Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed under “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC. These risks could materially and adversely affect the business, financial condition and results of operations of CBIZ.
On July 30, 2024, we entered into a Merger Agreement to acquire the non-attest business of Marcum for a total consideration of approximately $2.3 billion. The Merger and the transactions contemplated by the Merger Agreement are referred to herein as the “Transaction". Subject to the satisfaction of closing conditions, the Transaction is expected to close in the fourth quarter of 2024. Refer to Note 12. Subsequent Events to the accompanying unaudited condensed consolidated financial statements for further discussion regarding the Transaction. Risks related to the Transaction follow:
If the conditions to the Transaction are not satisfied, the Transaction will not be completed.
The completion of the Transaction is subject to various closing conditions, including, among others, (a) the expiration of all waiting periods and receipt of all approvals required under the Hart-Scott-Rodino Antitrust Improvements Act of 1976; (b) the Company obtaining stockholder approval of the issuance of the shares in connection with the Transaction as required by the rules of the New York Stock Exchange; (c) Marcum obtaining the requisite approval of its partners as specified in the Merger Agreement; and (d) the Company obtaining debt financing. Certain of the conditions to the closing of the Transaction are not within our control, and we cannot predict when or if these conditions will be satisfied. The failure to satisfy any of the required conditions could delay the completion of the Transaction or prevent it from occurring. Any delay or failure in completing the Transaction could cause us not to realize some or all of the benefits that we expect to achieve. There can be no assurance that the conditions to the closing of the Transaction will be satisfied or that the Transaction will be completed.
Failure to complete the Transaction could negatively impact our stock price and our future business and financial results.
If the Transaction is not completed for any reason, our ongoing business may be adversely affected and, without realizing any of the benefits of the Transaction, we could be subject to a number of negative consequences, including, among others: (i) negative reactions from investors and the financial markets, including negative impacts on our stock price; (ii) payments of a termination fee if the Transaction is not completed due to failure to receive approval of our stockholders or failure to receive financing; and (iii) significant transaction expenses, both direct and indirect in the form of opportunity costs, to us in connection with the Transaction, which have been and will be incurred regardless of whether the Transaction is completed. If the Transaction is not completed or if completion of the Transaction is delayed, any of these risks may adversely affect our business, financial condition, financial results, and stock price.
We may fail to realize the anticipated benefits of the Transaction, or it may prove disruptive and could result in the combined business failing to meet our expectations.
The success of the Transaction will depend, in part, on our ability to successfully integrate Marcum with our current operations. The Transaction will be the Company’s largest acquisition to date, and the size and complexity of the Transaction creates inherent challenges, risk and uncertainty in the integration process. If we are not able to successfully integrate Marcum, operationally and culturally, the anticipated benefits of the Transaction may not be realized fully or at all or may take longer or cost more to realize than expected. The process of integrating Marcum’s operations will likely require a disproportionate amount of resources and management attention. Our management team may also encounter unforeseen difficulties in managing the integration process. It is possible that the integration process could result in the loss of valuable employees or difficulty in attracting new talent, the disruption of our and Marcum’s ongoing businesses and client relationships or inconsistencies in standards, controls, procedures, practices, and policies that could adversely impact our operations. Disruption and distraction caused by this process could also prevent us from pursuing, or otherwise divert resources and attention from, otherwise attractive business and growth opportunities.
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Even if we successfully integrate Marcum, there can be no assurance we will realize anticipated benefits. While our management and advisors have spent significant time and resources evaluating Marcum’s business, it is difficult to predict future performance and benefits from a Transaction involving large and complex organizations. It is also possible that we may have underestimated liabilities that we are assuming, or we may assume liabilities that are unknown or that we did not foresee, any of which could increase the effective cost of the Transaction and adversely impact our financial condition or results. The performance and benefits that we ultimately achieve may be influenced by a variety of factors, many of which are outside of our control. If we do not achieve the anticipated benefits of the Transaction, at all or in the expected timeframe, our business would be adversely affected.
Our increased leverage following the Transaction may adversely impact our business.
We will incur substantial indebtedness to fund the Transaction. As a result, our leverage ratio will increase significant immediately following the closing. If we do not perform in accordance with our expectations following the Transaction, we could be unable to reduce leverage to normalized levels, whether in anticipated timeframes or at all. We could also face difficulties servicing and complying with the covenants and other terms of our debt instruments. In addition, if we are unable to reduce our levels of indebtedness following the Transaction, we may be unable to pursue business and growth opportunities and uses of capital that would be beneficial to us and our stockholders, such as additional acquisitions and share repurchases. We also cannot provide assurance that we will be able to consummate the financing on the terms contemplated by our financing commitments, if at all. If the financing that we ultimately obtain is on less favorable terms than currently contemplated, the foregoing risks could be exacerbated.
The significant number of shares issuable as consideration for the Transaction may adversely impact our stock price.
There can be no assurance the Transaction will be accretive to earnings per share, at all or in expected timeframes. If the Company does not perform as expected following the Transaction or costs are greater than anticipated, our earnings per share could be adversely impacted by the significant increase in outstanding shares. In addition, although restrictions on resale under applicable securities laws will prevent sales in at least the six months following closing, Marcum partners will not be subject to contractual limitations on their ability to resell shares once they receive them. While the delivery of the stock consideration in installments over approximately three years may mitigate the potential for sales of a large volume at any particular time, persistent selling, or the perception of persistent selling, could adversely impact the market price of our common stock.
Our current stockholders will have a reduced ownership and voting interest after the Transaction compared to their current ownership.
Once fully issued, the shares issuable to Marcum partners in the transaction are expected to constitute approximately 22% of our outstanding shares, without giving effect to any subsequent issuances, repurchases or other changes in the number of shares outstanding. As a result, our current stockholders will own a meaningfully smaller percentage of the Company than they currently own, and collectively will have less ability to influence the Company's management and policies. In addition, to the extent that Marcum partners retain a significant portion of the shares that are issued to them, they will collectively have significant influence on any matters requiring a vote of stockholders.
The Transaction could exacerbate the existing business risk that we face.
During the pendency of and following the Transaction, we will continue to be subject to the business risks that we currently face as described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023. However, it may be more challenging to effectively manage and mitigate these risks as a result of the significant resources that will be dedicated to the execution and integration of the Transaction. Disruptions or distractions as a result these efforts could make the risks we already face more likely to be realized, or subject us to additional risks. As part of our integration efforts, we will also need to ensure that our risk management policies and controls are appropriate for a larger and more complex organization. This will be an inherently challenging process that will take time, and we could be subject to elevated risks if we are not successful or are delayed in implementing effective policies and controls. In addition, the expanded size and complexity of our business after the Transaction is completed, as well as changes to the nature of our business, could increase the magnitude of some of the risks we face. There are substantial uncertainties associated with all of the foregoing, and any these risks may adversely affect our business, financial condition, financial results, and stock price.
Except as disclosed above, there have been no material changes to the risk factors disclosed under "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2023.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.