News Releases
CALGARY, Nov. 26, 2014 /CNW/ - Stuart Olson Inc. (TSX: SOX, SOX.DB, SOX.DB.A) ("Stuart Olson" or the "Company") is pleased to announce that it today signed a definitive agreement to acquire all of the issued and outstanding common shares of Studon Electric & Controls Inc. ("Studon"), (the "Transaction").
Headquartered in Red Deer, Alberta, Studon is a leading electrical and instrumentation services provider offering construction, maintenance and turnaround services to the oil & gas, pipeline and petrochemical industries in Western Canada. The company employs between 500 and 1,000 highly skilled electricians and instrumentation trades people at any given time. For the 12-month period ending November 30, 2014, Studon is expected to generate revenue of approximately $151.5 million and Normalized EBITDA of approximately $16.7 million.
The purchase price of approximately $76.2 million (the "Purchase Price") which is based on Studon's trailing 12-month EBITDA as at November 30, 2014 and subject to adjustment, consists of an equity purchase price of $65.7 million (the "Equity Purchase Price") plus the assumption of net debt and a working capital adjustment. Ten percent of the Purchase Price will be payable through the issuance of approximately 1.1 million Common Shares of Stuart Olson ("Common Shares") at a deemed price of $7.05 per share. The Purchase Price may be increased by a maximum of $25.8 million through earn-out payments over the next three years. The earn-out payments are based on Studon's annual EBITDA exceeding a threshold of approximately $16.0 million, with the threshold being increased if Studon's prior year EBITDA is below $16.0 million.
The Board of Directors of Stuart Olson has unanimously approved the Transaction.
Mr. David LeMay, President and Chief Executive Officer of Stuart Olson said, "The acquisition of Studon is a critical step in our strategy to become an integrated, full-service construction company. In particular, it strengthens the vertical integration of our Industrial Group and supports our objective of growing this group into a self-performing general contractor. Studon's strong management team and complementary service offering will help us to continue executing on this strategy going forward. The strategic and cultural fit is excellent."
Mr. Don Sutherland, Chief Executive Officer and Co-Founder of Studon said, "We are excited to be joining Stuart Olson, a company that has the platform and capabilities to help grow our business and capitalize on the opportunities ahead."
The Transaction is expected to close no later than January 25, 2015, subject to Competition Bureau and TSX approval. Post the Transaction, Studon's results will be reported as part of Stuart Olson's Industrial Group.
Studon's management team will continue to lead the day-to-day operations of the business and will continue to contribute to the development and execution of Studon's business plans.
Transaction Highlights
The Transaction is consistent with Stuart Olson's publicly disclosed expansion strategy and provides a platform for future growth of the Industrial Group. Studon's operations are concentrated in the attractive oil sands and SAGD markets and present opportunities to cross-sell and bundle services with Stuart Olson's existing clients. Other future growth opportunities for the business include:
- continued investment in the oil sands, particularly in the in-situ sub-sector;
- continued build-out of pipeline systems in Western Canada needed to reduce capacity constraints; and
- conversion of new construction projects into long-term maintenance contracts.
The Transaction also provides an opportunity to efficiently re-deploy cash proceeds from the sale of Broda into an area of strategic focus.
The Transaction is expected to be immediately accretive to both earnings per share and free cash flow per share before synergies.
Transaction Financing
The Equity Purchase Price consists of approximately $58.1 million in cash (the "Cash Consideration") and $7.6 million in Common Shares (the "Share Consideration"). The Cash Consideration will be financed by a combination of cash on hand and a draw on Stuart Olson's existing credit facility. The Share Consideration will consist of approximately 1.1 million Common Shares, calculated using the 20-day volume weighted average trading price of the Common Shares as at November 25, 2014. The Share Consideration is subject to a lockup period of up to 720 days. One-third of the Common Shares issued will be released from lockup every 240 days.
Management expects to maintain a moderate leverage profile that is well within bank covenants and consistent with Stuart Olson's stated targets. At close, management expects Senior Debt to LTM EBITDA to be less than 1.0x and Net Debt (including convertible debentures) to LTM EBITDA to be approximately 2.8x.
Stuart Olson's Advisors
TD Securities Inc. acted as exclusive financial advisor to Stuart Olson in connection with the Transaction. Stuart Olson's legal advisor on the Transaction was Norton Rose Fulbright Canada LLP and its accounting and tax advisor was PricewaterhouseCoopers LLP.
