Who We Are
We are a global leader in the design, manufacturing
and servicing of critical digital infrastructure technology that powers, cools, deploys, secures and maintains electronics that
process, store and transmit data. We provide this technology to data centers, communication networks and commercial & industrial
environments worldwide.
We aim to help create a world where critical
technologies always work, and where we empower the vital applications of the digital world.
Our Business
We have a suite of comprehensive
offerings, innovative solutions and a leading service organization that supports a diversified group of customers, which we
deliver from engineering, manufacturing, sales and service locations in more than 45 countries across the Americas, Asia
Pacific and Europe, the Middle East and Africa (“EMEA”). We
provide the hardware, software and services to facilitate an increasingly interconnected marketplace of digital systems where
large amounts of indispensable data need to be transmitted, analyzed, processed and stored. Whether this growing quantity of
data is managed centrally in hyperscale/cloud locations, distributed at the so-called “edge” of the network,
processed in an enterprise location or managed via a hybrid platform, the underpinnings and operations of all those locations
rely on our critical digital infrastructure and services.
We have a broad range of offerings,
which include power management products, thermal management products, integrated rack systems, modular solutions, and
management systems for monitoring and controlling digital infrastructure. These comprehensive offerings are integral to the
technologies used for a number of services, including e-commerce, online banking, file sharing, video on-demand, energy
storage, wireless communications, Internet of Things (“IoT”) and
online gaming. In addition, through our global services network, we provide lifecycle management services, predictive
analytics and professional services for deploying, maintaining and optimizing these products and their related systems.
Our primary customers are businesses across
three main end markets: (1) data centers (including hyperscale/cloud, colocation, enterprise and edge), (2) communication networks
and (3) commercial and industrial environments. Within these areas we serve a diverse array of industries, including social media,
financial services, healthcare, transportation, retail, education and government. We approach these industries and end users through
our global network of direct sales professionals, independent sales representatives, channel partners and original equipment manufacturers.
Many of our installations are completed in collaboration with our customers and we work with them from the initial planning phase
through delivery and servicing of the completed solution. This depth of interaction supports key customer relationships, sometimes
spanning multiple decades. Our most prominent brands include Liebert, NetSure, Geist and Avocent.
Our business is organized into three
segments according to our main geographic regions—the Americas, Asia Pacific and EMEA—and we manage and report
our results of operations across these three business segments. For the year ended December 31, 2019, Vertiv’s revenue
was $4,431.2 million, of which 50% was transacted in the Americas; 29% was transacted in Asia Pacific; and 21% was transacted
in EMEA as compared with our revenue for the year ended December 31, 2018 of $4,285.6 million.
Our Customers
Our
primary customers are businesses across three main end markets: (1) data centers (including hyperscale/cloud, colocation,
enterprise and edge), (2) communication networks and (3) commercial and industrial environments.
Data Centers:
The primary purpose of a data center is to process, store and distribute data. There are a host of different sizes and types of
data centers, but primarily they can be broken down into the following classifications:
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Cloud/Hyperscale: These facilities are massive in scale and are primarily used to support off-premise cloud applications. This portion of the industry is growing rapidly. Examples of companies in this space include Microsoft Azure, Amazon Web Services, and Google Cloud.
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Colocation: These facilities range in size and offer users a location where they can place their information technology (“I.T.”) equipment, while the building and critical digital infrastructure is owned by the colocation company. This portion of the industry is growing rapidly. Examples of companies in this space include Digital Realty and Equinix.
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Enterprise: This classification refers to the “Fortune 1000” type businesses that have their own on-premises data centers. Examples of companies in this space include Goldman Sachs, J.P. Morgan, Walmart and Cleveland Clinic. We have found that the growth of the enterprise market, based on data centers and square footage, has generally been flat for the past three years.
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Edge: These types of data centers are at the infancy stage of their development and will be utilized by all of the aforementioned categories in the future. These locations are decentralized by nature and located closer to where the data is being demanded (i.e., towards the edge of the network). This market is small today, but the opportunities for growth in this space are expected to increase as the proliferation of connected devices and data storage needs continue to grow in the future.
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Communication
Networks: This space is comprised of wireline, wireless and broadband companies. These companies create content and are ultimately
responsible for distributing voice, video and data to businesses and consumers. They deliver this data through an intricate network
of wireline and wireless mediums. Additionally, some of these companies’ locations act as data centers where the data is
delivered and also processed and stored. This sector has a generally low single-digit growth profile.
Commercial/Industrial:
This space is comprised of those applications that are tied to a company’s critical systems. Examples include transportation,
manufacturing, oil and gas, etc. These applications are growing in their need for intelligent infrastructure and may be regulated
or need to pass some level of compliance. The growth in this area generally tracks Growth Domestic Product.
Our Offerings
We design, manufacture
and service critical digital infrastructure technology for data centers, communication networks and commercial/industrial environments.
Our principal offerings include:
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Critical infrastructure & solutions
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We identify delivery
of products as performance obligations within the critical infrastructure & solutions offering. Such products include
AC and DC power management, thermal management, modular hyperscale type data center sites, as well as hardware for managing I.T.
equipment.
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I.T. and edge infrastructure
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Performance obligations
within I.T. and edge infrastructure include the delivery of racks, rack power, rack power distribution, rack thermal systems, and
configurable integrated solutions.
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Services & software solutions
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Services include
preventative maintenance, acceptance testing, engineering and consulting, performance assessments, remote monitoring, training,
spare parts, and critical digital infrastructure software.
Sales and Marketing
Due to the global
nature of our customers, we go to market through multiple channels to ensure that we map our coverage to align with our customers’
buying organization. Our primary selling method is direct sales. To accomplish this, we have over 2,300 sales people located around
the world. Additionally, we utilize a robust network of channel partners in the form of distributors, I.T. resellers, value-added
retailers and original equipment manufacturers. This network helps extend our reach to all corners of the world in which we operate.
Backlog
Vertiv’s estimated combined order
backlog was approximately $1,401.2 million and $1,502.0 million as of December 31, 2019 and 2018, respectively. The backlog consists
of product and service orders for which a customer purchase order or purchase commitment has been received and which have not yet
been delivered. Orders may be subject to cancellation or rescheduling by the customer. The following table shows estimated backlog
by business segment at December 31, 2019 and 2018, respectively.
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As of December 31,
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(Dollars in millions)
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2019
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2018
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Americas
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$
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701.8
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$
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806.8
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Asia Pacific
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297.3
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281.3
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EMEA
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402.1
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413.9
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Total Backlog
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$
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1,401.2
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$
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1,502.0
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The vast majority of the combined backlog
as of December 31, 2019 is considered firm and is expected to be shipped within one year. We do not believe that Vertiv’s
backlog estimates as of any date are necessarily indicative of our revenues for any future period. Backlog estimates are subject
to a number of risks. See “Item 1A. Risk factors—Risks relating to Our Business—We may not realize all of
the sales expected from our backlog of orders and contracts.”
Due to the variability of shipments under
large contracts, customers’ seasonal installation considerations and variations in product mix and in profitability of individual
orders, we can experience significant quarterly fluctuations in revenue and operating income. These fluctuations are expected to
continue in the future. Consequently, it may be more meaningful to focus on annual rather than interim results.
Research and Development
We are committed to outpacing our competitors
and being first to market with new product developments and improvements. In 2019, Vertiv spent $198.3 million on Research and
Development (“R&D”). We use our R&D budget to focus on fostering new product innovation and engineering.
We have global product leaders supported by global product lines and engineering organizations to ensure that we continue to be
ahead of market trends by leveraging our regional input. These global groups are also supported by in-region product and engineering
teams who are responsible for understanding and adapting our offerings to local market and customer requirements. These teams work
closely with our sales and service network which allows us to receive and act upon customer feedback to continuously improve our
offerings.
Competition
We encounter competition from a variety
of areas; however the majority of our competitors are targeted within a specific offering or a specific geographic location. Competition
in our markets is primarily on the basis of reliability, quality, price, service and customer relationships. Across our three markets,
we encounter two principal types of competitors: niche players and global competitors. We believe we differentiate ourselves through
our ability to service customers in each phase of the product lifecycle, our large customer network which allows us to address
the local and regional needs of our customer base, our ability to apply our understanding of trends, technologies and the implementation
of our offerings to our customers’ utilization of technology and our integration with third party software which allows us
to customize solutions according to a particular customer’s needs.
Facilities, Operations and Supply Chain
Being able to serve our customers both on
a global and regional level is important, thus that is how we have built our manufacturing footprint. We have significant manufacturing
facilities in North and South America, Asia Pacific and EMEA. This well-diversified global network of facilities allows for cost,
delivery and inventory optimization. Our manufacturing facilities are supported by regional engineering and configuration centers
where, if our customers desire, we can tailor our products to the local market and to our customer’s requirements.
We have established a robust supply chain
that is complementary to our manufacturing footprint. In addition to providing high quality service to our customers, this strategy
avoids a significant dependence on a particular supplier or region.
Employees
As of December 31, 2019, Vertiv had over
19,800 employees operating globally. Management believes that our employee relations are generally favorable. We are headquartered
in Columbus, Ohio. As of December 31, 2019, GSAH had one officer.
Intellectual Property
Our ability to create, obtain and protect
intellectual property is important to the success of our business and our ability to compete. We create IP in our operations globally,
and we work to protect and enforce our IP rights. We consider our trademarks valuable assets, including well-known marks such as
Vertiv, Geist, Liebert, Energy Labs, NetSure, Avocent and Chloride.
In addition, we integrate licensed third
party technology and IP into certain aspects of our products. Although certain third party proprietary IP rights are important
to our success, we do not believe we are materially dependent on any particular third party patent of license or group.
As of December 31, 2019 Vertiv had approximately
2,600 patents and approximately 500 pending, published or allowed patent applications, and approximately 1,700 registered trademarks
and approximately 200 pending trademark applications.
Raw Materials
We obtain raw materials and supplies from
a variety of sources and generally from more than one supplier. We believe our sources and supplies of raw materials are adequate
for our needs.
Environmental, Health and Safety
We are subject to a broad range of
foreign and domestic environmental, health and safety laws, regulations and requirements, including those relating to the
discharge of regulated materials into the environment, the generation and handling of hazardous substances and wastes, human
health and safety and the content, composition and takeback of our products. We maintain an environmental, health and safety
compliance program, including policies and standards, dedicated staff, and periodic auditing and training. We also have a
program for complying with the European Union Restriction on the Use of Certain Hazardous Substances and Waste Electrical and
Electronic Equipment Directives, the China Restriction of Hazardous Substances law, the European Union Registration,
Evaluation, Authorization and Restriction of Chemicals regulation, and similar requirements.
At sites which we own, lease or operate,
or have previously owned, leased or operated, or where we have disposed or arranged for the disposal of hazardous materials, we
are currently liable for contamination, and could in the future be liable for additional contamination. We have projects under
way at certain current and former manufacturing facilities to investigate and remediate environmental contamination. Compliance
with laws regulating contamination and the discharge of materials into the environment or otherwise relating to the protection
of the environment has not had a material effect on our capital expenditures, earnings or competitive position.
Business Combination
GSAH was incorporated
on April 25, 2016 as a Delaware corporation under the name “GS Acquisition Holdings Corp” and formed for the purpose
of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination
with one or more businesses. On June 12, 2018, GSAH closed its IPO of 69,000,000 units,
including 9,000,000 units issued pursuant to the exercise by the underwriters of their option to purchase additional units in full,
at a price of $10.00 per unit, generating proceeds to GSAH of $690,000,000 before underwriting discounts and expenses. Simultaneously
with the closing of the IPO, GSAH closed the private placement of an aggregate of 10,533,333 warrants, each exercisable to purchase
one share of Class A common stock at an exercise price of $11.50 per share (the “private placement warrants”
and, together with the public warrants, the “warrants”), initially issued to GS DC Sponsor I LLC, a Delaware
limited liability company (our “Sponsor”), at a price of $1.50 per private placement warrant, generating proceeds
of $15,800,000.
On the Closing
Date, Vertiv Holdings Co (formerly known as GS Acquisition Holdings Corp), consummated the Business Combination pursuant to that
certain Merger Agreement, by and among GSAH, Vertiv Holdings, the Vertiv Stockholder, the First Merger Sub and the Second Merger
Sub. As contemplated by the Merger Agreement, (1) First Merger Sub merged with and into Vertiv Holdings, with Vertiv Holdings
continuing as the surviving entity and (2) immediately following the First Merger and as part of the same overall transaction
as the First Merger, Vertiv Holdings merged with and into Second Merger Sub, with Second Merger Sub continuing as the surviving
entity and renamed “Vertiv Holdings, LLC.” As a result of the consummation of the Business Combination, (a) the
Company directly owns all of the equity interests of Vertiv Holdings, LLC and indirectly owns the equity interests of its subsidiaries
and (b) the Vertiv Stockholder, the sole equity owner of Vertiv Holdings prior to the Business Combination, holds 118,261,955
shares of our Class A common stock as of March 9, 2020. In connection with the Business Combination, the registrant changed
its name from GS Acquisition Holdings Corp to “Vertiv Holdings Co”.
On February 6,
2020, GSAH’s stockholders, at a special meeting of GSAH, approved and adopted the Merger Agreement, and approved the Business
Combination proposal and the other related proposals presented in the definitive proxy statement filed with the SEC on January 17,
2020 (the “Proxy Statement”).
