Clearford Water Systems Inc CLIRF

Clearford to acquire Koester Canada, enters debenture

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2017-11-29 17:10 ET - News Release Mr. Kevin Loiselle reports CLEARFORD WATER SYSTEMS ANNOUNCES THE ACQUISITION OF KOESTER CANADA & TEAM AQUATIC, AND THE ISSUANCE OF A CONVERTIBLE DEBENTURE Clearford Water Systems Inc. will acquire Koester Canada Inc., an Ontario-based subsidiary of Koester Associates Inc., a water and waste water solutions and equipment supplier servicing the states of New York and New Jersey. Koester Canada's two divisions, the Koester Canada design-build and Koester team aquatic operations group, will be renamed Clearford-Koester Canada and Clearford Waterworks, respectively, while continuing to provide high-quality management of water supply and waste water treatment systems for small communities, along with the manufacturing and supply of packaged treatment solutions, including containerized membrane plants for advanced water treatment. Clearford expects to expand the Waterworks division by acquiring other operating businesses, acting as a consolidator in this specialized segment of the North American water infrastructure sector. As previously announced on June 22, 2017, and July 28, 2017, Clearford is implementing a new business plan, which includes the pursuit of strategic acquisitions supportive of the company's growth in the decentralized water and waste water treatment sector. The business model provides Clearford with the unique opportunity to become a utility-like operating company with the resources and capabilities to deliver water and waste water solutions at a lower life-cycle cost to municipal clients and private developers alike through enabling proprietary technologies and processes. As indicated in the May, 2017, Frost & Sullivan report, the global decentralized/containerized water and waste water treatment systems market is expected to grow from $3.99-billion (U.S.) in 2016 to $6.08-billion (U.S.) in 2023, reflecting a compound annual growth rate of 6.2 per cent. "This is the natural progression of the company's unified water management business model," said Kevin Loiselle, president and chief executive officer of Clearford. "The acquisition completes Clearford's unique product and service offering, and positions the company for growth with sector-leading efficiency and reliability. By integrating Clearford's product range and service offering with Koester Canada's design-build and operating divisions, Clearford is now in control of its core value chain, enabling the rapid delivery of water solutions, with a competitive advantage to propel the company for growth in the North American market and beyond." President of Koester Canada, Richard Nie, commented: "We are very excited with the path forward and the opportunity to leverage our packaged treatment solutions within the Clearford One waste water system. The pretreatment approach afforded by Clearford's system further enhances the footprint and technological efficiencies of our modular smart membrane plant, making it rapidly deployable to communities of any size." Koester Canada has $3-million in revenue for its last fiscal year, representing 6-per-cent year-over-year revenue growth on an unaudited basis. During the nine-month period ended Sept. 30, 2017, and prior to closing the transaction, Koester Canada recorded $3.4-million in revenue, with earnings before interest, taxes, depreciation and amortization of $750,000 on an unaudited basis. Koester Canada revenues include recurring monthly revenue for operating and maintenance contracts attributable to the team aquatic operations group. Team aquatic currently operates over 50 privately owned communal water systems in Ontario, with a significant number of multiyear contracts representing approximately $5-million in backlog for existing service contracts. The Koester Canada design-build group has approximately $1-million in unbilled backlog at the date of the acquisition. The total revenues generated by Clearford's operating subsidiaries, including: (i) the newly acquired Clearford-Koester Canada (design-build), (ii) the newly acquired Clearford Waterworks (team aquatic operations group) and (iii) UV Pure, with its recently launched new-generation purification product range (Hallett), are forecasted to exceed $10-million in fiscal 2018. Clearford will acquire Koester Canada in a share-for-share exchange transaction. The company will issue 14,485,338 new treasury shares for 16,296,000 of the issued and outstanding shares of Koester Canada, representing 100 per cent of the issued and outstanding shares of Koester Canada. Prior to the exchange, Koester Canada was acquired by an acquisition vehicle formed and capitalized by long-term debt, bearing interest at 9.75 per cent, which was assumed by Koester Canada, as the surviving entity postamalgamation with the acquisition vehicle. The acquisition vehicle paid $5.4-million and issued 8,146,000 shares from treasury to existing Koester Canada shareholders, with the remaining 8.15 million shares held by the principals of the acquisition vehicle. A set-up fee of 7.5 per cent was charged on the transaction. As part of the transaction, the surviving entity of Koester Canada assumed the debt of the acquisition vehicle and provided a general security agreement over all of its assets, excluding existing permitted encumbrances. All parties to the transaction are dealing at arm's length. The transaction has closed with all documents signed and held in escrow, pending final approval of the transaction by the TSX Venture Exchange as a reviewable transaction. No new insiders will be created as a result of the transaction. Based on the previous-day closing share price of the company, the total transaction value, including the assumed long-term debt of Koester Canada, net of acquired cash, is approximately $7.8-million. In conjunction with the transaction, Clearford also entered into a new $2,975,000 five-year convertible debenture. The convertible debenture bears interest at 5 per cent compounded annually, and is payable at the earlier of: (i) the maturity date, or (ii) the conversion date of the debenture. The convertible debenture will have a share pledge granted over Clearford's shareholding of the newly acquired Koester Canada. The proceeds of the issuance will be used to repay short-term debt and interest payments and provide additional working capital to Clearford. The company will pay a $100,000 set-up fee to the subscriber as part of the transaction. This transaction is subject to the TSX Venture Exchange final approval. There will be a hold period of four months plus one day on the equity issuable pursuant to the convertible debenture transaction, which will expire on March 2, 2018. There will also be a hold period of four months plus one day on the equity issued pursuant to the share-for-share transaction following the date of close, which will expire on March 30, 2018. The company had 87,542,391 issued and outstanding shares and 113,972,391 on a fully diluted basis prior to these transactions. Subsequent to the close, the company will have 102,027,729 issued and outstanding shares and 143,332,729 on a fully diluted basis. About Clearford Water Systems Inc. Clearford Water Systems is a provider of unified water management solutions for the design, build, finance, operation and maintenance of water and waste water infrastructure systems. The company's technology-based water solutions include the Clearford One waste water infrastructure systems, Clearford M-brane packaged treatment solutions and a full range of UV Pure water disinfection products. Clearford is the winner of the Frost & Sullivan 2017 enabling technology leadership award for global decentralized water and waste water treatment. About Koester Canada Inc. Koester Canada was a subsidiary of Koester Associates, a water and waste water solutions and equipment supplier servicing the states of New York and New Jersey. Koester Canada provides end-to-end water and waste water system solutions. Koester Canada's team aquatic operations group is a full-service operations and maintenance company, servicing water and waste water systems, primarily for privately owned systems in the Ontario market. Koester Canada has recently expanded into the New York market. We seek Safe Harbor.