Conference Call
Stuart Olson will hold a conference call and webcast to discuss the Transaction on November 27, 2014 at 7:00 am Mountain Time (9:00 am Eastern). The webcast will be broadcast live and will also be available for replay in the Presentations & Events subsection of our website under Investor Relations at www.stuartolson.com. Financial analysts and institutional investors who wish to ask questions during the conference call are invited to call 1-888-390-0546 (Canada and USA) or 1-587-880-2171 (outside Canada and USA). For those unable to participate on the live call, a replay will be available until Friday, December 18, 2014 by dialing 1-888-390-0541 (Canada and USA) or 1-416-764-8677 (outside Canada and USA), pin 127700. The public is invited to listen to the live conference call or the replay.
About Stuart Olson Inc.
Stuart Olson provides building construction, commercial and industrial electrical contracting, and industrial insulation services to an array of public and private sector clients. The Company operates office locations throughout British Columbia, Alberta, Saskatchewan, Manitoba and Ontario. Stuart Olson's common shares and 2010 and 2014 convertible debentures are listed on the Toronto Stock Exchange under the symbols "SOX", "SOX.DB" and "SOX.DB.A", respectively. www.stuartolson.com
Non-IFRS Measures
Throughout this press release certain measures are used that, while common in the construction industry, are not recognized measures under IFRS. The measures used are "EBITDA" and "Normalized EBITDA." These measures are used by Stuart Olson management to assist it in making operating decisions and assessing performance. They are presented in this press release to assist readers to assess the performance of Stuart Olson, its operating companies and Studon. These measures are calculated consistently from period to period, although they likely will not be directly comparable to similar measures used by other companies because they do not have standardized meanings prescribed by IFRS. Please review the discussion of these measures below.
EBITDA and Normalized EBITDA
Stuart Olson defines EBITDA as net earnings/loss from continuing operations before interest expense, income taxes, capital asset depreciation and amortization, impairment charges, and gains/losses on asset and investment dispositions. Stuart Olson defines Normalized EBITDA as net earnings/loss from continuing operations before interest expense, income taxes, capital asset depreciation and amortization, impairment charges, gains/losses on asset and investment dispositions, and non-recurring management bonus payments. These measures as reported by us may not be comparable to similar measures presented by other reporting issuers.
Forward Looking Information
This press release contains certain statements that may constitute forward-looking information within the meaning of applicable securities laws. This forward-looking information includes, without limitation, statements relating to the Company's business strategy, the financial attributes of the Transaction and management's expectations regarding Stuart Olson's post Transaction leverage profile. Often, but not always, forward-looking information can be identified by the use of such words as "may," "will," "expect," "believe," "plan," "intend," "estimate," "outlook," "forecast," "should," "anticipate" and other similar terminology, including statements concerning possible or assumed future results. Forward-looking information is based on management's reasonable assumptions, analysis and estimates in respect of its experience and perception of trends, current economic conditions, government policies and expected developments, as well as other material factors that it considers to be relevant at the time of making such statements.
The forward-looking information in this press release is included solely for the purpose of assisting investors in understanding the Company's financial position and the results of its operations as at the date hereof. By its nature, forward-looking information involves known and unknown risks and uncertainties, which give rise to the possibility that management's assumptions, analysis and estimates will be incorrect and that the Company's anticipated results will not be achieved. Although the Company believes that the statements with respect to forward-looking information are reasonable and current, such statements should not be interpreted as a guarantee of future performance or results, and will not necessarily be an accurate indication of whether or not such results will be achieved. Forward-looking information is necessarily subject to a number of factors that may cause actual results to differ materially from those results implied by the expectations suggested by such information. Those factors include, without limitation, the risks and uncertainties described in the Company's Annual Information Form filed with the securities regulatory authorities in Canada under the Company's profile at www.sedar.com. Readers are encouraged to consider the foregoing risks and other factors carefully when evaluating the forward-looking information and are cautioned not to place undue reliance upon such information when making investment decisions.
The forward-looking information in this press release is current to the date hereof, and is subject to change following such date. While the Company may elect to do so, unless required by applicable law, it undertakes no obligation to update this information to reflect new information or circumstances at any particular time.
SOURCE Stuart Olson Inc.
