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Barry Sternlicht John Lamparski/Getty Images

Warburg and Barry Sternlicht Partnering on Jumbo, 3-Way SPAC Deal

Three special purpose acquisition companies -- two backed by Warburg Pincus, and one backed by Sternlicht -- are in talks to merge with Allied Universal, which is owned by Warburg Pincus.

(Bloomberg)—Buyout firm Warburg Pincus and property billionaire Barry Sternlicht are partnering up in a rare, three-way, blank-check deal worth about $20 billion to take a security services firm public. In another unusual twist, Warburg Pincus already owns the target.

Three special purpose acquisition companies -- two backed by Warburg Pincus, and one backed by Sternlicht -- are in talks to merge with Allied Universal, according to people familiar with the matter. Allied Universal is owned by Warburg Pincus, and the transaction would be the first SPAC deal involving more than one of the investment vehicles.

The deal illustrates how SPAC dealmakers are getting increasingly creative as the merger vehicles begin falling out of favor after booming in popularity for the past two years. A number of SPAC deals have fallen apart in recent months while other companies that went public via blank-check deals have plunged in value.

A representative for Warburg Pincus declined to comment. A representative for Sternlicht didn’t immediately respond to a request for comment.

Warburg Pincus Capital Corp I-A, Warburg Pincus Capital Corp I-B and a SPAC affiliate of JAWS Estates Capital LLC, Sternlicht’s family office, are discussing raising a so-called private investment in public equity, or PIPE, to support a transaction with Allied Universal, the people said. A deal, which has been in negotiations for months, hasn’t been finalized, and terms could change or talks could fall apart. The people asked not to be identified because the discussions aren’t public.

This deal would create a pathway to an exit for Warburg Pincus’s investment in Allied Universal, which describes itself as having the largest security force in North America. Warburg Pincus in 2015 agreed to take a majority stake in Universal Services of America, and later combined it with AlliedBarton Security Services.

The pandemic had minimal impact on Allied Universal, Fitch Ratings Inc. said in a report in November. Allied Universal, which said Monday it struck a strategic partnership with Knightscope Inc., said its annual revenue is approximately $20 billion and that it has more than 800,000 employees worldwide.

Warburg Pincus, one of Wall Street’s oldest and most successful buyout firms, was a somewhat latecomer to SPACs. Last year, it launched the two vehicles, its first SPACs, following peers including TPG Inc., Apollo Global Management Inc. and Thoma Bravo into the market. Warburg Pincus said in filings with the U.S. Securities and Exchange Commission that the SPACs can merge with an affiliate of the buyout firm, pending a fairness opinion from an independent entity.

Sternlicht, chief executive officer of investment firm Starwood Capital Group, has more experience in SPACs, sponsoring blank-check firms that have merged with companies such as metal-printing specialist Velo3D Inc. and Cano Health Inc., a medical provider.

--With assistance from Kiel Porter.

© 2022 Bloomberg L.P.

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