NewtekOne Enters into Agreement to Sell Newtek Technology Solutions, Inc.

Rhea-AI Summary

NewtekOne (Nasdaq: NEWT) has agreed to sell its subsidiary Newtek Technology Solutions (NTS) to Paltalk (Nasdaq: PALT). The deal includes $4 million in cash and 4 million shares of Paltalk preferred stock, with a potential $5 million earn-out based on future performance. This divestiture fulfills NewtekOne's commitment to the Federal Reserve following its acquisition of Newtek Bank. NTS manages IT for about 17,000 customers. The deal is expected to close in Q4 2024 or Q1 2025, subject to approvals. NewtekOne will retain a 30.3% equity interest in Paltalk and one board seat. The sale aims to provide continuity for NTS customers while allowing NewtekOne to participate in potential upside.

Positive

• Fulfills regulatory commitment to divest NTS
• Receives $4 million in cash and 4 million shares of Paltalk preferred stock
• Potential for additional $5 million earn-out based on future performance
• Retains 30.3% equity interest in Paltalk and one board seat
• NTS management team remains intact, ensuring continuity for customers

Negative

• Divestiture of a long-held subsidiary (owned for over 20 years)
• Sale subject to Paltalk stockholder and regulatory approvals

Financial Analyst

NewtekOne's sale of Newtek Technology Solutions (NTS) to Paltalk is a strategic move with mixed financial implications. The deal structure includes $4 million in cash and 4 million shares of preferred stock, potentially convertible to common stock. An additional $5 million earn-out is possible based on future performance.

The transaction allows NewtekOne to comply with Federal Reserve requirements while maintaining a stake in NTS's future growth. However, the immediate financial impact is relatively modest given NewtekOne's size. The deal's true value lies in the potential upside from Paltalk's stock performance and NTS's future growth.

Investors should note that this divestiture, while necessary, removes a revenue stream from NewtekOne. The company's focus on its core financial services may lead to a more streamlined business model, potentially improving overall efficiency and profitability in the long term.

Tech Industry Analyst

This acquisition marks Paltalk's strategic entry into the lucrative cloud infrastructure and cybersecurity markets. NTS's existing customer base of 17,000 provides Paltalk with an immediate foothold in these sectors, positioning it for potential rapid growth.

The deal structure, allowing NewtekOne to retain a significant stake, suggests confidence in NTS's future prospects. Paltalk's management's tech expertise could potentially accelerate NTS's growth through synergies and expanded offerings.

However, integrating NTS into Paltalk's operations may present challenges. The success of this acquisition will largely depend on Paltalk's ability to retain NTS's existing customers while expanding its market share in a highly competitive industry. Investors should monitor post-acquisition performance closely to gauge the deal's long-term value creation potential.

Legal Expert

The transaction's structure reflects careful consideration of regulatory compliance and shareholder interests. NewtekOne's divestiture of NTS aligns with Federal Reserve requirements for financial holding companies, demonstrating proactive regulatory management.

The deal includes safeguards to ensure NewtekOne's equity interest in Paltalk doesn't exceed 33.3% of Paltalk's total equity, complying with the Bank Holding Company Act. This legal structuring allows NewtekOne to maintain a significant stake in NTS's future without running afoul of regulations.

Paltalk shareholders' approval and regulatory clearances are still required, introducing some uncertainty to the deal's completion. The board representation granted to NewtekOne post-closing provides an additional layer of oversight and influence, potentially benefiting both companies' shareholders.

BOCA RATON, Fla., Aug. 12, 2024 (GLOBE NEWSWIRE) -- NewtekOne, Inc. (“NewtekOne” or the “Company”) (Nasdaq: NEWT) has entered into a definitive agreement (the “Agreement”) to sell its wholly owned subsidiary Newtek Technology Solutions, Inc. (“NTS”) to Paltalk, Inc. (“Paltalk”) (Nasdaq: PALT) (the “NTS Sale”). As previously disclosed, in connection with Company’s acquisition of Newtek Bank and transition to a financial holding company, the Company made a commitment to the Board of Governors of the Federal Reserve System to divest or terminate the activities of NTS, which manages information technology hardware and software for approximately 17,000 customers.

