CFO Intelligence Magazine – Winter 2022
Perimeter Solutions, CFO
Whatever it takes
Perimeter Solutions CFO Barry Lederman wasn’t going to let anything get between him and the company’s fast-track IPO — not even heart surgery
Before joining Perimeter Solutions as CFO in 2019, Barry Lederman had helped prep a company in a sale to a private equity firm, but he had never participated in a public offering. In 2021, however, Lederman boned up on the public process and successfully shepherded Perimeter Solutions — a global manufacturer of firefighting products and lubricant additives headquartered in St. Louis — through a rapid-fire reverse IPO. And did
it while recuperating from heart surgery.
“At the time I came on board, Perimeter Solutions was owned by SK Capital, a private equity firm” Lederman tells CFO Intelligence. “But about a year later, we were approached by a SPAC (Special Purpose Acquisition Company) called EverArc Holdings that traded on the LSE (London Stock Exchange). EverArc wanted to buy us out and take us public and relist on a U.S. Stock Exchange.” EverArc offered “all the positives of a SPAC and none of the typical drawbacks seen with U.S. based SPACs,” he adds.
The buyout, valued at about US$2 billion, was announced in June 2021, and satisfied at least two goals: prior owner SK Capital monetized its investment; and going public through a SPAC, specifically, would give Perimeter’s new owners faster access to public-market funds since the listing could be done in as little as three months, compared to up to nine months or more in a traditional IPO.
“An IPO is never simple, but since a SPAC involves an already-listed company, you can cut out some extra steps,” he notes. “Still, there were challenges, particularly around recasting our books and records from our private-company accounting methods to public company GAAP (Generally Accepted Accounting Principles). That included revaluing assets from 2018 — when SK Capital had acquired Perimeter Solutions — as well as recasting the amortization of goodwill, intangible assets and tax accounting. And our timeline called for getting everything done within about three months, including an audit by an independent CPA firm.”
That schedule hit a road bump when Perimeter’s legacy auditing firm, KPMG, had a potential conflict of interest under the SEC’s very strict rules. The company and the CPA firm applied to the SEC for a waiver, but the agency turned thumbs down on the request. “So, we brought BDO aboard,” Lederman recalls. “And now we had auditors
who were new to our company, and as such had to not only do the private-to-public revaluations, but also had to satisfy themselves regarding the prior years’ financial statements — which meant they had to devise alternate audit methods for inventory and other categories. Of course, while all this was going on we were in the process
of preparing our S-1 and S-4 registration statements for the SEC, so it was quite a stretch for our team.”
Still, in June and July, “We made very good progress,” he says. “Perimeter’s CEO Edward Goldberg, Chief Legal Counsel Noriko Yokozuka and I formed a triangle that coordinated the activity internally and externally. Along with our respective teams, we made sure that the BDO auditors were familiar with our historical data so they could better understand and plan their audit plan and scope.”
Perimeter has “a well-structured electronic system of document repositories,” he adds, “which enabled us to quickly identify relevant documents and get them to the BDO auditors without any delays. We also gave them direct access to our ERP [Enterprise Resource Planning] system, providing cross-departmental visibility to the external auditors. The audit and the SEC registration were moving along nicely.”
Then, in the first week of August, Lederman got some frightening news. “I had a previously scheduled minor operation to get a stent,” he recalls. “But during the procedure, the physicians determined that I would need bypass surgery due to the complexity and risks associated with the location of the blockage.”
It was a race against the clock to do the operation as quickly as possible, but Lederman knew that the S4 filing deadline was also looming. “I went in for the operation on August 7 and by August 9 I was already taking phone calls,” he says. “We made our first filing of the S4 on September 1and while we were waiting for the SEC’s feedback, we worked on raising new debt. A few weeks later, I learned that I had complications with my bypass and would now require a stent. We had also received feedback from the SEC and needed to provide responses and update our
filing. On the morning of October 7, I had the stent procedure, and then that afternoon my team and I helped arrange for Perimeter to issue $675 million of notes as well as submit the responses to the SEC, including our amended S4.”
The company did get approval from the SEC on Friday November 5, and on November 9, the transaction was closed and Perimeter Solutions was listed, as PRM, on the New York Stock Exchange. The transaction was primarily funded from a combination of EverArc’s $400M cash balances, approximately $1.15 billion raised from an equity issuance to institutional shareholders, the $675 million 5% notes that Lederman helped facilitate from his hospital room, and a $100 million issuance of preferred equity to SK Capital. To enhance liquidity, Perimeter also entered into a five-year revolving credit facility that provides for an additional borrowing capacity of $100 million.
Explaining the debt structure, Lederman notes that, “Based on our credit ratings, the leverage ratio is in a good spot and enhances our ability to get financing at reasonable rates.”
Lederman and his team coordinate the company’s global finances in real time thanks to the fact that all of Perimeter’s operations are on a single ERP system — which eliminates reconciliation and other time-consuming activity that can come when multiple independent systems have to be patched together — giving the finance crew easy access to monitor cash, inventory and other mission-critical data.
“It goes beyond financial management,” he explains. “Our fire-safety business includes formulation and manufacturing of fire management products, along with services and pre-treatment solutions for managing wildland, military, industrial and municipal fires. We simply can’t have an out-of-stock situation.”
A series of swings in the economy has added to the challenge of balancing inventory levels and cash flow, he acknowledges, but leveraging the finance team’s forecasting experience with the sophisticated ERP system has
enabled them to ride it out. At the close of 2019, Perimeter’s inventory stood at about $69.9 million, with a healthy 2x turn level. But a jump in sales during 2020 — to $339.6 million from the previous year’s $239.3 million — helped to drive an inventory drawdown to $58.8 million at the close of 2020. “Since then we’re cautiously building it up, and inventory at the end of June 2021 was about $90.1 million,” Lederman adds.
He’s optimistic about the company’s continued prospects. ”The eight-year notes carry a reasonable interest rate and duration, and we believe that our free cash flow will enable us to service it,” Lederman says. “As we get closer to the maturity date we’ll consider the interest rate environment and Perimeter’s financial condition, and we’ll make a decision about either refinancing, paying it down or adding more leverage as necessary. Right now, the allocation between equity and debt is just right, and our cash position gives us sufficient flexibility for continued growth.”