The aggregate merger
consideration paid by GSAH in connection with the consummation of the Business Combination was approximately $1.5 billion (the
“Merger Consideration”). The Merger Consideration was paid in a combination of cash and stock. The amount of
cash consideration paid to the Vertiv Stockholder upon the consummation of the Business Combination was $341.6 million. The remainder
of the consideration paid to the Vertiv Stockholder upon the consummation of the Business Combination was stock consideration (“Stock
Consideration”), consisting of 118,261,955 newly-issued shares of our Class A common stock (the “Stock
Consideration Shares”), which shares were valued at $10.00 per share for purposes of determining the aggregate number
of shares of our Class A common stock payable to the Vertiv Stockholder as part of the Merger Consideration. In addition,
the Vertiv Stockholder is entitled to receive additional future cash consideration with respect to the Business Combination in
the form of amounts payable under the Tax Receivable Agreement, dated as of the Closing Date, by and between the Company and the
Vertiv Stockholder (the “Tax Receivable Agreement”).
Concurrently with
the execution of the Merger Agreement, GSAH entered into subscription agreements (the “Subscription Agreements”)
with Atlanta Sons LLC (the “Cote PIPE Investor”),
a Delaware limited liability company and an affiliate of David M. Cote, GSAH Investors
Emp LP (the “GS ESC PIPE Investor”), a Delaware limited partnership and an affiliate of The Goldman Sachs Group,
Inc., a Delaware corporation (NYSE: GS) and its affiliates (“Goldman Sachs”), and certain other “accredited
investors” (as defined in Rule 501 under the Securities Act), and their permitted transferees (collectively with
the Cote PIPE Investor and the GS ESC PIPE Investor, the “PIPE Investors”), including certain executive officers
of Vertiv (the “Subscribing Vertiv Executives”), pursuant to which the PIPE Investors collectively subscribed
for 123,900,000 shares of our Class A common stock (the “PIPE Shares”) for an aggregate purchase price
equal to $1,239,000,000. The private placement pursuant to which the PIPE Investors purchased the PIPE Shares (the “PIPE
Investment”) was consummated in connection with the consummation of the Business Combination. Each of GS
Sponsor LLC, a Delaware limited liability company and an affiliate of Goldman Sachs (the “GS Sponsor Member”),
Cote SPAC 1 LLC, a Delaware limited liability company managed by David M. Cote
(the “Cote Sponsor Member” and, together with the GS Sponsor Member, the “Sponsor
Members”), and Mr. James Albaugh, Mr. Roger Fradin and Mr. Steven S. Reinemund, GSAH’s independent
directors prior to the Business Combination (such individuals collectively with the Sponsor Members, the “Initial
Stockholders”) agreed to waive the anti-dilution adjustments provided for in GSAH’s amended
and restated certificate of incorporation, dated June 7, 2018 (“GSAH’s Certificate of Incorporation”),
which were applicable to GSAH’s shares of Class B common stock prior to the Business Combination. As a result of such waiver,
the 17,250,000 shares of GSAH’s Class B common stock automatically converted into shares of our Class A common stock
on a one-for-one basis upon the consummation of the Business Combination (such shares prior to and after such conversion,
the “founder shares”).
On
the Closing Date, in connection with the Business Combination, we entered into certain related agreements including the Tax Receivable
Agreement, the Amended and Restated Registration Rights Agreement and the Stockholders Agreement (each of which is described below
under “—Related Agreements.”
Related
Agreements
Amended and Restated Registration Rights Agreement
On the Closing Date, we entered into the
Amended and Restated Registration Rights Agreement (the “Amended and Restated Registration Rights Agreement”), with
the Initial Stockholders, the Vertiv Stockholder, the GS ESC PIPE Investor, the Cote PIPE Investor and certain other PIPE Investors (collectively,
with each other person who has executed and delivered a joinder thereto, the “RRA Parties”), pursuant to which
the RRA Parties are entitled to registration rights in respect of certain shares of the Company’s Class A common stock
and certain other equity securities of the Company that are held by the RRA Parties from time to time.
The Amended and Restated Registration Rights
Agreement provides that the Company will as soon as practicable but no later than the later of (i) 45 calendar days following the
consummation of the Business Combination and (ii) 90 calendar days following the Company’s most recent fiscal year end, file
with the SEC a shelf registration statement pursuant to Rule 415 under the Securities Act registering the resale of certain shares
of the Company’s Class A common stock and certain other equity securities of the Company held by the RRA Parties
and will use its commercially reasonably efforts to have such shelf registration statement declared effective as soon as practicable
after the filing thereof, but no later than the earlier of (x) the 90th calendar day following the filing date if the SEC
notifies the Company that it will “review” such shelf registration statement and (y) the 10th business day after
the date the Company is notified in writing by the SEC that such shelf registration statement will not be “reviewed”
or will not be subject to further review.
Each of the GS Sponsor Member, the Cote
Sponsor Member and the Vertiv Stockholder is entitled to make up to two demand registrations in any 12 month period in connection
with an underwritten shelf takedown offering, in each case subject to certain offering thresholds, applicable lock-up restrictions
and certain other conditions. In addition, the RRA Parties have certain “piggy-back” registration rights. The
Amended and Restated Registration Rights Agreement includes customary indemnification and confidentiality provisions. The
Company will bear the expenses incurred in connection with the filing of any registration statements filed pursuant to the terms
of the Amended and Restated Registration Rights Agreement.
Stockholders Agreement
On the Closing Date, the Company, the GS
Sponsor Member, the Cote Sponsor Member and the Vertiv Stockholder entered into the Stockholders Agreement (the “Stockholders
Agreement”). The Stockholders Agreement provides that the Vertiv Stockholder may not transfer its Stock Consideration
Shares until August 5, 2020, subject to exceptions allowing for certain transfers to related parties and transfers in connection
with extraordinary transactions by the Company.
Pursuant to the Stockholders Agreement,
the Vertiv Stockholder has the right to nominate up to four directors to our Board of Directors, subject to its ownership percentage
of the total outstanding shares of Class A common stock. If the Vertiv Stockholder holds: (i) 30% or greater of the outstanding
Class A common stock, it will have the right to nominate four directors (two of which must be independent); (ii) less than
30% but greater than or equal to 20% of the outstanding Class A common stock, it will have the right to nominate three directors
(one of which must be independent); (iii) less than 20% but greater than or equal to 10% of the outstanding Class A common
stock, it will have the right to nominate two directors; (iv) less than 10% but greater than or equal to 5% of the outstanding
Class A common stock, it will have the right to nominate one director; and (iv) less than 5% of the outstanding Class A
common stock, it will not have the right to nominate any directors. As long as the Vertiv Stockholder has the right to nominate
at least one director, the Vertiv Stockholder shall have certain rights to appoint its nominees to committees of the Board of Directors
and the Company shall take certain actions to ensure the number of directors serving on the Board of Directors does not exceed
nine. In addition, the Stockholders Agreement provides that so long as the Company has any Executive Chairman or Chief Executive
Officer as a named executive officer, the Company shall take certain actions to include such Executive Chairman or Chief Executive
Officer on the slate of nominees recommended by the Board of Directors for election. The Stockholders Agreement also provides that,
for so long as the Vertiv Stockholder holds at least 5% of our outstanding Class A common stock, the Vertiv Stockholder will
have the right to designate an observer to attend meetings of the Board, subject to certain limitations.
Tax Receivable Agreement
On the Closing Date, the Company
entered into the Tax Receivable Agreement, which generally provides for the payment by us to the Vertiv Stockholder of 65% of
the cash tax savings in U.S. federal, state, local and certain foreign taxes, that we actually realize (or are deemed to
realize) in periods after the closing of the Business Combination as a result of (i) increases in the tax basis of
certain intangible assets of Vertiv resulting from certain pre-Business Combination acquisitions, (ii) certain
U.S. federal income tax credits for increasing research activities (so-called “R&D credits”)
and (iii) tax deductions in respect of certain Business Combination expenses. We expect to retain the benefit of the
remaining 35% of these cash tax savings.
For purposes of the Tax Receivable Agreement,
the applicable tax savings will generally be computed by comparing our actual tax liability for a given taxable year to the amount
of such taxes that we would have been required to pay in such taxable year without the tax basis in the certain intangible assets,
the U.S. federal income tax R&D credits and the tax deductions for certain Business Combination expenses described above. Except
as described below, the term of the Tax Receivable Agreement will continue for twelve taxable years following the closing of the
Business Combination. However, the payments described in (i) and (ii) above will generally be deferred until the close of
our third taxable year following the closing of the Business Combination. The payments described in (iii) above will generally
be deferred until the close of our fourth taxable year following the closing of the Business Combination and then payable ratably
over the following three taxable year period regardless of whether we actually realize such tax benefits. Payments under the Tax
Receivable Agreement are not conditioned on the Vertiv Stockholder’s continued ownership of our stock.
Under certain circumstances (including
a material breach of our obligations, certain actions or transactions constituting a change of control, a divestiture of
certain assets, upon the end of the term of the Tax Receivable Agreement or, after three years, at our option), payments
under the Tax Receivable Agreement will be accelerated and become immediately due in a lump sum. In such case, the payments
due upon acceleration would be based on the present value of our anticipated future tax savings using certain valuation
assumptions, including that we will generate sufficient taxable income to fully utilize the applicable tax assets and
attributes covered under the Tax Receivable Agreement (or, in the case of a divestiture of certain assets, the applicable tax
attributes relating to such assets). Consequently, it is possible in these circumstances that the actual cash tax savings
realized by us may be significantly less than the corresponding Tax Receivable Agreement payments we are required to make at
the time of acceleration. Furthermore, the acceleration of our obligations under the Tax Receivable Agreement could have a
substantial negative impact on our liquidity. Additionally, the obligation to make payments under the Tax Receivable
Agreement, including the acceleration of our obligation to make payments in the event of a change of control, could make us a
less attractive target for a future acquisition.
While the timing of any payments under the
Tax Receivable Agreement will vary depending upon the amount and timing of our taxable income, we expect that the payments that
we will be required to make under the Tax Receivable Agreement could be substantial. Payments under the Tax Receivable Agreement
will be based on the tax reporting positions that we determine, and such tax reporting positions are subject to challenge by taxing
authorities. Payments made under the Tax Receivable Agreement will not be returned upon a successful challenge by a taxing authority
to our reporting positions, although such excess payments made to the Vertiv Stockholder may be netted against payments otherwise
to be made to the Vertiv Stockholder after our determination of such excess. Any payments made by us under the Tax Receivable Agreement
will generally reduce the amount of overall cash flow that might have otherwise been available to us.
Subscription Agreements
Pursuant to the Subscription Agreements,
the PIPE Investors purchased an aggregate of 123,900,000 shares of the Class A common stock in a private placement for a price
of $10.00 per share for an aggregate purchase price of approximately $1,239,000,000.
The shares of Class A common stock
issued in connection with the Subscription Agreements (the “PIPE Shares”) were not registered under the Securities
Act, and were issued in reliance on the exemption from registration requirements thereof provided by Section 4(a)(2) of the
Securities Act and/or Regulation D promulgated thereunder.
The Subscription Agreements for the PIPE
Investors (other than (1) the PIPE Investors who are RRA Parties, whose registration rights are governed by the Amended and
Restated Registration Rights Agreement, and (2) Subscribing Vertiv Executives) (the “Non-Sponsor PIPE Investors”)
provide for certain registration rights. In particular, the Company is required to, as soon as practicable but no later than, (i)
45 calendar days following the closing date of the Business Combination and (ii) 90 calendar days following the Company’s
most recent fiscal year end, file with the SEC (at the Company’s sole cost and expense) a registration statement registering
the resale of such shares, and will use its commercially reasonable efforts to have such registration statement declared effective
as soon as practicable after the filing thereof, but no later than the earlier of (i) the 90th calendar day following the
actual filing date if the SEC notifies the Company that it will “review” such registration statement and (ii) the
10th business day after the date the Company is notified in writing by the SEC that such registration statement will not be “reviewed”
or will not be subject to further review. Such registration statement is required to be kept effective for at least two years after
effectiveness or until the shares thereunder have been sold by the Non-Sponsor PIPE Investors. In addition, the Non-Sponsor PIPE
Investors that purchase shares for an aggregate purchase price in excess of $100,000,000 also will be entitled to make up to two
demands in the aggregate for traditional underwritten registrations, plus up to two demands in the aggregate for block trades,
in any 12 month period immediately following the closing date of the Business Combination, in each case subject to certain thresholds,
and will have certain “piggy-back” registration rights.
Recent Developments
To further
its objective to explore future financing options to optimize its capital structure, on January 31, 2020, Vertiv commenced a
process to (i) amend and extend that certain Revolving Credit Agreement, by and
among¸ inter alia, Vertiv Intermediate Holding II Corporation (“Vertiv Group Intermediate”),
Vertiv Group Corporation (“Vertiv Group”), as lead borrower, certain direct and indirect subsidiaries of
Vertiv Group, as co-borrowers thereunder, various financial institutions from time to time party thereto, as lenders, and
JPMorgan Chase Bank, N.A., as administrative agent (as amended, amended and restated, modified or supplemented from time to
time, the “Prior Asset-Based Revolving Credit Facility”) and (ii) refinance (a) the
indebtedness represented by that certain Term Loan Credit Agreement, by and among, inter
alia, Vertiv Group Intermediate, Vertiv Group, as borrower, various financial institutions from time to time party
thereto, as lenders, and JPMorgan Chase Bank, N.A., as administrative agent (as amended, amended and restated, modified or
supplemented from time to time, the “Prior Term Loan Facility”), (b) Vertiv
Intermediate Holding Corporation’s (“Vertiv Holdco”)
$500.0 million of 12.00%/13.00% Senior PIK Toggle Notes due 2022 (the “2022 Senior Notes”), (c)
Vertiv Group’s $750.0 million of 9.250% Senior Notes due 2024 (the “2024 Senior Notes”) and (d)
Vertiv Group’s $120.0 million of 10.00% Senior Secured Second Lien Notes due 2024 (the “2024 Senior
Secured Notes” and, together with the 2022 Senior Notes and 2024 Senior Notes, the “Prior
Notes”). In connection with the refinancing process, on January 31, 2020, Vertiv called each of the Prior Notes for
conditional redemption on March 2, 2020, in accordance with the respective indentures governing the Prior Notes. In addition,
a total of $500,000 principal amount of 2024 Senior Notes were tendered in the change of control offer made in connection
with the Business Combination and were repurchased on February 7, 2020.
