TerraVest Capital Inc. To Acquire Gestion Jerico Inc.

Jan 30, 2014, 09:06 ET from TerraVest Capital Inc.

VEGREVILLE, AB and TORONTO, Jan. 30, 2014 /CNW/ - TerraVest Capital Inc. (TSX:TVK) (the "Company" or "TerraVest") announced today that it has entered into an agreement to acquire all of the issued and outstanding shares of Gestion Jerico Inc. ("Gestion Jerico"), a privately-owned Quebec based company primarily focused on manufacturing high quality commercial and residential tanks as well as dispensers for a variety of industries in North America. Gestion Jerico is expected to generate Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") of between $11.0 and $11.5 million for the year ended December 31, 2014, which represents double digit accretion to TerraVest.

Mr. Dale Laniuk, Chief Executive Officer and President of TerraVest, welcomes the management team and employees of Gestion Jerico and looks forward to their continuing commitment to the business and its customers.  "We are excited with this new acquisition to the TerraVest group of companies and the growth opportunities it provides for our shareholders," said Mr. Laniuk.

Mr. Charles Pellerin, Executive Chairman, and Mr. Pierre Fournier, President and Chief Operating Officer of Gestion Jerico, will continue on at TerraVest and play a pivotal role in growing both Gestion Jerico and RJV Gas Field Services, a division of TerraVest.

TerraVest will acquire Gestion Jerico through an all share and promissory note transaction valued at an enterprise value of approximately $54 million. Clarke Inc., a 75% owner of Gestion Jerico, will receive a promissory note in the amount of approximately $25.0 million with a three year term to maturity (bullet payment) and a 6.5% coupon in exchange for its shares of Gestion Jerico, while Mr. Pellerin's holding company, a 25% owner/operator of Gestion Jerico, will receive 1,866,293 TerraVest shares representing approximately 15% of the currently issued and outstanding TerraVest shares in full satisfaction for the transfer of its Gestion Jerico shares to TerraVest. 135,000 TerraVest share purchase warrants will also be issued to two employees of Gestion Jerico in respect of change-of-control payments as a result of the acquisition.

"TerraVest has been aggressively seeking potential acquisitions and the opportunity arose to acquire a high cash flow business with relatively low capex requirements under an exclusive arrangement where the primary owner/operator will receive 100% share consideration." said Mr. Mitchell Gilbert, Chief Investment Officer of TerraVest. "We are pleased with this transaction, the material cash flow accretion it provides and the motivation and tenacity of Mr. Pellerin to increase the value of TerraVest's shares."

Mr. Pellerin stated, "I am proud of the significant growth and development of Gestion Jerico over the years. The dedication of our people has enabled Gestion Jerico to transform itself into a high quality manufacturer of both commercial and residential tanks.  Joining TerraVest is a natural progression to further our growth in Western Canada while continuing to grow in our existing markets. By choice, I am receiving 100% share consideration and I am confident that we will enhance shareholder value for all TerraVest shareholders."

Acquisition Highlights

  • The acquisition will be valued at an enterprise value of approximately $54.0 million.
  • The acquisition will be financed by maintaining Gestion Jerico's existing debt in place while also issuing a three year promissory note and TerraVest shares in full satisfaction of the purchase price.
  • The acquisition will result in material accretion to TerraVest's cash available for distribution.
  • TerraVest believes the acquisition complements TerraVest's current operating businesses and offers a number of operating and financial benefits to shareholders, including:
    • Opportunities to enhance value through coordination and streamlining of manufacturing processes at Gestion Jerico and RJV Gas Field Services and, in certain cases, cross-selling of products;
    • Gestion Jerico's management team has a proven track record of successful acquisitions and growth and will continue on in an operational and management capacity to assist in enhancing the value of TerraVest; and
    • Diversification of TerraVest's customer base and geographic exposure.

Following the closing, Mr. Pellerin, Mr. Fournier and the existing Gestion Jerico management team will continue to run the day to day operations.

The acquisition, which is expected to close in February 2014, is subject to customary closing conditions for a transaction of this nature, including acceptance and final approval by the Toronto Stock Exchange (the "TSX") of the listing of the TerraVest shares to be issued to Mr. Pellerin's holding company and the TerraVest shares issuable on exercise of the TerraVest warrants issued to the specified Gestion Jerico employees.

The Special Committee of the Board of Directors

The participation of Clarke Inc. and Mr. Pellerin in the acquisition will constitute a "related party transaction" within the meaning of Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101"), which requires that TerraVest obtain a formal valuation and minority shareholder approval (majority approval of TerraVest's shareholders other than Clarke Inc. and Geosime Capital Inc., which own approximately 32.3% and 15.7% of the outstanding TerraVest shares respectively). TerraVest has applied for exemptive relief from the securities regulators from a special shareholder meeting requirement based on a written shareholder confirmation and consent from Mr. Dale Laniuk, President and Chief Executive Officer of TerraVest and an approximately 32% shareholder of TerraVest, who owns such number of shares in TerraVest as would carry the majority of the minority in a shareholder vote. In addition, TerraVest has also applied for permission from the TSX to rely on the exemption under section 604(d) of the TSX Company Manual, exempting TerraVest from the shareholder meeting requirement to approve the issuance of the TerraVest shares and TerraVest share purchase warrants based on Mr. Laniuk's written consent. A copy of Mr. Laniuk's consent will be filed on SEDAR at www.sedar.com.

