Fleetcor - Fueling Growth

Summit Partners invested in FleetCor Technologies, Inc. ("FleetCor"), a leading provider of fuel cards and workforce payment solutions. FleetCor has demonstrated strong historical financial performance, a proven business model, and significant growth opportunities within its target markets. This investment memo provides an overview of FleetCor and evaluates the potential benefits and risks associated with Summit's investment in the company.

Company Overview:

FleetCor Technologies, Inc.:

• Founded in 2000, FleetCor is a global leader in business payments solutions.

• Headquartered in Atlanta, Georgia, FleetCor operates in over 80 countries and serves more than 800,000 businesses.

• The company primarily offers fuel cards, lodging, and other payment solutions to businesses that operate fleets of vehicles.

• FleetCor's products help businesses optimize fuel and lodging expenses, reduce administrative costs, and gain better control over their corporate spending.

• Differentiator: Proprietary card service that captures all of transaction fees within the middle-market and also does not charge membership or card issuance fee

• Pricing: Cost based (negotiated markup from Oil Price Information Service) and retail based (negotiated discounts from the retail pump price)

• Customers: Diversified, high creditworthy customers accounting for less then 1% of consolidated revenues (except Arco)

Investment Thesis:

1. Market Leadership: FleetCor is a dominant player in the fuel card and workforce payment solutions industry, benefitting from a substantial market share. Its established brand and extensive network make it a preferred choice for businesses worldwide.

2. Resilience: FleetCor's business model is relatively resistant to economic downturns as it helps businesses manage and control expenses, a critical need in any economic climate.

3. Global Expansion: The company has a proven track record of successful international expansion, and there is significant room for growth in emerging markets where payment solutions are still evolving.

4. Innovation: FleetCor continually invests in technology and product development, positioning itself to capitalize on digital payment trends and emerging opportunities in the business payments landscape.

5. Profitable Growth: FleetCor has consistently delivered strong financial performance, with a history of revenue growth, healthy profit margins, and robust cash flow generation.

Key Deal Terms:

1. Investment:

   1. Summit would invest $44.9M in FleetCor

   2. Conversion of existing $6.0 million of existing subordinated debt into the same strip of preferred equity, making the deal size $50.9 million

2. Ownership:

   1. 46% Equity Ownership stake after creating a 15% management option tool

   2. 2/3 of the new pool (10.0%) will be issued immediately upon closing of the Summit investment, but will vest over three years, and the remaining ⅓ (5.0%) will be reserved for future distributions

3. Structure:

   1. $44.9 million of newly-issued FleetCor Convertible Preferred Stock would be issued pari passu (in liquidation) and will accrue dividends of 8.0% per annum, compounded annually

   2. Existing Preferred Stock will convert into 54.2% of the fully-diluted shares of the Company, prior to accounting for the management option pool

4. Deal Terms

   1. FleetCor’s post-transaction Board be comprised of new directors

   2. $9.0 million will be used to repurchase the existing subordinated debt

   3. Investment should be used to facilitate the purchase of “Super Licensees” and other acquisitions

Key Diligence Items:

1. Completion of license purchases: Completion of licensee acquisitions is a key issue for this investment. FleetCor has not started negotiating with the Super Franchisees and may not be able to close all seven planned transactions on time with the ideal price, except for one. If acquisitions are delayed, the timeline to realize revenue growth, cost savings and expected proformas would also be delayed, which would hurt Summit’s returns. Summit should look at transactions involving franchisee reacquisition, time taken to integrate and achieve cost-savings, and the performance afterwards.

2. Management Team: Another key issue is despite Summit’s good impression of the current management team, numbers have barely shown improvement since Ron Clarke joined as CEO in 2000. As a result, Summit needs to focus more on qualitative factors such as customer interviews.

3. Changing reporting metrics: As Summit wants to change the reporting criteria, they should want to look more into what the historical projections of the company would be like with this new standard.

Investment Considerations:

Positives:

• Scalable Business Model: FleetCor's business model is highly scalable, enabling it to pursue growth opportunities efficiently.

• Diversification: The company serves a wide range of industries, reducing its dependence on any single sector.

• Experienced Management: FleetCor is led by a seasoned management team with a history of executing successful growth strategies.

Additional information I would want to know:

1. Contracts:How are contracts made, what the length of a contract is, customer lifetime value

2. Market sizing: There were some concerns about quantifying the market size for this industry. So, getting a better idea of how big it is and how much can be actively acquired.

3. More chats with management: Understanding what they want for the firm, new directors, how the CEO is thinking about growth and turning the company around.