On the Closing
Date and prior to the completion of the refinancing, Vertiv used a portion of the proceeds from the Business Combination, including
the PIPE Investment, to repay $176 million of the outstanding indebtedness under the Prior Asset-Based Revolving Credit Facility
and approximately $1.29 billion of the outstanding indebtedness under the Prior Term Loan Facility.
On March 2,
2020, we completed the refinancing by entering into (i) Amendment No. 5 to the Prior-Asset Based Revolving Credit Agreement,
by and among, inter alia, Vertiv Group Intermediate, Vertiv Group, as lead borrower, certain direct and indirect
subsidiaries of Vertiv Group, as co-borrowers and guarantors thereunder, various financial institutions from time to time
party thereto, as lenders, and JPMorgan Chase Bank, N.A., as administrative agent (the “Amendment” and,
the Prior Asset-Based Revolving Credit Facility as amended by the Amendment, the “Asset-Based Revolving
Credit Facility”), which Amendment extended the maturity of, and made certain other modifications to, the Prior
Asset-Based Revolving Credit Facility and (ii) a new Term Loan Credit Agreement, by and among, inter alia, Vertiv
Group Intermediate, Vertiv Group, as borrower, various financial institutions from time to time party thereto, and Citibank,
N.A., as administrative agent (the “Term Loan Facility” and, together with the Asset-Based Revolving
Credit Facility, the “Senior Secured Credit Facilities”), with the borrowings thereunder used to repay or
redeem, as applicable, in full the Prior Term Loan Facility and the Prior Notes. The refinancing transactions reduce our debt
service requirements going forward and extend the maturity profile of our indebtedness.
Emerging Growth Company
We are an
“emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the JOBS Act,
and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public
companies that are not emerging growth companies, including, but not limited to, not being required to comply with the
auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a
nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously
approved.
Further, section
102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting
standards until private companies (that is, those that have not had a Securities Act registration statement declared effective
or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial
accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with
the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have
elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different
application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at
the time private companies adopt the new or revised standard. This may make comparison of our financial statements with certain
other public companies difficult or impossible because of the potential differences in accounting standards used.
We will
remain an emerging growth company until the earlier of: (1) the last day of the fiscal year (a) following the fifth
anniversary of the closing of the IPO, (b) in which we have total annual gross revenue of at least $1.07 billion or
(c) in which we are deemed to be a large accelerated filer, which means the market value of our common equity that is
held by non-affiliates exceeds $700 million as of the prior June 30th; and (2) the date on which we have
issued more than $1.00 billion in non-convertible debt securities during the prior three-year period. We
currently anticipate losing our “emerging growth company” status at 2020 year end. References herein to
“emerging growth company” shall have the meaning associated with it in the JOBS Act.
Corporate Information
We were incorporated on April 25, 2016
as a Delaware corporation under the name “GS Acquisition Holdings Corp” and formed for the purpose of effecting a merger,
capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
On February 7, 2020, in connection with the consummation of the Business Combination, we changed our name to “Vertiv
Holdings Co.” Our principal executive offices are located at 1050 Dearborn Drive, Columbus, Ohio, 43085, and our telephone
number is (614) 888-0246. Our website is www.vertiv.com.
Our Annual Reports on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), are filed with the Securities and Exchange
Commission (the “SEC”). We are subject to the informational requirements of the Exchange Act, and
we file or furnish reports, proxy statements and other information with the SEC. Such reports and other information we file with
the SEC are available free of charge at www.vertiv.com when such reports are available on the SEC’s website. The
SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC at www.sec.gov. We periodically provide other information for investors on our corporate website, including
press releases and other information about financial performance, information on corporate governance and details related to our
annual meeting of stockholders. Our references to website URLs are intended to be inactive textual references only. The information
found on, or that can be accessed from or that is hyperlinked to, our website does not constitute part of, and is not incorporated
into, this Annual Report on Form 10-K.
This
Annual Report on Form 10-K contains some of our trademarks, service marks and trade
names, including, among others, Vertiv, Liebert, Chloride, NetSure, Geist, Energy Labs, Trellis, Alber, HVM and Avocent. Each one
of these trademarks, service marks or trade names is either (1) our registered trademark, (2) a trademark for which we
have a pending application, or (3) a trade name or service mark for which we claim common law rights. All other trademarks,
trade names or service marks of any other company appearing in this Annual Report on Form 10-K belong
to their respective owners. Solely for convenience, the trademarks, service marks and trade names referred to in this Annual
Report on Form 10-K are presented without the TM, SM and ® symbols, but such
references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our respective
rights or the rights of the applicable licensors to these trademarks, service marks and trade names.
An investment in our
securities involves risks and uncertainties. You should carefully consider the following risks as well as the other information
included in this Annual Report on Form 10-K, including “Cautionary Statement About Regarding Forward-Looking Statements,”
“Selected Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and the financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K,
before investing in our securities. We operate in a changing environment that involves numerous known and unknown risks and uncertainties
that could materially adversely affect our operations. Any of the following risks could materially and adversely affect our business,
financial condition, results of operations or prospects. However, the selected risks described below are not the only risks facing
us. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial may also materially
and adversely affect our business, financial condition, results of operations or prospects. In such a case, the trading price of
our securities could decline and you may lose all or part of your investment in us. Unless the context otherwise requires, all
references in this subsection to the “Company,” “we,” “us” or “our” refer to Vertiv
Holdings Co and its consolidated subsidiaries following the Business Combination, other than certain historical information which
refers to the business of Vertiv prior to the consummation of the Business Combination.
Risks Related to Our Business
Economic weakness and uncertainty
could adversely impact our business, results of operations and financial condition.
Worldwide economic
conditions impact demand for our offerings, and economic weakness and uncertainty in global, regional or local areas may result
in decreased orders, revenue, gross margin and earnings. For example, our business has been impacted from time to time in the past
by macroeconomic weakness in the United States and various regions outside of the United States. Any such economic weakness and
uncertainty may result in:
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capital spending constraints for customers and, as a result, reduced demand for our offerings;
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increased price competition for our offerings;
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excess and obsolete inventories;
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supply constraints if the number of suppliers decreases due to financial hardship;
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restricted access to capital markets and financing, resulting in delayed or missed payments to us and additional bad debt expense;
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excess facilities and manufacturing capacity;
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higher overhead costs as a percentage of revenue and higher interest expense;
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loss of orders, including as a result of corruption, the risk of which is increased by a weak economic climate;
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significant declines in the value of foreign currencies relative to the U.S. dollar, impacting our revenues and results of operations;
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financial difficulty for our customers; and
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increased difficulty in forecasting business activity for us, customers, the sales channel and vendors.
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We rely on the continued growth
of our customers’ networks, in particular data center and communication networks, and any decreases in demand in these networks
could lead to a decrease in our offerings.
A substantial
portion of our business depends on the continued growth of our customers’ data centers and communication networks. If these
networks do not continue to grow, whether as a result of changes in the economy, capital spending, building capacity in excess
of demand, delays in receiving required permits and approvals, or otherwise overall demand could decrease for our offerings, which
would have an adverse effect on our business, results of operations and financial condition.
If we fail to anticipate technology
shifts, market needs and opportunities, and fail to develop appropriate products, product enhancements and services in a timely
manner to meet those changes, we may not be able to compete effectively against our global competitors and, as a result, our ability
to generate revenues will suffer.
We believe that
our future success will depend in part upon our ability to anticipate technology shifts and to enhance and develop new products
and services that meet or anticipate such technology changes. Any such developments will require continued investment in engineering,
capital equipment, marketing, customer service and technical support. For example, we will need to anticipate potential market
shifts to alternative power architectures, cooling technologies and energy storage that could diminish the demand for our existing
offerings or affect our margins.
Also, our primary
global competitors are sophisticated companies with significant resources that may develop superior products and services or may
adapt more quickly to new technologies and technology shifts, industry changes or evolving customer requirements. If we fail to
anticipate technology changes, shifting market needs or keep pace with our competitors’ products, or if we fail to develop
and introduce new products or enhancements in a timely manner, we may lose customers and experience decreased or delayed market
acceptance and sales of present and future products and our ability to generate revenues will suffer.
The long sales cycles for certain
of our products and solutions offerings, as well as unpredictable placing or canceling of customer orders, particularly large orders,
may cause our revenues and operating results to vary significantly from quarter-to-quarter, which could make our future
operational results less predictable.
A customer’s
decision to purchase certain of our products or solutions, particularly products new to the market or long-term end-to-end solutions,
may involve a lengthy contracting, design and qualification process. In particular, customers deciding on the design and implementation
of large deployments may have lengthy and unpredictable procurement processes that may delay or impact expected future orders.
As a result, the order booking and sales recognition process may be uncertain and unpredictable, with some customers placing large
orders with short lead times on little advance notice and others requiring lengthy, open-ended processes that may change depending
on global or regional economic weakness. This may cause our revenues and operating results to vary unexpectedly from quarter-to-quarter, making
our future operational results less predictable.
Any disruption or any consolidation
of our customers’ markets could result in declines in the sales volume and prices of our products.
The disruption
of our customers’ markets could occur due to a number of factors, including government policy changes, industry consolidations
or the shifting of market size and power among customers. Such consolidations or other disruptions may result in certain parties
gaining additional purchasing leverage and, consequently, increasing the product pricing pressures facing our business. Such changes
could impact spending as customers evolve their strategies or integrate acquired operations. For example, if fewer customers exist
due to consolidation, the loss of a major customer could have a material impact on results not anticipated in a customer marketplace
composed of more numerous participants. Any reduction in customer spending on technological development as a result of these and
other factors could have an adverse effect on our business, results of operations and financial condition. See also “—Future
legislation and regulation, both in the United States and abroad, governing the Internet services, other related communications
services and information technologies could disrupt our customers’ markets resulting in declines in sales volume and prices
of our products and otherwise have an adverse effect on our business operations.”
Large companies, such as communication
network and hyperscale/cloud and colocation data center providers, often require more favorable terms and conditions in our contracts
with such companies that could result in downward pricing pressures on our business.
Large companies,
such as communication network and hyperscale/cloud and colocation data center providers, comprise a portion of our customer base
and generally have greater purchasing power than smaller entities. Accordingly, these customers often require more favorable terms
and conditions in contracts from suppliers including us. Consolidation among such large customers can further increase their buying
power and ability to require onerous terms. See “—Any disruption or any consolidation of our customers’ markets
could result in declines in the sales volume and prices of our products.” In addition, these customers may impose substantial
penalties for any product or service failures caused by us. As we seek to sell more products to such customers, we may be required
to agree to such terms and conditions more frequently, which may include terms that affect the timing of our cash flows and ability
to recognize revenue, and could have an adverse effect on our business, results of operations and financial condition.
We derive a portion of our revenue
from contracts with governmental customers. Such customers and their respective agencies are subject to increased pressures to
reduce expenses. Contracts with governmental customers may also contain additional or more onerous terms and conditions that are
not common among commercial customers. In addition, as a result of our contracts with governmental customers, we are at risk of
being subject to audits, investigations, sanctions and penalties by such governments, which could result in various civil and criminal
penalties, administrative sanctions, and fines and suspensions.
We derive a portion
of our revenue from contracts with governmental customers, including the U.S., state and local governments. There is increased
pressure on such governmental customers and their respective agencies to reduce spending and some of our contracts at the state
and local levels are subject to government funding authorizations. These factors combine to potentially limit the revenue we derive
from government contracts.
Additionally,
government contracts are generally subject to audits and investigations which could result in various civil and criminal penalties
and administrative sanctions, including termination of contracts, refund of a portion of fees received, forfeiture of profits,
suspension of payments, fines and suspensions or debarment from future government business. Such contracts are also subject to
various laws and regulations that apply to doing business with governments. The laws relating to government contracts differ from
other commercial contracting laws and our government contracts may contain pricing and other terms and conditions that are less
favorable to the Company than those in commercial contracts.
We have, and we intend to continue
pursuing, long-term, fixed-price contracts (including long-term, turnkey projects). Our failure to mitigate certain risks associated
with our long-term, fixed-price contracts (including long-term, turnkey projects) may result in excess costs and penalties.
We have, and we
intend to continue pursuing, long-term, fixed-price contracts (including long-term, turnkey projects). These contracts and projects
have a duration greater than twelve months. Such contracts and projects involve substantial risks, which may result in excess costs
and penalties, and include but are not limited to:
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unanticipated technical problems with equipment, requiring us to incur added expenses to remedy such problems;
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changes in costs or shortages of components, materials, labor or construction equipment;
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difficulties in obtaining required governmental permits or approvals;
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project modifications and changes to the scope of work resulting in unanticipated costs;
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delays caused by local weather or other conditions beyond our control;
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changes in regulations, permits or government policy;
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the failure of suppliers, subcontractors or consortium partners to perform; and
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penalties, if we cannot complete all or portions of the project within contracted time limits and performance levels.
