8-K: Reliance Global Group Projects Significant Financial Turnaround Post-Acquisition of Spetner Associates

Reliance Global Group, Inc. has filed pro forma financial statements indicating a substantial improvement in revenue and a shift from net loss to net income following its planned acquisition of 80% of Spetner Associates, Inc. for $16.05 million.

Summary

• Reliance Global Group, Inc. (RELI) is acquiring 100% of Spetner Associates, Inc. (SAI) in a two-phase transaction, with 80% to be acquired in the First Closing and an option for the remaining 20% within three years.
• The aggregate purchase price for the First Closing Shares (80%) is $16,050,000, payable through a combination of $6,500,000 cash, a $2,500,000 promissory note to Agudath Israel of America, Company Common Stock up to 9.9% of total outstanding shares, and an additional promissory note to Mr. Spetner for any remaining portion (estimated $6,481,144).
• The Second Closing Shares (20%) purchase price will be ten times 20% of SAI's final annual EBITDA for the most recent fiscal year prior to the Second Closing.
• Pro forma consolidated financial statements for the three months ended March 31, 2025, show a projected total revenue of $9,382,019, a significant increase from RELI's historical $4,236,220.
• The pro forma net income for the three months ended March 31, 2025, is projected at $961,608, a substantial improvement from RELI's historical net loss of $(1,736,882).
• Pro forma basic and diluted income per share for the three months ended March 31, 2025, is projected at $0.06, compared to RELI's historical loss per share of $(0.66).
• Pro forma Adjusted EBITDA (AEBITDA) for the three months ended March 31, 2025, is projected at $2,831,630, up from RELI's historical $145,407.
• For the year ended December 31, 2024, pro forma consolidated total revenue is projected at $28,514,559, and pro forma AEBITDA at $5,084,996, compared to RELI's historical revenue of $14,054,361 and AEBITDA of $(321,224).
• The acquisition is expected to be accounted for as a business combination under ASC 805, with RELI obtaining control of SAI by acquiring 80% of its common stock.
• The pro forma adjustments include an assumed issuance and sale of 4,048,583 shares of Company common stock at an assumed public offering price of $2.470 per share, generating $9,000,000 in net proceeds to finance the transaction.

Sentiment

Score: 8

Explanation: The document outlines a strategic acquisition that significantly improves Reliance Global Group's financial position, projecting a shift from net loss to net income and substantial revenue growth. The detailed pro forma financials provide a clear positive outlook for the combined entity, despite some historical losses for Reliance and preliminary estimates.

Positives

• The acquisition is projected to significantly increase Reliance Global Group's total revenue, with pro forma revenue for Q1 2025 reaching $9.38 million compared to Reliance's historical $4.24 million.
• The pro forma financials indicate a strong turnaround in profitability, with a projected net income of $961,608 for Q1 2025, a substantial improvement from Reliance's historical net loss of $(1,736,882).
• Pro forma AEBITDA shows a significant increase to $2,831,630 for Q1 2025, demonstrating improved operational performance post-acquisition.
• Spetner Associates, Inc. itself demonstrated strong historical performance, with a 96% increase in revenue and a 220% increase in net income for the three months ended March 31, 2025, compared to the prior year period.
• SAI's working capital improved significantly from a negative $23,000 at December 31, 2023, to a positive $934,000 at December 31, 2024, primarily driven by increased cash from operations.
• The freezing of SAI's cash balance plan effective January 1, 2024, resulted in a significantly reduced pension expense, contributing to improved profitability.

Negatives

• Reliance Global Group historically reported a net loss of $(1,736,882) for the three months ended March 31, 2025, and a net loss of $(9,071,584) for the year ended December 31, 2024, prior to the acquisition.
• Spetner Associates, Inc. reported a significant charitable contribution expense of $880,092 for the three months ended March 31, 2025, and $5,588,474 for the year ended December 31, 2024, which impacts its standalone net income.
• The pro forma consolidated net loss for the year ended December 31, 2024, is still projected at $(3,571,926), despite the acquisition, indicating that the combined entity still faces challenges in achieving full-year GAAP profitability.
• The pro forma financial statements are based on preliminary estimates of fair values, and actual amounts reported in future filings may differ materially.

Risks

• The pro forma financial statements are based on preliminary estimates of the fair value of purchase consideration, assets acquired, liabilities assumed, and noncontrolling interest, meaning actual amounts reported in future filings may differ materially.
• The Company's ability to realize the full benefits of the acquisition depends on successful integration of Spetner Associates, Inc.'s operations and financial performance.
• The Second Closing purchase price for the remaining 20% of SAI shares is contingent on SAI's future annual EBITDA, introducing variability and potential future payment obligations.
• Reliance Global Group is subject to U.S. federal and various state income taxes, and the pro forma statements do not include an income tax provision due to the likelihood of not being able to utilize loss carry forwards, which could change.
• SAI's historical financial performance shows significant concentration risk from a few insurance carriers and customers, with top carriers accounting for 47%, 17%, and 12% of revenue in Q1 2025, and top customers accounting for 68%, 20%, and 12% of accounts receivable in Q1 2025. The loss of any significant customer could have a material adverse effect on the combined company.