A special committee (the "Special Committee") of the board of directors of TerraVest (the "Board") consisting of Mr. Laniuk and Messrs. Rocco Rossi and Darryl Vinet, all independent directors within the meaning of MI 61-101, was formed to review the acquisition. Messrs. George Armoyan and Blair Cook declared their interests in the acquisition due to the fact that Messrs. Armoyan and Cook are directors and/or officers of Clarke, and recused themselves from any discussions relating to the acquisition. PricewaterhouseCoopers LLP ("PwC") was engaged by the Special Committee to prepare a formal valuation of the issued and outstanding shares of Gestion Jerico (the "Formal Valuation").  Based upon and subject to the scope of review, major assumptions and restrictions and qualifications contained in the Formal Valuation, PwC gave its opinion dated January 29, 2014 that the fair market value of the shares of the Gestion Jerico was in the range of $34.1 million to $40.1 million as of January 20, 2014. The Formal Valuation was provided for the use and purpose of the Special Committee only and should not be construed as a recommendation to invest in, hold or divest of shares in Gestion Jerico. The full text of the Formal Valuation, which sets forth the assumptions, qualifications and considerations in connection with the Formal Valuation will be available for review on SEDAR at www.sedar.com. Based on the Formal Valuation and having considered the factors listed in the "Acquisition Highlights" section above and advice received from TerraVest's financial and legal advisors, the Special Committee unanimously determined that (i) the acquisition was in the best interests of TerraVest, and (ii) resolved to recommend that the Board approve the acquisition.

The Board, which consisted solely of the members of the Special Committee as Messrs. Armoyan and Cook had recused themselves from any discussion relating to the acquisition due to their previously declared interests in the acquisition, unanimously determined that the acquisition was in the best interests of TerraVest and approved the acquisition. If a shareholder meeting had been required to approve the acquisition, the Special Committee and the Board would have recommended that the minority and disinterested shareholders vote in favour of the acquisition.

A material change report in respect of this acquisition will be filed by TerraVest but will not be filed earlier than 21 days prior to the closing of the acquisition as all necessary approvals have been obtained and TerraVest wishes to complete the acquisition as soon as commercially feasible.

About TerraVest Capital Inc.

TerraVest's objective is to provide value to its shareholders by (i) maximizing the value of its common shares through the active monitoring of, and investment in its operating businesses to provide growth organically; and/or (ii) targeting growth through acquisitions in the manufacturing, oil and gas and diversified industries that will be accretive to shareholder's cash available for distribution. The Corporation's shares trade on the TSX under the symbol TVX. Visit www.terravestcapital.com.

About Gestion Jerico Inc.

Gestion Jerico's principal business consists of being (i) a large manufacturer of high quality commercial tanks and dispensers for oil, gas and other petroleum based products; and (ii) a manufacturer and distributor of high quality residential tanks, furnaces and boilers. The Company has approximately 340 employees of which it is estimated that 90 are unionized. The Company's products are sold across North America.

Forward-Looking Information:

Certain statements contained or incorporated by reference herein, including those that express management's expectations or estimates of future developments or TerraVest future performance, constitute "forward-looking statements" within the meaning of applicable securities laws, and can generally be identified by words such as "will", "may", "could" "expects", "believes", "anticipates", "forecasts", "plans", "intends" or similar expressions. These statements are not historical facts but instead represent management's expectations, estimates and projections regarding future events and performance.

Forward-looking statements are necessarily based upon a number of opinions, estimates and assumptions that, while considered reasonable by management at the time the statements are made, are inherently subject to significant business, economic and competitive risks, uncertainties and contingencies. TerraVest cautions that such forward-looking statements involve known and unknown contingencies, uncertainties and other risks that may cause TerraVest's actual financial results, performance or achievements to be materially different from its estimated future results, performance or achievements expressed or implied by those forward-looking statements. Numerous factors could cause actual results to differ materially from those in the forward-looking statements, including without limitation: impact of general economic conditions; its dependence on key customers; cyclical trends in TerraVest's customers' industries; sufficient availability of raw materials at economical costs; weather conditions, production and sales; TerraVest's ability to maintain existing customers or develop new customers; changes in accounting policies and methods, including uncertainties associated with critical accounting assumptions and estimates; changes in the value of the Canadian dollar relative to the US dollar; changes in tax laws and potential litigation; ability to obtain financing on acceptable terms; environmental damage caused by it and non-compliance with environmental laws and regulations; potential product liability and warranty claims and equipment malfunction. This list is not exhaustive of the factors that may affect any of TerraVest's forward-looking statements.

Investors are cautioned not to put undue reliance on forward-looking statements. All subsequent written and oral forward-looking statements attributable to TerraVest or persons acting on its behalf are expressly qualified in their entirety by this notice. Forward-looking information contained herein is made as of the date of this press release and, whether as a result of new information, future events or otherwise, TerraVest disclaims any intent or obligation to update publicly these forward-looking statements except as required by applicable laws.

SOURCE TerraVest Capital Inc.