Pursuant to the Agreement, Paltalk has agreed to pay to the Company at the closing of the NTS Sale: (i), $4,000,000 in cash, subject to certain purchase price adjustments (the “Cash Consideration”), and (ii) issue to the Company 4,000,000 shares of a newly created series of Paltalk non-voting preferred stock, the Series A Non-Voting Common Equivalent Stock (the “Preferred Stock”) (the “Stock Consideration” and together with the Cash Consideration, the “Closing Consideration”). 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 Closing Consideration, the Company may be entitled to receive an earn-out amount of up to $5,000,000, 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 the 2025 and 2026 fiscal years. The issuance of Preferred Stock to the Company 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,” determined in accordance with the Bank Holding Company Act of 1956, as amended, and to the extent necessary a corresponding increase in the Cash Consideration or cash paid in respect of the earn-out will be made. In addition, following the close, the Company will be entitled to one representative on the Paltalk board of directors.

The parties currently anticipate consummating the NTS Sale in the fourth quarter of 2024 or the first quarter of 2025, 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. At the closing of the NTS Sale, based on the number of shares of Paltalk common stock outstanding as of August 8, 2024, the Company’s equity interest in Paltalk would represent, on an as-converted and fully-diluted basis, approximately 30.3% of Paltalk’s total equity.

Barry Sloane, Chairman, President, and Chief Executive Officer 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. 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. Retaining this non-voting ownership interest in a publicly traded company with NTS at its core and with NTS’ management team in place, was of utmost importance in the selection of Paltalk. NewtekOne will retain all of its intellectual property and patented technology, including NewTracker^®, the Newtek Advantage^®, Newtek^® and NewtekOne^®.”

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."

Sullivan & Cromwell LLP is serving as legal counsel to the Company.

NewtekOne^®, Your Business Solutions Company^®, is a financial holding company, which along with Newtek Bank and NewtekOne's non-bank consolidated subsidiaries, provides a wide range of business and financial solutions under the Newtek^® brand to independent business owners. Since 1999, NewtekOne has provided state-of-the-art, cost-efficient products and services and efficient business strategies to our independent business owner relationships across all 50 states to help them grow their sales, control their expenses and reduce their risk.

NewtekOne’s and its subsidiaries’ business and financial solutions currently include: banking (Newtek Bank, N.A.), Business Lending, SBA Lending Solutions, Electronic Payment Processing, Technology Solutions (Cloud Computing, Data Backup, Storage and Retrieval, IT Consulting), eCommerce, Accounts Receivable Financing & Inventory Financing, Insurance Solutions, Web Services, and Payroll and Benefits Solutions.

Newtek^®, NewtekOne^®, Newtek Bank^®, National Association, Your Business Solutions Company^®, NewTracker^®, Newtek Advantage^® and One Solution for All Your Business Needs^® are registered trademarks of NewtekOne, Inc.

Note Regarding Forward-Looking Statements.
Certain statements in this press release are “forward-looking statements” within the meaning of the rules and regulations of the Private Securities Litigation and Reform Act of 1995. These forward-looking statements are based on the current beliefs and expectations of NewtekOne's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. See “Note Regarding Forward-Looking Statements” and the sections entitled “Risk Factors” in our filings with the Securities and Exchange Commission which are available on NewtekOne's website https://investor.newtekbusinessservices.com/sec-filings) and on the Securities and Exchange Commission’s website (www.sec.gov). Any forward-looking statements made by or on behalf of NewtekOne speak only as to the date they are made, and NewtekOne does not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements were made.

SOURCE: NewtekOne, Inc.

Investor Relations & Public Relations
Contact: Jayne Cavuoto
Telephone: (212) 273-8179 / jcavuoto@newtekone.com

FAQ

What is the value of the deal between NewtekOne and Paltalk for NTS?

The deal includes $4 million in cash, 4 million shares of Paltalk preferred stock, and a potential $5 million earn-out based on future performance.

When is the NTS sale expected to close?

The sale is anticipated to close in the fourth quarter of 2024 or the first quarter of 2025, subject to approvals and conditions.

What equity stake will NewtekOne (NEWT) retain in Paltalk after the NTS sale?

NewtekOne will retain approximately 30.3% equity interest in Paltalk on an as-converted and fully-diluted basis.

Why is NewtekOne (NEWT) selling Newtek Technology Solutions?

The sale fulfills NewtekOne's commitment to the Federal Reserve to divest NTS following its acquisition of Newtek Bank and transition to a financial holding company.