Future Outlook

The document presents pro forma financial information to illustrate the estimated effects of the planned acquisition, indicating a significant increase in revenue and a shift to net income for the combined entity in the near term. The Second Closing for the remaining 20% of SAI shares is an option for Reliance to acquire prior to the third annual anniversary of the First Closing Date, with the price contingent on SAI's future annual EBITDA. The company anticipates meeting its cash obligations primarily through cash generated from operations and does not expect significant capital expenditures for the next 12 months.

Management Comments

• Management believes that AEBITDA provides a meaningful financial measure of the quality of the Company's operational, cash impacted and recurring earnings and operating performance across reporting periods.
• Management uses AEBITDA to evaluate the Company's operational performance, including earnings across reporting periods and the merits for implementing cost-cutting measures.
• Management has evaluated the entities tax position and determined that there are no uncertain positions that require recognition or disclosure in the consolidated financial statements with applicable accounting standards.

Industry Context

This acquisition positions Reliance Global Group to expand its footprint in the insurance products and voluntary benefits marketplace, leveraging Spetner Associates' strong growth in agency services for healthcare and life insurance. The consolidation of benefit enrollment companies aligns with a trend towards larger, more integrated service providers in the insurance sector, aiming to achieve economies of scale and broader market reach. Spetner's significant revenue growth and improved working capital suggest it is a high-performing asset in its niche, which could provide a substantial boost to Reliance's overall market position and financial health.

Comparison to Industry Standards

• While specific comparable companies or projects are not detailed in the filing, the pro forma results suggest that the acquisition significantly enhances Reliance's competitive standing. Reliance's historical net loss and negative AEBITDA indicate it was underperforming prior to the acquisition.
• Post-acquisition, the pro forma consolidated AEBITDA of $2.83 million for Q1 2025 and $5.08 million for FY 2024, coupled with a projected net income for Q1 2025, indicates a move towards industry-standard profitability and operational efficiency for a company of its combined size in the insurance brokerage sector.
• The substantial increase in goodwill and other intangibles ($18.23 million for Q1 2025 pro forma) suggests that the acquisition price reflects a premium for SAI's established client relationships, operational expertise, and growth potential, which is common in strategic acquisitions within the insurance services industry.

Management Changes

Corporate Governance

Legal Proceedings

• The Company (Reliance Global Group) has filed a legal suit against one of the third parties involved in its discontinued operations, as mentioned in the non-GAAP measure disclosures for transactional costs.

Related Party Transactions

• Spetner Associates, Inc. has an informal agreement with its owners to continually borrow funds for working capital needs, which are non-interest bearing and non-collateralized.
• Spetner Associates, Inc. rents office space in St. Louis, Missouri, from a related party through common ownership on a month-to-month basis, incurring related party rent expense of $18,750 for the three months ended March 31, 2025.
• Spetner Associates, Inc. incurs related party service fees for IT services performed by a related party vendor, amounting to $243,000 for the three months ended March 31, 2025, and $789,000 for the year ended December 31, 2024.

Stakeholder Impact

• Shareholders of Reliance Global Group are expected to benefit from the projected increase in revenue and shift to net income, potentially leading to increased share value and improved financial stability.
• Employees of Spetner Associates, Inc. will become part of a larger, publicly traded entity, potentially offering new opportunities, though the freezing of the cash balance plan may impact some retirement benefits.
• Customers of Spetner Associates, Inc. may experience continuity or enhanced service offerings as the company integrates with Reliance Global Group, a larger insurance services provider.
• Creditors of Reliance Global Group will see an improved financial position and cash flow generation, which could enhance the company's ability to meet its debt obligations.
• The Sellers of Spetner Associates, Inc. (Jonathan Spetner and Agudath Israel of America) will receive significant cash, promissory notes, and Reliance common stock as consideration for the sale.

Next Steps

• The Company will proceed with the First Closing to acquire 80% of SAI shares.
• The Company has an option to acquire the remaining 20% of SAI shares at a Second Closing prior to the third annual anniversary of the First Closing Date.
• The purchase price allocation and estimated fair values of assets and liabilities will be updated and finalized no later than one year from the closing of the acquisition.
• Following the acquisition date, the Company will conduct a final review of Spetner's accounting policies to determine if differences require adjustment.

Key Dates

Recommendation

Keywords

Acquisition, SEC Filing, Pro Forma Financials, Reliance Global Group, Spetner Associates, Business Combination, Insurance Brokerage, Financial Performance, EBITDA, Revenue Growth, Net Income, Capital Raise, SEC Form 8-K