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Our failure to
mitigate these risks may result in excess costs and penalties and may have an adverse effect on our results of operations and financial
condition.
System security risks could disrupt
our operations, and any such disruption could reduce our revenue, increase our expenses, damage our reputation and adversely impact
our performance.
We rely on our
information systems and the information systems of a variety of third parties for processing customer orders, shipping products,
billing our customers, tracking inventory, supporting finance and accounting functions, financial statement preparation, payroll
services, benefit administration and other general aspects of our business. Our information systems or those of our third-party
providers may be vulnerable to attack or breach. Any such attack or breach could compromise such information systems, resulting
in fraud, ransom attack or theft of proprietary or sensitive information which could be accessed, publicly disclosed, misused,
stolen or lost. This could impede our sales, manufacturing, distribution or other critical functions and the financial costs we
could incur to eliminate or alleviate these security risks could be significant and may be difficult to anticipate or measure.
Moreover, such a breach could cause reputational and financial harm and subject us to liability to our customers, suppliers, business
partners or any affected individual.
In addition, the
products we produce or elements of such products that we procure from third parties may contain defects or weaknesses in design,
architecture or manufacture, which could lead to system security vulnerabilities in our products and compromise the network security
of our customers. If an actual or perceived breach of network security occurs, regardless of whether the breach is attributable
to our products or services, the market perception of the effectiveness of our products or services could be harmed.
Implementations of new information
systems and enhancements to our current systems may be costly and disruptive to our operations.
We recently commenced
the implementation of new information systems, including enhancement to our enterprise resource plan, human capital management,
and product lifecycle management systems. The implementation of new information systems and enhancements to current systems may
be costly and disruptive to our operations. Any problems, disruptions, delays or other issues in the design and implementation
of these systems or enhancements could adversely impact our ability to process customer orders, ship products, provide service
and support to our customers, bill and collect in a timely manner from our customers, fulfill contractual obligations, accurately
record and transfer information, recognize revenue, file securities, governance and compliance reports in a timely manner or otherwise
run our business. If we are unable to successfully design and implement these new systems, enhancements and processes as planned,
or if the implementation of these systems and processes is more lengthy or costly than anticipated, our business, results of operations
and financial condition could be negatively impacted.
Failure to properly manage our
supply chain and inventory could result in higher costs of production and delays in fulfilling customer orders, excess or obsolete
materials or components, labor disruptions or shortages and delays in production.
Our operations,
particularly our manufacturing and service operations, depend on our ability to accurately anticipate both our needs, including
raw materials, components, products and services, from third-party suppliers, and such suppliers’ ability to timely deliver
the quantities and quality required at reasonable prices. We have a large number of providers to support our global operations
and breadth of offerings. In addition, certain of our suppliers are also competitors with us in one or more parts of our business
and those suppliers may decide to discontinue business with us. Other supply chain risks that we could face include, but are not
limited to, the following:
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Volatility in the supply or price of raw materials. Our products rely on a variety of raw materials and components, including steel, copper and aluminum and electronic components. We may experience a shortage of, or a delay in receiving, such materials or components as a result of strong demand, supplier capacity constraints or other operational disruptions, restrictions on use of materials or components subject to our governance and compliance requirements, disputes with suppliers or problems in transitioning to new suppliers. Moreover, prices for some of these materials and components have historically been volatile and unpredictable, and such volatility is expected to continue. Ongoing supply issues may require us to reengineer some offerings, which could result in further costs and delays. If we are unable to secure necessary supplies at reasonable prices or acceptable quality, we may be unable to manufacture products, fulfill service orders or otherwise operate our business. We may also be unable to offset unexpected increases in material and component costs with our own price increases without suffering reduced volumes, revenues or operating income.
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Contractual terms. As a result of long-term price or purchase commitments in contracts with our suppliers, we may be obligated to purchase materials, components or services at prices higher than those available in the current market, which may put us at a disadvantage to competitors who have access to components or services at lower prices, impact our gross margin, and, if these issues impact demand, may result in additional charges for inventory obsolescence. In addition, to secure the supply of certain materials and components on favorable terms, we may make strategic purchases of materials and components in advance or enter into non-cancelable commitments. If we fail to anticipate demand properly, we may have an oversupply which could result in excess or obsolete materials or components.
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Contingent workers. In some locations, we rely on third-party suppliers for the provision of contingent workers, and our failure to manage such workers effectively could adversely impact our results of operations. We may in the future be exposed to various legal claims relating to the status of contingent workers. We may also be subject to labor shortages, oversupply, or fixed contractual terms relating to the contingent workforce, and our ability to manage the size of, and costs for, such contingent workforce may be further constrained by local laws or future changes to such laws. In addition, our customers may impose obligations on us with regard to our workforce and working conditions.
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Single-source suppliers. We obtain certain materials or components from single-source suppliers due to technology, availability, price, quality or other considerations. Replacing a single-source supplier could delay production of some products because replacement suppliers, if available, may be subject to capacity constraints or other output limitations.
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Any of these risks
could have an adverse effect on our results of operations and financial condition.
In addition, our
operations depend upon disciplined inventory management, as we balance the need to maintain strategic inventory levels to ensure
competitive lead times against the risk of inventory obsolescence because of rapidly changing technology and customer requirements.
Excess or obsolete inventory, including that procured pursuant to an inaccurate customer forecast, would result in a write-off of
such inventory, causing an increase in costs of goods sold and a decline in our gross margins.
The areas in which we provide
our offerings are highly competitive, and we experience competitive pressures from numerous and varied competitors.
We encounter competition
from numerous and varied competitors in all areas of our business on a global and regional basis, and our competitors have targeted,
and are expected to continue targeting, our primary areas of operation. We compete with such competitors primarily on the basis
of reliability, quality, price, service and customer relationships. A significant element of our competitive strategy is focused
on delivering high-quality products and solutions at the best relative global cost. If our products, services, and cost structure
do not enable us to compete successfully based on any of those criteria, we may experience a decline in product sales and a corresponding
loss of customers due to their selection of a competitor.
Our competitors,
any of which could introduce new technologies or business models that disrupt significant portions of our markets and cause our
customers to move a material portion of their business away from us to such competitors, include:
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Large-scale, global competitors with broad, sometimes larger, product portfolios and service offerings. These competitors may have greater financial, technical and marketing resources available to them compared to the resources allocated to our products and services that compete against their products and services. Competitors within this category include Schneider Electric, S.E. and Eaton Corporation Plc, each of which have a large, global presence and compete directly in the markets in which we operate. Industry consolidation may also impact the competitive landscape by creating larger, more homogeneous and potentially stronger competitors in the markets in which we operate.
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Offering-specific competitors with products and services that compete globally but with a limited set of product offerings. These competitors may be able to focus more closely on a segment of the market and be able to apply targeted financial, technical and marketing resources in ways that we cannot, potentially leading to stronger brand recognition and more competitive pricing.
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Regional or country-level competitors that compete with us in a limited geographic area.
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We may not realize the expected
benefits from any rationalization and improvement efforts that we have taken or may take in the future.
We are continuously
evaluating, considering and implementing possible rationalization and realignment initiatives to reduce our overall cost base and
improve efficiency. There can be no assurance that we will fully realize the benefits of such efforts that we have taken or will
take in the future within the expected time frame, or at all, and we may incur additional and/or unexpected costs to realize them.
Further, we may not be able to sustain any achieved benefits in the future. In addition, these actions and potential future efforts
could yield other unintended consequences, such as distraction of management and employees, business disruption, reduced employee
morale and productivity, and unexpected employee attrition, including the inability to attract or retain key personnel. If we fail
to achieve the expected benefits of any rationalization or realignment initiatives and improvement efforts, or if other unforeseen
events occur in connection with such efforts, our business, results of operations and financial condition could be negatively impacted.
Disruption of, or consolidation
or changes in, the markets or operating models of our independent sales representatives, distributors and original equipment manufacturers
could have a material adverse effect on our results of operations.
We rely, in part,
on independent sales representatives, distributors and original equipment manufacturers for the distribution of our products and
services, some of whom operate on an exclusive basis. If these third parties’ financial condition or operations weaken, including
as a result of a shift away from the go-to-market operating model they currently follow, and they are unable to successfully
market and sell our products, our revenue and gross margins could be adversely affected. In addition, if there are disruptions
or consolidation in their markets, such parties may be able to improve their negotiating position and renegotiate historical terms
and agreements for the distribution of our products or terminate relationships with us in favor of our competitors. Changes in
the negotiating position of such third parties in future periods could have an adverse effect on our results of operations.
If we are unable to obtain performance
and other guarantees from financial institutions, we may be prevented from bidding on, or obtaining, certain contracts, or our
costs with respect to such contracts could be higher.
In accordance
with industry practice for large data center construction opportunities, we are required to provide guarantees, including bid-bonds, advance
payment and performance guarantees for our performance and project completion dates. Some customers require these guarantees to
be issued by a financial institution, and historic global financial conditions have in the past, and may in the future, make it
more difficult and expensive to obtain these guarantees. If, in the future, we cannot obtain such guarantees on commercially reasonable
terms or at all, we could be prevented from bidding on, or obtaining, such large construction contracts, or our costs for such
contracts could be higher and, in either case, could have an adverse effect on our business, results of operations and financial
condition.
We may not realize all of the
sales expected from our backlog of orders and contracts.
Our backlog consists
of the value of product and service orders for which we have received a customer purchase order or purchase commitment and which
have not yet been delivered. As of December 31, 2019 and December 31, 2018, Vertiv’s estimated combined order backlog was
approximately $1,401.2 million and $1,502.0 million, respectively. The vast majority of Vertiv’s combined backlog is considered
firm and expected to be delivered within one year. Our customers have the right in some circumstances, usually with penalties or
termination consequences, to reduce or defer firm orders in backlog. If customers terminate, reduce or defer firm orders, whether
due to fluctuations in their business needs or purchasing budgets or other reasons, our sales will be adversely affected and we
may not realize the revenue we expect to generate from our backlog or, if realized, may not result in profitable revenue. More
generally, we do not believe that our backlog estimates as of any date are indicative of revenues for any future period.
Our global operations and entity
structure result in a complex tax structure where we are subject to income and other taxes in the United States and numerous foreign
jurisdictions. Unanticipated changes in our tax provisions, variability of our quarterly and annual effective tax rate, the adoption
of new tax legislation or exposure to additional tax liabilities could impact our financial performance.
Our global operations
and entity structure result in a complex tax structure where we are subject to income and other taxes in the United States and
numerous foreign jurisdictions. Variability in the mix and profitability of domestic and international activities, identification
and resolution of various tax uncertainties, changes in tax laws and rates or other regulatory actions regarding taxes, and the
extent to which we are able to realize net operating loss and other carryforwards included in deferred tax assets and avoid potential
adverse outcomes included in deferred tax liabilities, among other matters, may significantly impact our effective income tax rate
in the future. Our effective tax rate in any given financial reporting period may be materially impacted by mix and level of earnings
or losses by jurisdiction as well as the discrete recognition of taxable events and exposures.
Future legislation and regulation,
both in the United States and abroad, governing the Internet services, other related communications services and information technologies
could disrupt our customers’ markets resulting in declines in sales volume and prices of our products and otherwise have
an adverse effect on our business operations.
Various laws
and governmental regulations, both in the United States and abroad, governing Internet related services, related
communications services and information technologies remain largely unsettled, even in areas where there has been some
legislative action. For example, in the United States regulations governing aspects of fixed broadband networks and wireless
networks may change as a result of proposals regarding net neutrality and government regulation of the Internet, which could
impact our communication networks customers. There may also be forthcoming regulation in the United States in the areas of
cybersecurity, data privacy and data security, any of which could impact us and our customers. Similarly, data privacy
regulations outside of the United States continue to evolve. Future legislation could impose additional costs on our
business, disrupt our customers’ markets or require us to make changes in our operations which could adversely affect
our operations.
Any failure of our offerings
could subject us to substantial liability, including product liability claims, which could damage our reputation or the reputation
of one or more of our brands.
The offerings
that we provide are complex, and our regular testing and quality control efforts may not be effective in controlling or detecting
all quality issues or errors, particularly with respect to faulty components manufactured by third parties. Defects could expose
us to product warranty claims, including substantial expense for the recall and repair or replacement of a product or component,
and product liability claims, including liability for personal injury or property damage. We are not generally able to limit or
exclude liability for personal injury or property damage to third parties under the laws of most jurisdictions in which we do business
and, in the event of such incident, we could spend significant time, resources and money to resolve any such claim. We may be required
to pay for losses or injuries purportedly caused by the design, manufacture, installation or operation of our products or by solutions
performed by us or third parties.
An inability to
cure a product defect could result in the failure of a product line, temporary or permanent withdrawal from a product or market,
delays in customer payments or refusals by our customers to make such payments, increased inventory costs, product reengineering
expenses and our customers’ inability to operate their enterprises. Such defects could also negatively impact customer satisfaction
and sentiment, generate adverse publicity, reduce future sales opportunities and damage our reputation or the reputation of one
or more of our brands. Any of these outcomes could have an adverse effect on our results of operations and financial condition.
In order to successfully operate
as an independent public company and implement our business plans, we must identify, attract, develop, train, motivate and retain
key employees, and failure to do so could seriously harm us.
