pcJ News Briefs – Alaris Royalty Corp. (TSX: AD) has contributed US $20.0 million into Accscient LLC in exchange for an annualized distribution of US $3.0 million, a 15% yield.
The Accscient contribution is made up of US $14.0 million of permanent units and US $6.0 million of redeemable units which can be redeemed at par at any time up to the third anniversary following the closing of the Accscient contribution at Accscient’s discretion. After the third anniversary the redeemable units will have the same repurchase metrics as the permanent units.
Through its operating businesses (i) Norwin Technologies, (ii) Premier IT Solutions and (iii) Appridat Solutions, Norcross, Georgia based Accscient provides IT Staffing, Consulting, and Outsourcing services and specializes in Digital Infrastructure Management, Enterprise Resource Planning, Business Intelligence and Database Administration.
photo credit: Werner Heiber via pxiabay
News Release
ALARIS ROYALTY CORP. ANNOUNCES A NEW PARTNER, ADDITIONAL PROCEEDS FROM KMH AND PROVIDES A CORPORATE UPDATE, INCLUDING REDUCTION OF PAYOUT RATIO TO BELOW 90%
Calgary, Alberta – June 28, 2017 – Alaris Royalty Corp. (“Alaris” or the “Corporation”) (TSX: AD) is pleased to announce a US$20.0 million contribution to a new partner, the formalizing of exit terms with KMH including the receipt of an additional $9.8 million of cash proceeds and a corporate update. Today’s announcements result in Alaris lowering its annualized payout ratio to below 90%.
NEW PARTNER
Alaris has contributed US$20.0 million (the “Accscient Contribution”) into Accscient LLC (“Accscient”) in exchange for an annualized distribution of US$3.0 million (the “Accscient Distribution”), a 15% yield. The Accscient Distribution will be reset for the first time on January 1, 2019 based on the percentage change in gross profit from 2018 vs 2017 and will have a collar of plus or minus 5%. The Accscient Contribution is made up of US$14.0 million of permanent units (the “Permanent Units”) as well as US$6.0 million of redeemable units (the “Redeemable Units”). The Redeemable Units can be redeemed at par at any time up to the third anniversary following the closing of the Accscient Contribution at Accscient’s discretion. After the third anniversary the Redeemable Units will have the same repurchase metrics as the Permanent Units. The estimated earnings coverage ratio (the “ECR”) on the Accscient Distribution is in the 1.0x to 1.50x range (the ECR on the distribution from the Permanent Units is in the 1.50x to 2.0x range) based on the debt free proforma capital structure following the closing of the Accscient Contribution. Accscient used the proceeds to retire its debt obligations and for working capital purposes.
The Accscient Distribution adds approximately $0.06 per share to Alaris’ net cash from operating activities and accounts for approximately 4% of Alaris’ annualized revenue. The Accscient Contribution was funded with proceeds from KMH and Alaris’ revolving credit facility and closed on June 28, 2017.
Accscient provides IT Staffing, Consulting, and Outsourcing services and specializes in Digital Infrastructure Management, Enterprise Resource Planning, Business Intelligence and Database Administration. Through its operating businesses (i) Norwin Technologies, (ii) Premier IT Solutions and (iii) Appridat Solutions, Accscient provides these services to its diverse customer base by leveraging a global delivery platform, led by a seasoned management team, to ensure reliable, proven and innovative solutions. Accscient is based in Atlanta, GA and was founded in 2005.
“Accscient is a multi-company organization led by several entrepreneurial Presidents with businesses, goals and aspirations that are aligned. Alaris encouraged us to meet with both the members of their team and their business partners and we quickly determined that our goals, cultures and aspirations were also aligned with theirs. In our world of complex financial structures and transactions, we were fortunate to have had supportive partners in the past which allowed us to get to this juncture but, finding a partner that is 100% like-minded, has been one of my greatest challenges for the past 2 decades. I firmly believe Alaris is that partner,” said Sravan Vellanki, Chairman & CEO, Accscient
“Alaris is excited to welcome Sravan and his team to our diverse list of Partners. Through Sravan’s leadership, the operating companies of Accscient have established themselves as valued and respected sources of IT Staffing, Consulting and Outsourcing services. We look forward to supporting Accscient’s continued organic and acquisition growth initiatives,” said Gregg Delcourt, Senior Vice President, Alaris.
