Factors which will help benefit the company moving forward include:

 MRS Public vs. Private Company Advantage

Unifire, through its parent MRS, is the only prime vendor in this space which is publicly owned. This provides certain advantages over its competitors, such as easy access to capital markets for financing, and having more stringent and transparent reporting requirements that are viewed more favourably by US federal entities. Its status as a public company also likely played a key role in how MRS was able to secure its current credit facility scalable up to $100+ million USD.

The ability to more readily access equity financing in the future will allow the company to run a leaner balance sheet in the long term, and reduce its dependence on its credit facility and the associated costs. This can ultimately translate to better margins, and in turn allow the company to bid more competitively on contracts.

In comparison, the other 5 prime vendors do not share this luxury and appear more likely to be reliant on debt financing for growth and to fund discretionary dividends. As private entities, detailed information is not readily available, but there is still enough to give a snapshot of how some of these companies are operating. For example, a publicly available Rating Action from Moody’s Investor Service from July 2018 on an ADS $240 million USD term loan, noted that at the time ADS debt/EBITDA was approximately 4.7x (based on pro forma materials provided). The note further commented that meaningful debt repayment beyond minimum requirements was not likely given it is anticipated the company will use excess cash to fund discretionary dividends.

Similarly, public filings from Alaris Royalty Corporation dated December 31, 2018, provide insights into financing provided to another competing prime vendor, Federal Resources Supply Company (FRSC). The filings disclose investments made in FRSC in 2015 for $47 million USD. This is comprised of a 15-year secured loan of $40 million USD bearing interest at 17.625% annually, as well as $7 million USD for preferred shares providing annual distributions. Additional infusions of cash in exchange for contractual annual distributions were also made in subsequent years.

While these examples are anecdotal, they are worth noting because the prime vendor space is very competitive and operates with tight margins. Debt financing and prioritizing dividends versus repayment of debt appears to have worked fine here in the past, because it was likely the standard approach among competing private companies. However, with the emergence of Unifire as a publicly held company, which is not likely to issue dividends or take on significant debt levels, the landscape is poised for a dramatic shakeup in the coming years.

https://stockhouse.com/news/newswire/2019/10/08/mission-ready-solutions-aims-multi-billion-defense-market