In order to successfully
operate as an independent public company and implement our business plans, we must identify, attract, develop, motivate, train
and retain key employees, including qualified executives, management, engineering, sales, marketing, IT support and service personnel.
The market for such individuals may be highly competitive. Attracting and retaining key employees in a competitive marketplace
requires us to provide a competitive compensation package, which often includes cash- and equity-based compensation. If our total
compensation package is not viewed as competitive, our ability to attract, motivate and retain key employees could be weakened
and failure to successfully hire or retain key employees and executives could adversely impact us.
We may elect not to purchase
insurance for certain business risks and expenses and, for the insurance coverage we have in place, such coverage may not address
all of our potential exposures or, in the case of substantial losses, may be inadequate.
We may elect not
to purchase insurance for certain business risks and expenses, such as claimed intellectual property infringement, where we believe
we can adequately address the anticipated exposure or where insurance coverage is either not available at all or not available
on a cost-effective basis. In addition, product liability and product recall insurance coverage is expensive and may not be available
on acceptable terms, in sufficient amounts, or at all. We may be named as a defendant in product liability or other lawsuits asserting
potentially large claims if an accident occurs at a location where our products, solutions or services have been or are being used.
For those policies that we do have, insurance coverage may be inadequate in the case of substantial losses, or our insurers may
refuse to cover us on specific claims. Losses not covered by insurance could be substantial and unpredictable and could adversely
impact our financial condition and results of operations. If we are unable to maintain our portfolio of insurance coverage, whether
at an acceptable cost or at all, or if there is an increase in the frequency or damage amounts claimed against us, our business,
results of operations and financial condition may be negatively impacted.
Any failure by us to identify,
manage, integrate and complete acquisitions, divestitures and other significant transactions successfully could harm our financial
results, business and prospects.
As part of our
business strategy, we have in the past and may, from time to time, in the future acquire businesses or interests in businesses,
including non-controlling interests, or form joint ventures or create strategic alliances. Whether we realize the anticipated
benefits from such activities depends, in part, upon the successful integration between the businesses involved, the performance
and development of the underlying products, capabilities or technologies, our correct assessment of assumed liabilities and the
management of the operations. Accordingly, our financial results could be adversely affected by unanticipated performance and liability
issues, our failure to achieve synergies and other benefits we expected to obtain, transaction-related charges, amortization related
to intangibles, and charges for impairment of long-term assets. These transactions may not be successful.
Our results of operations may
be adversely affected if we fail to realize the full value of our goodwill and intangible assets.
As of December
31, 2019, Vertiv had total goodwill and net intangible assets of $2,047.4 million which constituted approximately 44.0 percent
of our total assets. We assess our net intangible assets and goodwill for impairment annually, and we conduct an interim evaluation
whenever events or changes in circumstances, such as operating losses or a significant decline in earnings associated with the
acquired business or asset, indicate that these assets may be impaired. Our ability to realize the value of goodwill and net intangible
assets will depend on the future cash flows of the businesses to which the goodwill relates. If we are not able to realize the
value of the goodwill and net intangible assets, this could adversely affect our results of operations and financial condition,
and also result in an impairment of those assets.
The global scope of our operations
could impair our ability to react quickly to changing business and market conditions and enforce compliance with company-wide standards
and procedures.
As of December
31, 2019, Vertiv employed over 19,800 people globally and had manufacturing facilities in the Americas, Asia Pacific and EMEA.
We generate substantial revenue outside of the United States and expect that foreign revenue will continue to represent a significant
portion of our total revenues. In order to manage our day-to-day operations, we must overcome cultural and language barriers
and assimilate different business practices. In addition, we are required to create compensation programs, employment policies
and other administrative programs that comply with the laws of multiple countries. We also must communicate and monitor company-wide
standards and directives across our global network. Our failure to successfully manage our geographically diverse operations could
impair our ability to react quickly to changing business and market conditions and to enforce compliance with company-wide standards
and procedures.
Our sales and operations in emerging
markets exposes us to economic and political risks.
We generate a
significant portion of our revenue from sales in emerging markets. Serving a global customer base requires that we place more materials,
production and service assets in emerging markets to capitalize on market opportunities and maintain our cost position. Newer geographic
markets may be relatively less profitable due to our investments associated with entering such markets and local pricing pressures,
and we may have difficulty establishing and maintaining the operating infrastructure necessary to support the high growth rates
associated with some of those markets. Operations in emerging markets can also present risks that are not encountered in countries
with well-established economic and political systems, including:
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changes or ongoing instability in a country’s or region’s economic or political conditions, including inflation, recession, interest rate fluctuations and actual or anticipated military or political conflicts, which could make it difficult for us to anticipate future business conditions, cause delays in the placement of orders, complicate our dealings with governments regarding permits and other regulatory matters and make our customers less willing to make cross-border investments;
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unpredictable or more frequent foreign currency exchange rate fluctuations;
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inadequate infrastructure, including lack of adequate power and water supplies, transportation, raw materials and parts;
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foreign state takeovers of our facilities, trade protectionism, state-initiated industry consolidation or other similar government actions or control;
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changes in and compliance with international, national or local regulatory and legal environments, including laws and policies affecting trade, economic sanctions, foreign investment, labor relations, foreign anti-bribery and anti-corruption;
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the difficulty of enforcing agreements and collecting receivables through certain foreign legal systems;
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longer collection cycles and financial instability among customers;
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trade regulations, boycotts and embargoes, including policies adopted by countries that may favor domestic companies and technologies over foreign competitors, which could impair our ability to obtain materials necessary to fulfill contracts, pursue business or establish operations in such countries;
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difficulty of obtaining adequate financing and/or insurance coverage;
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fluctuations in freight costs, limitations on shipping and receiving capacity, and other disruptions in the transportation and shipping infrastructure;
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political or social instability that may hinder our ability to send personnel abroad or cause us to move our operations to facilities in countries with higher costs and less efficiencies;
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difficulties associated with repatriating earnings generated or held abroad in a tax-efficient manner, changes in tax laws, or tax inefficiencies; and
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exposure to wage, price and capital controls, local labor conditions and regulations, including local labor disruptions and rising labor costs which we may be unable to recover in our pricing to customers.
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Consequently,
our exposure to the conditions in or affecting emerging markets may have an adverse effect on our business, results of operations
and financial condition.
We are exposed to fluctuations
in foreign currency exchange rates, and our hedging activities may not protect us against the consequences of such fluctuations
on our earnings and cash flows.
As a result of
our global operations, our business, results of operations and financial condition may be adversely affected by fluctuations in
currency exchange rates, most notably the strengthening of the U.S. dollar against the primary foreign currencies, which could
adversely impact our revenue growth in future periods. For example, if the U.S. dollar strengthens against other currencies such
as the euro, our revenues reported in U.S. dollars would decline. In addition, for U.S. dollar-denominated sales, an increase in
the value of the U.S. dollar would increase the real cost to customers of our products in markets outside the United States, which
could result in price concessions in certain markets, impact our competitive position or have an adverse effect on demand for our
products and consequently on our business, results of operations and financial condition.
Legal compliance issues, particularly
those related to our imports/exports and foreign operations, could adversely impact our business.
We are subject
to various anti-corruption laws, including the U.S. Foreign Corrupt Practices Act, as amended, that prohibit payments or offers
of payments to foreign governments and their officials for the purpose of obtaining or retaining business. We operate in several
less-developed countries and regions that are generally recognized as having a greater risk of potentially corrupt business environments.
Our legal compliance and ethics programs, including a code of business conduct, policies on anti-bribery, export controls, environmental
and other legal compliance, and periodic training to relevant associates on these matters, are designed to reduce the likelihood
of a legal compliance violation. Nevertheless, such a violation could still occur, disrupting our business through fines, penalties,
diversion of internal resources, negative publicity and possibly severe criminal or civil sanctions.
We are also
subject to applicable import laws, export controls and economic sanctions laws and regulations. Changes in import and export
control or trade sanctions laws may restrict our business practices, including cessation of business activities in sanctioned
countries or with sanctioned entities, and may result in claims for breach of existing contracts and modifications to
existing compliance programs and training schedules. Violations of the applicable export or import control, or economic
sanctions laws and regulations, such as an export to an embargoed country, or to a denied party, or the export of a product
without the appropriate governmental license, may result in penalties, including fines, debarments from export privileges,
and loss of authorizations needed to conduct aspects of our international business, and may harm our ability to enter into
contracts with our customers who have contracts with the U.S. government. A violation of the laws and regulations enumerated
above could have an adverse effect on our business, results of operations and financial condition.
We are subject to risks related
to legal claims and proceedings filed by or against us, and adverse outcomes in these matters may materially harm our business.
We are subject
to various claims, disputes, investigations, demands, arbitration, litigation, or other legal proceedings. Legal claims and proceedings
may relate to labor and employment, commercial arrangements, intellectual property, environmental, health and safety, property
damage, theft, personal injury and various other matters. Legal matters are inherently uncertain and we cannot predict the duration,
scope, outcome or consequences. In addition, legal matters are expensive and time-consuming to defend, settle, and/or resolve,
and may require us to implement certain remedial measures that could prove costly or disruptive to our business and operations.
The unfavorable resolution of one or more of these matters could have an adverse effect on our business, results of operations
and financial condition.
Our financial performance may
suffer if we cannot continue to develop, commercialize or enforce the intellectual property rights on which our businesses depend,
some of which are not patented or patentable, or if we are unable to gain and maintain access to relevant intellectual property
rights of third parties through license and other agreements.
Our business relies
on a substantial portfolio of intellectual property rights, including trademarks, trade secrets, patents, copyrights and other
such rights globally. Intellectual property laws and the protection and enforcement of our intellectual property vary by jurisdiction
and we may be unable to protect or enforce our proprietary rights adequately in all cases or such protection and enforcement may
be unpredictable and costly, which could adversely impact our growth opportunities, financial performance and competitive position.
In addition, our intellectual property rights could be challenged, invalidated, infringed or circumvented, or insufficient to take
advantage of current market trends or to provide competitive advantage. For our patent filings, because of the existence of a large
number of patents in our fields, the secrecy of some pending patent applications, and the rapid rate of issuance of new patents
within our applicable fields, it is not economically practical or even possible to determine conclusively in advance whether a
product or any of its components infringes the patent rights of others.
We also rely on
maintenance of proprietary information (such as trade secrets, know-how and other confidential information) to protect
certain intellectual property. Trade secrets and/or confidential know-how can be difficult to maintain as confidential
and we may not obtain confidentiality agreements in all circumstances, or individuals may unintentionally or willfully disclose
our confidential information improperly. In addition, confidentiality agreements may not provide an adequate remedy in the event
of an unauthorized disclosure of our trade secrets or other confidential information, and the enforceability of such confidentiality
agreements may vary from jurisdiction to jurisdiction. Furthermore, laws regarding trade secret rights in certain markets where
we operate may afford little or no protection to our trade secrets. Failure to obtain or maintain trade secrets, protection of know-how and
other confidential information could adversely impact our business.
In addition,
we rely on licensing certain intellectual property rights from third parties. For example, many of our software offerings are
developed using software components or other intellectual property licensed from third parties, including proprietary and
open source licenses. This practice requires that we monitor and manage our use of third-party and open source software
components to comply with the applicable license terms and avoid any inadvertent licensing or public disclosure of our
intellectual property pursuant to such license terms, and our ability to comply with such license terms may be affected by
factors that we can only partially influence or control. The continuation of good licensing relationships with our
third-party licensors is important to our business. It is possible that merger or acquisition activity or the granting of
exclusive licenses may result in reduced availability and/or a change to the license terms that were previously in place. If
any of our third-party licensors are acquired by our competitors, there is a risk that the applicable licensed intellectual
property may no longer be available to us or available only on less favorable terms. Loss of our license rights and an
inability to replace such software with other third-party intellectual property on commercially reasonable terms, or at all,
could adversely impact our business, results of operations and financial condition.
Third-party claims of intellectual
property infringement, including patent infringement, are commonplace and successful third-party claims may limit or disrupt our
ability to sell our offerings.
Third parties
may claim that we, or customers using our products, are infringing their intellectual property rights. For example, patent assertion
entities, or non-practicing entities, may purchase intellectual property assets for the purpose of asserting infringement
claims and attempting to extract settlements from us. Regardless of the merit of these claims, they can be time-consuming, costly
to defend, and may require that we develop or substitute non-infringing technologies, redesign affected products, divert
management’s attention and resources away from our business, require us to enter into settlement or license agreements that
may not be available on commercially reasonable terms, pay significant damage awards, including treble damages if we were found
to be willfully infringing, or temporarily or permanently cease engaging in certain activities or offering certain products or
services in some or all jurisdictions, and any of the foregoing could adversely impact our business.
Furthermore, because
of the potential for unpredictable significant damage awards or injunctive relief, even arguably unmeritorious claims may be settled
for significant amounts of money. In addition, in circumstances in which we are the beneficiary of an indemnification agreement
for such infringement claims, the indemnifying party may be unable or unwilling to uphold its indemnification obligations to us.
Our customer contracts and certain of our intellectual property license agreements often include obligations to indemnify our customers
and licensees against certain claims of intellectual property infringement, and these obligations may be uncapped. If claims of
intellectual property infringement are brought against such customers or licensees in respect of the intellectual property rights,
products or services that we provide to them, we may be required to defend such customers or licensees and/or pay a portion of,
or all, the costs these parties may incur related to such litigation or claims. In addition, our exposure to risks associated with
the use of intellectual property may be increased as a result of acquisitions, as we have a lower level of visibility into the
development process with respect to such acquired technology or the care taken to safeguard against infringement or similar risks
with respect thereto.