KMH Update
Alaris has received an additional $9.8 million of cash (the “KMH Proceeds”) from KMH Limited Partnership (“KMH”). The KMH Proceeds were received as a result of the sale of the majority of KMH’s Canadian clinics to a third party (the “Third Party Sale”). The Third Party Sale resulted in the repayment of all outstanding senior debt in KMH leaving Alaris with first security on KMH’s US business, a right to the residual value in certain real estate assets owned by a related party to KMH, and a preferred liquidation position on the equity in the Canadian business retained by KMH’s owners as a result of the Third Party Sale.
As a part of the negotiated transaction, Alaris has redeemed all of its units (the “KMH Units”) in KMH and a $3.5 million long-term promissory note outstanding in exchange for the $9.8 million of KMH Proceeds and $20.7 million of secured notes (the “KMH Notes”) in addition to the previously collected $1.5 million. Alaris expects to collect amounts outstanding on the KMH Notes in stages following the sale of one-off clinics in Canada and the US as well as a refinancing or sale of KMH’s US business, with the majority of proceeds expected to be paid over the next six months. The amount expected over that time frame is estimated to be between $12.0 million and $14.0 million. Any remaining amount outstanding on the KMH Notes will continue to be held as a long-term note with security and preference as previously mentioned. Alaris will also receive principal payments on the KMH Notes in the amount of approximately $80,000 per month beginning on July 15, 2017.
Under the terms of the KMH Notes, Alaris can force the sale of all remaining KMH assets if a minimum of an additional $12.2 million of the KMH Notes is not repaid by December 31, 2017.
“The recently closed transaction with KMH is critical in the conclusion of our partnership. Not only does it provide us with a significant amount of our $28 million now collected, it pays out all senior debt in front of our position, validates the value of the assets within the company and sets a clear path for collection of the remaining amounts. We’ve redeployed the KMH Proceeds into Accscient and will begin earning a return on that capital immediately”, said Steve King, President and Chief Executive Officer, Alaris.
OTHER CORPORATE UPDATES
As previously disclosed, Sequel had entered into a merger agreement pursuant to which Sequel was expecting to be purchased by a U.S. listed Special Purpose Acquisition Corporation (the “SPAC”). In connection with this transaction, Alaris was to receive a US$30.0 million cash distribution from Sequel and retain US$62.2 million of new preferred units in Sequel for a total value of $92.2 million. Sequel has terminated its agreement with the SPAC and will not proceed with the foregoing transaction. Sequel has informed Alaris that it has received other interest in the business, though it has not received a binding offer as of this date. Alaris will continue to collect monthly distributions of over US$1.0 million (US$12.4 million annually) from one of its best performing partners.
S.M. Group International LP (“SMi”) began paying Alaris $50,000 a week ($2.6 million annualized) in May and continues to do so while SCR Mining and Tunneling L.P. (“SCR”) is on schedule to resume distributions of $100,000 per month ($1.2 million annualized) commencing in July.
As a result of the above items mentioned in this press release, Alaris has an estimated annualized payout ratio below 90%. This ratio is expected to continue to improve over the coming months.
About the Corporation:
Alaris provides alternative financing to private company partners (the “Partners”) in exchange for distributions with the principal objective of generating stable and predictable cash flows for dividend payments to its shareholders. Distributions from the Partners are adjusted each year based on the percentage change of a “top line” financial performance measure such as gross margin and same-store sales and rank in priority to the owners’ common equity position.
Neither the TSX nor its Regulation Services Provider (as that term is defined in the policies of the TSX) accepts responsibility for the adequacy or accuracy of this release.
For further information please contact:
Curtis Krawetz
Vice President, Investments and Investor Relations
Alaris Royalty Corp.
P: (403) 221-7305
Suite 250, 333 24th Avenue S.W.
Calgary, Alberta T2S 3E6
www.alarisroyalty.com