merge, in a deal that will provide ATI with funding and take it public.

Here are the key points of the deal:

  • Assuming it’s approved, the merger is expected to bring “up to $645 million” in cash to the post-merger company, which will retain the ATI name.
  • That cash includes a PIPE (for “private investment in public equity”) of $300 million, funded by several hedge funds, including some affiliated with Fortress Investment Group. 
  • The remaining $345 million is the cash raised by the SPAC in its initial public offering. 
  • Advent International and members of ATI’s management team are rolling 100% of their existing equity. (Put another way, they aren’t cashing out.)
  • Proceeds of the deal will be “primarily used to repay existing debt and preferred equity,” the companies said. 
  • The combined company will have a valuation of roughly $2.5 billion. 
Two workers standing in a room full of exercise equipment.

ATI Physical Therapy operates nearly 900 physicalntherapy clinics in the U.S. Image source: ATI Physical Therapy.

ATI isn’t a typical SPAC merger target, in that it’s currently owned by private-equity firm Advent International. And while the press release touted the 2.5 million cases in ATI’s database and the company’s “scalable platform,” physical therapy isn’t exactly a high-growth, high-tech business. 

That may be why Fortress Value’s stock is down today: As SPAC deals go, this isn’t the hot merger that healthcare investors may have been expecting. 

Now what

Put another way, a SPAC sponsored by a private equity firm is merging with a physical therapy company owned by another private equity firm, in a deal that will give the post-merger physical therapy company enough cash to pay off its $541 million in debt. 

If that all sounds a little funky to you, you’re not alone. Assuming that the SPAC’s shareholders sign off on this deal, it’s expected to close by the end of June. 

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