We are subject to environmental,
health and safety matters, laws and regulations, including regulations related to the composition and takeback of our products
and related to our ownership, lease or operation of the facilities in which we operate, and, as a result, may face significant
costs or liabilities associated with environmental, health and safety matters.
We are subject
to a broad range of foreign and domestic environmental, health and safety laws, regulations and requirements, including those relating
to the discharge of regulated materials into the environment, the generation and handling of hazardous substances and wastes, human
health and safety, and the content, composition and takeback of our products. For example, the European Union (EU) Restriction
on the Use of Certain Hazardous Substances in Electrical and Electronic Equipment Directive and similar laws and regulations of
China and other jurisdictions limit the content of certain hazardous materials such as lead, mercury, and cadmium in the manufacture
of electrical equipment, including our products. Additionally, the EU, China and other jurisdictions have adopted or proposed versions
of the Waste Electrical and Electronic Equipment Directive, which requires producers of electrical and electronic equipment to
assume responsibility for collecting, treating, recycling and disposing of products when they have reached the end of their useful
life, as well as Registration, Evaluation, Authorization and Restriction of Chemical Substances regulations, which regulate the
handling and use of certain chemical substances that may be used in our products.
If we fail
to comply with applicable environmental, health and safety laws and regulations, we may face administrative, civil or
criminal fines or penalties, the suspension or revocation of necessary permits and requirements to install additional
pollution controls. Furthermore, current and future environmental, health and safety laws, regulations and permit
requirements could require us to make changes to our operations or incur significant costs relating to compliance. For
example, as climate change issues become more prevalent, foreign, federal, state and local governments and our customers have
been responding to these issues. The increased focus on environmental sustainability may result in new regulations and
customer requirements, or changes in current regulations and customer requirements, which could materially adversely impact
our business, results of operations and financial condition. In addition, we handle hazardous materials in the ordinary
course of operations and there may be spills or releases of hazardous materials into the environment. We have significant
manufacturing facilities in North and South America, in Asia-Pacific and in EMEA. At sites which we own, lease or operate, or
have previously owned, leased or operated, or where we have disposed or arranged for the disposal of hazardous materials, we
are currently liable for contamination, and could in the future be liable for additional contamination. We have been, and may
in the future, be required to participate in the remediation or investigation of, or otherwise bear liability for, such
contamination and be subject to claims from third parties whose property damage, natural resources damage or personal injury
is caused by such contamination.
Our business and operations may
be adversely affected by the recent coronavirus outbreak or other similar outbreaks.
We derive a significant
portion of our revenue from China. We have manufacturing facilities in China, and several of our customers, subcontractors and
suppliers also are located in China. As a result of the recent coronavirus outbreak or other adverse public health developments,
initially in Asia and increasingly in other locations, our global operations, and those of our subcontractors, customers and suppliers,
have and may continue to experience delays or disruptions, such as difficulty obtaining components, logistics and supply-chain
problems, and temporary suspensions of operations. In addition, our financial condition and results of operations have been and
may continue to be adversely affected by the coronavirus outbreak.
In addition, the
timeline and potential magnitude of the coronavirus outbreak is currently unknown. The continuation or amplification of this
disease could more broadly affect the global economy, including our business. For example, a significant outbreak of coronavirus
or other contagious diseases in the human population could result in a widespread health crisis that could adversely affect the
economies and financial markets of many countries, resulting in an economic downturn that could affect our operating results. Any
of the foregoing could materially and adversely affect our business, financial condition and results of operations.
We have a limited history of
operating as an independent company, and Vertiv’s historical financial results or any pro forma financial results we have
or will provide in connection with the Business Combination are not necessarily representative of what Vertiv’s actual financial
position or results of operations would have been as an independent company and may not be a reliable indicator of our future results.
Vertiv’s
historical financial results are not necessarily indicative of our future results of operations, financial condition or cash flows,
nor does it reflect what Vertiv’s results of operations, financial condition or cash flows would have been as an independent
company. Following the Business Combination, our financial condition and future results of operations could be materially different
from the historical financial results of Vertiv, so it may be difficult for investors to compare our future results to Vertiv’s
historical results or to evaluate our relative performance or trends in our business.
In particular,
Vertiv’s historical financial results are not necessarily indicative of our future results of operations, financial condition
or cash flows primarily because of the following factors:
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Prior to the transactions in which Vertiv Group and certain of its affiliates acquired the assets and liabilities associated with the business, operations, products, services and activities of the Network Power business previously owned by Emerson Electric Co. (“Emerson”) in the fiscal fourth quarter of 2016 (the “Separation”), Vertiv’s business was operated by Emerson as part of its broader corporate organization, rather than as an independent company. During such time, Emerson or one of its affiliates provided support for various corporate functions for Vertiv, such as I.T., shared services, medical insurance, procurement, logistics, marketing, human resources, legal, finance and internal audit.
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Vertiv’s historical financial results reflect the direct, indirect and allocated costs for such services historically provided by Emerson prior to the Separation, and these costs may significantly differ from the comparable expenses Vertiv would have incurred as an independent company;
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Prior to the Separation, Vertiv’s working capital requirements and capital expenditures historically were satisfied as part of Emerson’s corporate-wide cash management and centralized funding programs, and Vertiv’s cost of debt and other capital may significantly differ from that which is reflected in Vertiv’s historical financial results prior to the Separation;
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Vertiv’s historical financial results prior to the Separation may not fully reflect the costs associated with the Separation, including the costs related to being an independent company;
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Vertiv’s historical financial results prior to the Separation do not reflect Vertiv’s obligations under the various transitional and other agreements that Vertiv entered into with Emerson in connection with the Separation; and these historical financial results reflect the direct, indirect and allocated costs for such services historically provided by Emerson, and these costs may significantly differ from the comparable expenses Vertiv would have incurred as an independent company; and
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Vertiv’s business was integrated with that of Emerson and, prior to the Separation, Vertiv benefitted from Emerson’s size and scale in costs, employees and vendor and customer relationships. Thus, costs we will incur as an independent company may significantly exceed comparable costs Vertiv would have incurred as part of Emerson and some of our customer relationships may be weakened or lost.
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pro forma financial results that we have or will provide in connection with the Business Combination may not be indicative of our
future operating or financial performance and our actual financial condition and results of operations may vary materially from
such pro forma financial results.
We have recorded net losses in
the past and may experience net losses in the future.
For the years
ended December 31, 2019, 2018 and 2017, Vertiv recorded consolidated and combined net losses of $140.8 million, $314.0 million
and $369.6 million, respectively. Our future results of operations are uncertain and we may continue to record net losses in future
periods.
Our substantial level of indebtedness
could adversely affect our financial condition and prevent us from making payments on the Senior Secured Credit Facilities and
our other debt obligations (if any).
We have a substantial
amount of debt, including existing outstanding indebtedness under the Senior Secured Credit Facilities. Following the refinancing
transactions, as of March 2, 2020, we had approximately $2.3 billion of senior secured debt outstanding and $334.0 million of undrawn
commitments (which undrawn commitments are available subject to customary borrowing base and other conditions) under the Senior
Secured Credit Facilities, which, if drawn, would be secured. For more information on the refinancing transactions, see “Item
1. Business—Recent Developments.”
Our substantial
level of indebtedness could have important consequences, including making it more difficult for us to satisfy our obligations;
increasing our vulnerability to adverse economic and industry conditions; limiting our ability to obtain additional financing for
future working capital, capital expenditures, raw materials, strategic acquisitions and other general corporate requirements; exposing
us to interest rate fluctuations because the interest on the debt under the Term Loan Facility and the Asset-Based Revolving Credit
Facility is imposed, and debt under any future debt agreements may be imposed, at variable rates; requiring us to dedicate a substantial
portion of our cash flow from operations to payments on our debt (including scheduled repayments on the outstanding term loan borrowings
under the Term Loan Facility or any future debt agreements with similar requirements), thereby reducing the availability of our
cash flow for operations and other purposes; making it more difficult for us to satisfy our obligations to our lenders, resulting
in possible defaults on and acceleration of such indebtedness; limiting our ability to refinance indebtedness or increase the associated
costs; requiring us to sell assets to reduce debt or influence our decision about whether to do so; limiting our flexibility in
planning for, or reacting to, changes in our business and the industry in which we operate or prevent us from carrying out capital
spending that is necessary or important to our growth strategy and efforts to improve operating margins of our business; and placing
us at a competitive disadvantage compared to any competitors that have less debt or comparable debt at more favorable interest
rates and that, as a result, may be better positioned to withstand economic downturns.
The phase-out of LIBOR could affect
interest rates for our variable rate debt and interest rate swap agreement.
LIBOR is
used as a reference rate for our variable rate debt under the Senior Secured Credit Facilities and for our interest rate swap
agreement. On July 27, 2017, the United Kingdom’s Financial Conduct Authority announced it intends to stop compelling
banks to submit rates for the calculation of LIBOR after 2021. It is unclear if LIBOR will cease to exist at that time, if a
new method of calculating LIBOR will be established, or if an alternative reference rate will be established. The Federal
Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified
the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to U.S. dollar LIBOR in
derivatives and other financial contracts. We are not able to predict when LIBOR will cease to be available or if SOFR, or
another alternative reference rate, attains market traction as a LIBOR replacement. Although the Senior Secured Credit
Facilities provide a mechanism for determining a benchmark replacement index, such replacement
may not be as favorable as LIBOR and the interest rates on our variable rate debt under the Senior Secured Credit Facilities
and in our interest rate swap agreement may change. The new rates may be higher than those in effect prior to any LIBOR
phase-out and the transition process may result in delays in funding, higher interest expense, additional expenses, and
increased volatility in markets for instruments that currently rely on LIBOR, all of which could negatively impact our cash
flow.
We also have interest
rate swap agreements, which are used to hedge the floating rate exposure of the Term Loan Facility. If LIBOR becomes unavailable
and market quotations for specified inter-bank lending are not available, it is unclear how payments under such agreements would
be calculated, which could cause the interest rate swap agreements to no longer offer us the protection we expect. Relevant industry
groups are seeking to create a standard protocol addressing the expected discontinuation of LIBOR, to which parties to then-existing
swaps will be able to adhere. There can be no assurance that such a protocol will be developed or that our swap counterparties
will adhere to it. It is uncertain whether amending our then-existing swap agreements may provide us with effective protection
from changes in the then-applicable interest rate on the Term Loan Facility indebtedness or other indebtedness. Similarly, while
industry groups have announced that they anticipate amending standard documentation to facilitate a market in swaps on one or more
successor rates to LIBOR, it is uncertain whether and to what extent a market for interest rate swaps on the successor rate selected
for the Term Loan Facility indebtedness or other indebtedness will develop, which may affect our ability to effectively hedge our
interest rate exposure.
Fluctuations
in interest rates could materially affect our financial results and may increase the risk our counterparties default on our interest
rate hedges.
Borrowings under
the Senior Secured Credit Facilities are subject to variable rates of interest and expose us to interest rate risk. Potential future
increases in interest rates and credit spreads may increase our interest expense and therefore negatively affect our financial
condition and results of operations, and reduce our access to capital markets. We have entered into interest rate swap agreements
that hedge the floating rate exposure of the Term Loan Facility. Increased interest rates may increase the risk that the counterparties
to our interest rate swap agreements will default on their obligations, which could further increase our exposure to interest rate
fluctuations. Conversely, if interest rates are lower than our swapped fixed rates, we will be required to pay more for our debt
than we would have had we not entered into the interest rate swap agreements.
Despite substantial levels of
indebtedness, we have the ability to incur more indebtedness. Incurring additional debt could further intensify the risks described
above.
We may be
able to incur additional debt in the future and the terms of the credit agreements governing the Senior Secured Credit
Facilities will not fully prohibit us from doing so. We have the ability to draw upon our $455.0 million Asset-Based
Revolving Credit Facility (subject to customary borrowing base and other conditions) and the ability to increase the
aggregate availability thereunder by up to $145.0 million (subject to receipt of commitments). We also have the ability
to draw upon the uncommitted accordion provided under the Term Loan Facility (subject to the receipt of commitments), which,
as of the date of closing of the Term Loan Facility, permitted incremental term loans thereunder of up to (i) the greater of
$325.0 million and 60% of “consolidated EBITDA” (as defined in the Term Loan Facility), plus (ii) the sum of
all voluntary prepayments, repurchases and redemptions of the Term Loan Facility and certain permitted indebtedness that is
secured on a pari passu basis with the Term Loan Facility, in each case, to the extent not financed with the incurrence of
additional long-term indebtedness, plus (iii) an unlimited amount so long as the “consolidated first lien net leverage
ratio” (as defined in the Term Loan Facility) of Vertiv Group and its restricted subsidiaries, determined on a pro
forma basis, would not exceed 3.75:1.00. The amount of the Term Loan Facility and the Asset-Based Revolving Credit Facility
may be increased if we meet certain conditions. If new debt is added to our current debt levels, the related risks that we
now face could intensify and we may not be able to meet all our respective debt obligations. In addition, the credit
agreements governing the Senior Secured Credit Facilities do not prevent us from incurring obligations that do not constitute
indebtedness under those agreements.
Restrictive covenants in the
credit agreements governing the Senior Secured Credit Facilities, and any future debt agreements, could restrict our operating
flexibility.
