SSC Security to acquire Avante unit for $23.95-million SSC SECURITY SERVICES CORP. TO ACQUIRE LOGIXX SECURITY INC. IN ALL-CASH DEAL TO BECOME THE LARGEST PUBLICLY-TRADED SECURITY COMPANY IN CANADA
SSC Security Services Corp. has entered into a definitive share purchase agreement to acquire Logixx Security Inc., a Toronto-based provider of premium security protection for leading enterprise and commercial clients across Canada, from its corporate owner Avante Logixx Inc.
The arrangement agreement between SSC and Avante previously announced on Feb. 9, 2022, has been terminated by mutual agreement of both parties in order to enter into the share purchase agreement. In lieu of the expense reimbursement fee payable to SSC on termination of the arrangement, the parties have agreed to apply an amount equal to $750,000 to payment of the purchase price under the share purchase agreement.
Pursuant to the terms of the share purchase agreement, SSC has agreed to acquire all of the issued and outstanding common shares of Logixx by way of a share purchase agreement. Under the terms of the transaction, SSC will pay Avante $23.95-million in cash for the Logixx shares, less the arrangment expense reimbursement, and subject to standard working capital, debt and other closing adjustments standard for transactions of this nature. On closing, SSC will take ownership of Logixx on a debt-free basis and with $7.5-million of net working capital. Completion of the transaction is subject to the satisfaction of certain conditions precedent, including, but not limited to, receipt of all necessary regulatory approvals, including approval of the TSX Venture Exchange. Avante and SSC have provided representations, warranties and indemnities customary for a transaction of this nature, as well as customary interim period covenants regarding the operation of the Logixx businesses in the ordinary course. The parties have also made customary non-competition and non-soliciation arrangements.
Copies of the termination agreement and the share purchase agreement will be filed with the securities regulators and available on the SEDAR profile of Avante.
On closing of the transaction, SSC will be the largest publicly traded security company in Canada, be debt-free and have approximately 2,100 employees from coast to coast. As a result of the transaction, SSC will approximately quadruple its pro forma annual revenue and adjusted EBITDA (earnings before interest, taxes, depreciation and amortization). The transaction is expected to close within the next 60 days, and will be financed by SSC with cash on hand and without any dilution to SSC shareholders.
SSC plans to maintain its quarterly dividend at the current level of three cents per SSC share (which equates to 12 cents annualized). On a pro forma basis, SSC's dividend payout ratio as a percentage of estimated annual adjusted EBITDA will improve from approximately 80 per cent to under 35 per cent.
Chief executive officer comments on the transaction
Doug Emsley, chairman, president and chief executive officer of SSC, commented: "We believe this is a better deal for SSC and its shareholders than the one we announced on Feb. 9. It allows us to acquire the part of Avante's business that is the most similar to our existing business, do it at a lower EV/EBITDA multiple than we would have had to pay for all of Avante's business, do it with cash on hand and no dilution to shareholders, and end up with a debt-free well-funded national physical and cybersecurity company."
Highlights and key benefits of the transaction
By approximately quadrupling SSC's pro forma annual revenue and adjusted EBITDA, the transaction creates the largest publicly traded security company in Canada.
Brings together two highly experienced and complementary management teams with minimal geographic overlap to leverage SSC's large, liquid balance sheet, and Logixx's well-established revenue and EBITDA profile.
On closing, the combined company will be an extremely well-capitalized and profitable physical and cybersecurity company with critical mass and over 2,100 employees across Canada.
Together, the companies will serve some of the largest corporate and public sector enterprises in Canada, and it is expected that the combination will enable significant growth and cross-selling opportunities for both SSC's cybersecurity platform, which is housed in SRG Security Resource Group Inc. (acquired by SSC in 2021), as well as for Logixx's tech-enabled monitoring and security platforms.
On a pro forma basis, the combined company would have generated almost $100-million in annual revenue and a substantial amount of EBITDA over the trailing 12-month period ended Dec. 31, 2021.
SSC plans to maintain its quarterly dividend at the current level of three cents per SSC share (which equates to 12 cents annualized). On a pro forma basis, SSC's dividend payout ratio as a percentage of estimated annual adjusted EBITDA will improve from approximately 80 per cent to under 35 per cent.
The transaction will be entirely financed by SSC's cash on hand with no dilution to shareholders.
Cost synergies are expected to be realized by eliminating duplicate overhead costs.
The board of directors of SSC unanimously approved the transaction.