The credit agreements
governing the Senior Secured Credit Facilities contain covenants that limit our and our restricted subsidiaries’ ability
to take certain actions. These restrictions may limit our ability to operate our businesses, prohibit or limit our ability to enhance
our operations or take advantage of potential business opportunities as they arise.
The credit agreements
governing the Senior Secured Credit Facilities restrict (subject to customary exceptions), among other things, certain of our subsidiaries’
ability to incur additional indebtedness; pay dividends or other payments on capital stock; guarantee other obligations; grant
liens on assets; make loans, acquisitions or other investments; dispose of assets; make optional payments of, or otherwise modify,
certain debt instruments; engage in transactions with affiliates; amend organizational documents; engage in mergers or consolidations;
enter into arrangements that restrict certain of our subsidiaries’ ability to pay dividends; change the nature of the business
conducted by Vertiv Group and its subsidiaries; and designate our subsidiaries as unrestricted subsidiaries.
In addition, under
the Asset-Based Revolving Credit Facility, if availability goes below a certain threshold, Vertiv Group and its restricted subsidiaries
are required to comply with a minimum “consolidated fixed charge coverage ratio” (as defined in the Asset-Based Revolving
Credit Facility).
Our ability to comply with the
covenants and restrictions contained in the credit agreements governing the Senior Secured Credit Facilities, and any future debt
agreements, is not fully within our control and breaches of such covenants or restrictions could trigger adverse consequences.
Our ability to
comply with the covenants and restrictions contained in the credit agreements governing the Senior Secured Credit Facilities, and
any future debt agreements, may be affected by economic conditions and by financial, market and competitive factors, many of which
are beyond our control. Our ability to comply with these covenants in future periods will also depend substantially on the pricing
and sales volume of our products, our success at implementing cost reduction initiatives and our ability to successfully implement
our overall business strategy. The breach of any of these covenants or restrictions could result in a default under the credit
agreements governing the Senior Secured Credit Facilities, or any future debt, that would permit the holders or applicable lenders
to terminate any outstanding commitments and declare all amounts outstanding thereunder to be due and payable, together with accrued
and unpaid interest. In that case, the applicable borrowers may be unable to borrow under the Senior Secured Credit Facilities,
or any future debt, may not be able to repay the amounts due under the Senior Secured Credit Facilities, or any future debt, and
may not be able make cash available to us, by dividend, debt repayment or otherwise, to enable us to make payments on any future
debt. In addition, the lenders under the Senior Secured Credit Facilities, or any future debt, could proceed against the collateral
securing that indebtedness. This could have serious consequences to our financial position, results of operations and/or cash flows
and could cause us to become bankrupt or insolvent.
Our business plan is dependent
on access to funding through the capital markets.
Our ability to
invest in our businesses, make strategic acquisitions and refinance maturing debt obligations requires access to the capital markets
and sufficient bank credit lines to support short-term borrowings. Volatility in the capital markets may increase costs associated
with issuing debt instruments, or affect our ability to access those markets. Any decline in the ratings of our corporate credit
or any indications from the rating agencies that their ratings on our corporate credit are under surveillance or review with possible
negative implications could adversely impact our ability to access capital. If we are unable to continue to access the capital
markets, our ability to effectively execute our business plan could be adversely affected, which could have a material adverse
effect on our business and financial results. Additionally, if our customers, suppliers or financial institutions are unable to
access the capital markets to meet their commitments to us, our business could be adversely impacted.
Risks Related to the Ownership of
our Securities
The Vertiv Stockholder has significant
influence over us.
As
of March 9, 2020, the Vertiv Stockholder beneficially owned approximately 36.01% of our outstanding Class A common stock.
As long as the Vertiv Stockholder owns or controls a significant percentage of our outstanding voting power, it will have the
ability to significantly influence all corporate actions requiring stockholder approval, including the election and removal of
directors and the size of our Board, any amendment to our Second Amended and Restated Certificate of Incorporation (“Certificate
of Incorporation”) or Amended and Restated Bylaws (“Bylaws” and, together with the Certificate of
Incorporation, the “Organizational Documents”), or the approval of any merger or other significant corporate
transaction, including a sale of substantially all of our assets. The Vertiv Stockholder’s influence over our management
could have the effect of delaying or preventing a change in control or otherwise discouraging a potential acquirer from attempting
to obtain control of us, which could cause the market price of our Class A common stock to decline or prevent stockholders
from realizing a premium over the market price for our Class A common stock. Because our Certificate of Incorporation opts
out of Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”) regulating certain
business combinations with interested stockholders, the Vertiv Stockholder may transfer shares to a third party by transferring
their common stock without the approval of our Board of Directors (our “Board”) or other stockholders, which
may limit the price that investors are willing to pay in the future for shares of our common stock. Pursuant to the Stockholders
Agreement entered into by and among the Company, the Sponsor Members and the Vertiv Stockholder, the Vertiv Stockholder will initially
have the right to nominate up to four directors (at least two of whom will be independent) to our Board. The Vertiv Stockholder’s
right to nominate directors to our Board is subject to its ownership percentage of the total outstanding shares of Class A
common stock. If the Vertiv Stockholder holds: (1) 30% or greater of the outstanding Class A common stock, it will have the
right to nominate four directors (at least two of whom will be independent); (2) less than 30% but greater than or equal to 20%
of the outstanding Class A common stock, it will have the right to nominate three directors (at least one of whom will be
independent); (3) less than 20% but greater than or equal to 10% of the outstanding Class A common stock, it will have the
right to nominate two directors (none of whom will be required to be independent); (4) less than 10% but greater than or equal
to 5% of the outstanding Class A common stock, it will have the right to nominate one director (none of whom will be required
to be independent); and (5) less than 5% of the outstanding Class A common stock, it will not have the right to nominate
any directors.
The Vertiv Stockholder’s
interests may not align with our interests as a company or the interests of our other stockholders. Accordingly, the Vertiv Stockholder
could cause us to enter into transactions or agreements of which you would not approve or make decisions with which you would disagree.
Further, the Vertiv Stockholder is in the business of making investments in companies and may acquire and hold interests in businesses
that compete directly or indirectly with us. The Vertiv Stockholder may also pursue acquisition opportunities that may be complementary
to our business, and, as a result, those acquisition opportunities may not be available to us. In recognition that principals,
members, directors, managers, partners, stockholders, officers, employees and other representatives of the Vertiv Stockholder and
its affiliates and investment funds may serve as our directors or officers, our Certificate of Incorporation provides, among other
things, that none of the Vertiv Stockholder or any principal, member, director, manager, partner, stockholder, officer, employee
or other representative of the Vertiv Stockholder has any duty to refrain from engaging directly or indirectly in the same or similar
business activities or lines of business that we do. In the event that any of these persons or entities acquires knowledge of a
potential transaction or matter which may be a corporate opportunity for itself and us, we will not have any expectancy in such
corporate opportunity, and these persons and entities will not have any duty to communicate or offer such corporate opportunity
to us and may pursue or acquire such corporate opportunity for themselves or direct such opportunity to another person. These potential
conflicts of interest could have a material adverse effect on our business, financial condition and results of operations if, among
other things, attractive corporate opportunities are allocated by the Vertiv Stockholder to itself or its other affiliates.
We are required to pay the Vertiv
Stockholder for a significant portion of the tax benefits relating to pre-Business Combination tax assets and attributes,
regardless of whether any tax savings are realized.
At the closing
of the Business Combination, we entered into the Tax Receivable Agreement, which generally provides for the payment by us to the
Vertiv Stockholder of 65% of the cash tax savings in U.S. federal, state, local and certain foreign taxes, that we actually realize
(or are deemed to realize) in periods after the closing of the Business Combination as a result of (i) increases in the tax
basis of certain intangible assets of Vertiv resulting from certain pre-Business Combination acquisitions, (ii) certain
U.S. federal income tax credits for increasing research activities (so-called “R&D credits”) and
(iii) tax deductions in respect of certain Business Combination expenses. We expect to retain the benefit of the remaining
35% of these cash tax savings. The payments described in (i) and (ii) above will generally be deferred until the close of
our third taxable year following the closing of the Business Combination and will be payable over the following nine taxable years.
The payments described in (iii) above will generally be deferred until the close of our fourth taxable year following the
closing of the Business Combination and will be payable ratably over the following three taxable years regardless of whether we
actually realize such tax benefits in such years.
Under certain
circumstances (including a material breach of our obligations, certain actions or transactions constituting a change of control,
a divestiture of certain assets, upon the end of the term of the Tax Receivable Agreement or after three years, at our option),
payments under the Tax Receivable Agreement will be accelerated and become immediately due. In such case, the payments due upon
acceleration would be based on the present value of our anticipated future tax savings using certain valuation assumptions, including
that we will generate sufficient taxable income to fully utilize the applicable tax assets and attributes covered under the Tax
Receivable Agreement (or, in the case of a divestiture of certain assets, the applicable tax attributes relating to such assets).
Consequently, it is possible in these circumstances that the actual cash tax savings realized by us may be significantly less than
the corresponding Tax Receivable Agreement payments we are required to make at the time of acceleration. Furthermore, the acceleration
of our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity. Additionally,
the obligation to make payments under the Tax Receivable Agreement, including the acceleration of our obligation to make payments
in the event of a change of control, could make us a less attractive target for a future acquisition.
While the timing
of any payments under the Tax Receivable Agreement will vary depending upon the amount and timing of our taxable income, we expect
that the payments that we will be required to make under the Tax Receivable Agreement could be substantial. Payments under the
Tax Receivable Agreement will be based on the tax reporting positions that we determine, and such tax reporting positions are subject
to challenge by taxing authorities. Payments made under the Tax Receivable Agreement will not be returned upon a successful challenge
by a taxing authority to our reporting positions, although such excess payments made to the Vertiv Stockholder may be netted against
payments otherwise to be made to the Vertiv Stockholder after our determination of such excess. Any payments made by us under the
Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise been available to us.
For more information
about the Tax Receivable Agreement, please see “Item 1. Business—Business Combination—Related Agreements.”
Resales of our securities may
cause the market price of our securities to drop significantly, even if our business is doing well
Subject
to certain exceptions: the Vertiv Stockholder is contractually restricted from selling or transferring its Stock
Consideration Shares until August 5, 2020 and the Initial Stockholders are contractually restricted from selling or
transferring their founder shares until the earlier of (1) February 7, 2021 and
(2) (a) if the last reported sale price of the Class A common stock equals or exceeds $12.00 per share (as adjusted
for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days
within any 30-trading day period commencing on or after July 6, 2020, or (b) the date on which
we complete a liquidation, merger, stock exchange, reorganization or other similar transaction that results in all of our
public stockholders having the right to exchange their shares of Class A common stock for cash, securities or other
property (such period, the “Sponsor Lock-up Period”). However, following the expiration of such
lockups, neither the Vertiv Stockholder nor the Initial Stockholders will be restricted from selling their securities, other
than by applicable securities laws. The lock-up period applicable to the Initial Stockholders’ private placements
warrants and Class A common stock underlying the private placement warrants expired on March 8, 2020 and such securities
may be sold in accordance with applicable securities laws Additionally, the other PIPE Investors are not restricted from
selling any of their securities, other than by applicable securities laws.
We also intend
to register all shares of Class A common stock that we may issue under the Vertiv Holdings
Co 2020 Equity Incentive Plan approved in connection with the Business Combination (the “Incentive Plan”).
Once we register these shares, they can be freely sold in the public market upon issuance, subject to volume limitations applicable
to affiliates.
A
significant number of shares of our Class A common stock will be issuable upon the exercise of our warrants (including
the warrants included in the units). Additionally, all of the founder shares, private placement warrants, PIPE Shares, Stock
Consideration Shares and any other securities that are “Registrable
Securities” under the Amended and Restated Registration Rights Agreement have been registered for resale under
the Securities Act pursuant to the registration rights set forth in the Amended and Restated Registration Rights Agreement or
Subscription Agreements. As restrictions on resale end and registration statements are available for use, the sale or
possibility of sale of shares by the Vertiv Stockholder, the Initial Stockholders and the PIPE Investors could have the
effect of increasing the volatility in our share price or the market price of our securities could decline if the holders of
currently restricted shares sell them or are perceived by the market as intending to sell them.
The trading price of our Class A
common stock, warrants and units may be volatile.
The trading price
of our Class A common stock, warrants and units may highly volatile and subject to wide fluctuations due to a number of factors
such as the following, some of which will be beyond our control. Some of the factors that could negatively affect the market price
of our Class A common stock, warrants and units or result in significant fluctuations in price, regardless of our actual operating
performance, include:
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actual or anticipated variations in our quarterly operating results;
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results of operations that vary from the expectations of securities analysts and investors;
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changes in expectations as to our future financial performance, including financial estimates by securities analysts and investors;
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changes in market valuations of similar companies;
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changes in the markets in which we operate;
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announcements by us, our competitors or our vendors of significant contracts, acquisitions, joint marketing relationships, joint ventures or capital commitments;
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announcements by third parties of significant claims or proceedings against us;
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additions or departures of key personnel;
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actions by stockholders, including the sale by the Vertiv Stockholder and the PIPE Investors of any of their shares of our common stock;
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speculation in the press or investment community;
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general market, economic and political conditions, including an economic slowdown;
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uncertainty regarding economic events, including in Europe in connection with the United Kingdom’s possible departure from the European Union;
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changes in interest rates;
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our operating performance and the performance of other similar companies;
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our ability to accurately project future results and our ability to achieve those and other industry and analyst forecasts; and
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new legislation or other regulatory developments that adversely affect us, our markets or our industry.
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Furthermore, in
recent years, the stock market has experienced significant price and volume fluctuations. This volatility has had a significant
impact on the market price of securities issued by many companies, including companies in our industry, and often occurs without
regard to the operating performance of the affected companies. Therefore, factors that have little or nothing to do with us could
cause the price of our Class A common stock, warrants and units to fluctuate, and these fluctuations or any fluctuations related
to our company could cause the market price of our Class A common stock, warrants and units to decline materially.
In the past, following
periods of market volatility, stockholders have instituted securities class action litigation. If we were involved in securities
litigation, it could have a substantial cost and divert resources and the attention of our management team from our business regardless
of the outcome of such litigation.
Compliance obligations under
the Sarbanes-Oxley Act require substantial financial and management resources.
As a privately
held company, Vertiv was not subject to Section 404 of the Sarbanes-Oxley Act. The standards required for a public company
under Section 404 of the Sarbanes-Oxley Act are significantly more stringent than those required of Vertiv as a privately
held company. Management may not be able to effectively and timely implement controls and procedures that adequately respond to
the increased regulatory compliance and reporting requirements that are applicable to us after the Business Combination. If we
are not able to implement the requirements of Section 404, including any additional requirements once we are no longer an
emerging growth company, in a timely manner or with adequate compliance, we may not be able to assess whether our internal controls
over financial reporting are effective, which may subject us to adverse regulatory consequences and could harm investor confidence
and the market price of our securities. Additionally, once we are no longer an emerging growth company, we will be required to
comply with the independent registered public accounting firm attestation requirement on our internal control over financial reporting.
We currently anticipate losing our “emerging growth company” status at 2020 year end.
The obligations associated with
being a public company involve significant expenses and require significant resources and management attention, which may divert
from our business operations.
As a public company,
we are subject to the reporting requirements of the Exchange Act and the Sarbanes-Oxley Act. The Exchange Act requires the filing
of annual, quarterly and current reports with respect to a public company’s business and financial condition. The Sarbanes-Oxley
Act requires, among other things, that a public company establish and maintain effective internal control over financial reporting.
As a result, we have incurred and expect to incur in the future significant legal, accounting and other expenses that Vertiv did
not previously incur. Vertiv’s entire management team and many of its other employees will need to devote substantial time
to compliance, and may not effectively or efficiently manage our transition into a public company.
We are currently an emerging
growth company within the meaning of the Securities Act, and to the extent we have taken advantage of certain exemptions from disclosure
requirements available to emerging growth companies, this could make our securities less attractive to investors and may make it
more difficult to compare our performance with other public companies.
We
are currently an “emerging growth company” within the meaning of the Securities Act, as modified by the JOBS Act,
and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public
companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor
attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding
advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. As
a result, our stockholders may not have access to certain information they may deem important. We cannot predict whether
investors will find our securities less attractive because we will rely on these exemptions. If some investors find our
securities less attractive as a result of our reliance on these exemptions, the trading prices of our securities may be lower
than they otherwise would be, there may be a less active trading market for our securities and the trading prices of our
securities may be more volatile.
Further, Section 102(b)(1)
of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards
until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not
have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting
standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements
that apply to non-emerging growth companies but any such election to opt out is irrevocable. We have elected not to opt
out of such extended transition period, which means that when a standard is issued or revised and it has different application
dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private
companies adopt the new or revised standard. This may make comparison of our financial statements with another public company,
which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition
period difficult or impossible because of the potential differences in accounting standards used.
We will remain
an emerging growth company until the earlier of: (1) the last day of the fiscal year (a) following the fifth anniversary
of the closing of the IPO, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which
we are deemed to be a large accelerated filer, which means the market value of our common equity that is held by non-affiliates exceeds
$700 million as of the prior June 30th; and (2) the date on which we have issued more than $1.00 billion in non-convertible debt
securities during the prior three-year period. We currently anticipate losing our “emerging growth company” status
at 2020 year end.
Warrants became exercisable for
our Class A common stock on March 8, 2020, which increases the number of shares eligible for future resale in the public market
and results in dilution to our stockholders.
Outstanding warrants
to purchase a significant number of shares of our Class A common stock became exercisable in accordance with the terms of
the warrant agreement on March 8, 2020. The exercise price of these warrants is $11.50 per share. To the extent such warrants
are exercised, additional shares of our Class A common stock will be issued, which will result in dilution to the holders
of our Class A common stock and increase the number of shares eligible for resale in the public market. Sales of substantial
numbers of such shares in the public market or the fact that such warrants may be exercised could adversely affect the market price
of our Class A common stock. However, there is no guarantee that the warrants will continue to be in the money, and as such,
the warrants may expire worthless.
The warrants may not continue
to be in the money, they may expire worthless and the terms of the warrants may be amended in a manner that may be adverse to holders
of our warrants with the approval by the holders of at least 50% of the then outstanding public warrants. As a result, the exercise
price of the warrants could be increased, the warrants could be converted into cash or stock (at a ratio different than initially
provided), the exercise period could be shortened and the number of shares of our Class A common stock purchasable upon exercise
of a warrant could be decreased, all without a warrant holder’s approval.
The warrants may
not continue to be in the money, and they may expire worthless. Our warrants were issued in registered form under a warrant agreement
between Computershare Trust Company, N.A. and Computershare Inc., acting together as warrant agent (together, “Computershare”),
and us. The warrant agreement provides that the terms of the warrants may be amended without the consent of any holder to cure
any ambiguity or correct any defective provision, but requires the approval by the holders of at least 50% of the then outstanding
public warrants to make any change that adversely affects the interests of the registered holders of warrants. Accordingly, we
may amend the terms of the warrants in a manner adverse to a holder if holders of at least 50% of the then outstanding public warrants
approve of such amendment. Although our ability to amend the terms of the warrants with the consent of at least 50% of the then
outstanding public warrants is unlimited, examples of such amendments could be amendments to, among other things, increase the
exercise price of the warrants, convert the warrants into cash or stock (at a ratio different than initially provided), shorten
the exercise period or decrease the number of shares of our Class A common stock purchasable upon exercise of a warrant.
We may redeem unexpired warrants
prior to their exercise at a time that is disadvantageous to a warrant holder, thereby making the warrants worthless.
We have the ability
to redeem outstanding warrants at any time prior to their expiration, at a price of $0.01 per warrant, provided that the last reported
sales price of our Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends,
reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading-day period ending on the
third trading day prior to the date we send the notice of redemption to the warrant holders. If and when the warrants become redeemable
by us, we may exercise our redemption right even if we are unable to register or qualify the underlying securities for sale under
all applicable state securities laws. Redemption of the outstanding warrants could force warrant holders to: (1) exercise
their warrants and pay the exercise price therefor at a time when it may be disadvantageous to do so (2) sell their warrants
at the then-current market price when they might otherwise wish to hold their warrants; or (3) accept the nominal redemption
price which, at the time the outstanding warrants are called for redemption, is likely to be substantially less than the market
value of the warrants. None of the private placement warrants will be redeemable by us so long as they are held by the Sponsor
Members or their respective permitted transferees.
In addition, following
June 6, 2020, we may redeem warrants for a number of shares of Class A common stock determined based on the redemption date
and the fair market value of our Class A common stock. Any such redemption may have similar consequences to a cash redemption
described above. In addition, such redemption may occur at a time when the warrants are “out-of-the-money,” in
which case warrant holders would lose any potential embedded value from a subsequent increase in the value of the Class A
common stock had the warrants remained outstanding. None of the private placement warrants will be redeemable by us so long as
they are held by the Sponsor Members or their permitted transferees.
The NYSE may delist our securities
from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us
to additional trading restrictions.
Our Class A
common stock, public warrants and units are listed on the NYSE. There is no guarantee that these securities will remain listed
on the NYSE. Although we currently meet the minimum initial listing standards set forth in the NYSE listing standards, there can
be no assurance that these securities will continue to be listed on the NYSE in the future. In order to continue listing our securities
on the NYSE, we must maintain certain financial, distribution and share price levels. In general, we must maintain a minimum number
of holders of our securities.
If the NYSE delists
any of our securities from trading on its exchange and we are not able to list our securities on another national securities exchange,
we expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant
material adverse consequences, including:
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a limited availability of market quotations for our securities;
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reduced liquidity for our securities;
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a determination that our Class A common stock are a “penny stock” which will require brokers trading in our Class A common stock to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities;
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a limited amount of news and analyst coverage; and
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a decreased ability to issue additional securities or obtain additional financing in the future.
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The National Securities
Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain
securities, which are referred to as “covered securities.” Because our Class A common stock, public warrants and
units are listed on the NYSE, our Class A common stock, public warrants and units qualify as covered securities under such
statute. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states
to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can
regulate or bar the sale of covered securities in a particular case. If we were no longer listed on the NYSE, our securities would
not be covered securities and we would be subject to regulation in each state in which we offer our securities.
The coverage of our business
or our securities by securities or industry analysts or the absence thereof could adversely affect our securities and trading volume.
The trading market
for our securities will be influenced in part by the research and other reports that industry or securities analysts may publish
about us or our business or industry from time to time. We do not control these analysts or the content and opinions included in
their reports. As a former blank check company, we may be slow to attract equity research coverage, and the analysts who publish
information about our securities will have had relatively little experience with our company, which could affect their ability
to accurately forecast our results and make it more likely that we fail to meet their estimates. If no or few analysts commence
equity research coverage of us, the trading price and volume of our securities would likely be negatively impacted. If analysts
do cover us and one or more of them downgrade our securities, or if they issue other unfavorable commentary about us or our industry
or inaccurate research, our stock price would likely decline. Furthermore, if one or more of these analysts cease coverage or fail
to regularly publish reports on us, we could lose visibility in the financial markets. Any of the foregoing would likely cause
our stock price and trading volume to decline.
Anti-takeover provisions contained
in our Organizational Documents, as well as provisions of Delaware law, could impair a takeover attempt.
Our Organizational
Documents contain provisions that may discourage unsolicited takeover proposals that stockholders may consider to be in their best
interests. We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control.
Together, these provisions may make more difficult the removal of management and may discourage transactions that otherwise could
involve payment of a premium over prevailing market prices for our securities. Certain of these provisions provide:
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no cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
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the requirement that directors may only be removed from the Board for cause;
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the right of our Board to elect a director to fill a vacancy created by the expansion of our Board or the resignation, death or removal of a director in certain circumstances, which prevents stockholders from being able to fill vacancies on our Board;
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a prohibition on stockholder action by written consent, which forces stockholder action to be taken at an annual or special meeting of our stockholders;
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a prohibition on stockholders calling a special meeting and the requirement that a meeting of stockholders may only be called by members of our Board or the Chief Executive Officer of the Company, which may delay the ability of our stockholders to force consideration of a proposal or to take action, including the removal of directors; and
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advance notice procedures that stockholders must comply with in order to nominate candidates to our Board or to propose matters to be acted upon at a meeting of stockholders, which may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to obtain control of the Company.
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Our Certificate of Incorporation
includes a forum selection clause, which could discourage claims or limit stockholders’ ability to make a claim against us,
our directors, officers, other employees or stockholders.
Our
Certificate of Incorporation includes a forum selection clause, which provides that, unless we consent in writing to the
selection of an alternative forum, the Court of Chancery in the State of Delaware shall be the sole and exclusive forum for
any stockholder (including a beneficial owner) to bring: (a) any derivative action or proceeding brought on behalf of
the Company; (b) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or
other employees of the Company to the Company or our stockholders; (c) any action asserting a claim arising pursuant to
any provision of the DGCL or our certificate of incorporation or bylaws; or (d) any action asserting a claims governed
by the internal affairs doctrine, except for, as to each of (a) through (d) above, any claim (i) as to which the
Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery
(and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following
such determination), (ii) which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery,
(iii) for which the Court of Chancery does not have subject matter jurisdiction or (iv) arising under the federal
securities laws, including the Securities Act, as to which the Court of Chancery and the federal district court for the
District of Delaware shall concurrently be the sole and exclusive forums. This forum selection clause may discourage claims
or limit stockholders’ ability to submit claims in a judicial forum that they find favorable and may result in
additional costs for a stockholder seeking to bring a claim. While we believe the risk of a court declining to enforce this
forum selection clause is low, if a court were to determine the forum selection clause to be inapplicable or unenforceable in
an action, we may incur additional costs in conjunction with our efforts to resolve the dispute in an alternative
jurisdiction, which could have a negative impact on our results of operations and financial condition. Notwithstanding the
foregoing, the forum selection clause will not apply to suits brought to enforce any liability or duty created by the
Exchange Act or any other claim for which the federal district courts of the United States of America shall be the sole and
exclusive forum.
We are a holding company and
will depend on the ability of our subsidiaries to pay dividends.
We are a holding
company without any direct operations and have no significant assets other than our ownership interest in Second Merger Sub. Accordingly,
our ability to pay dividends depends upon the financial condition, liquidity and results of operations of, and our receipt of dividends,
loans or other funds from, our subsidiaries. Our subsidiaries are separate and distinct legal entities and have no obligation to
make funds available to us. In addition, there are various statutory, regulatory and contractual limitations and business considerations
on the extent, if any, to which our subsidiaries may pay dividends, make loans or otherwise provide funds to us. For example, the
ability of our subsidiaries to make distributions, loans and other payments to us for the purposes described above and for any
other purpose may be limited by the terms of the agreements governing our outstanding indebtedness.