Morneau Shepell to acquire LifeWorks from Thomas H. Lee Partners and Cannae for US $325M

Morneau Shepell Inc. (TSX: MSI) has entered into a definitive agreement to acquire all of the outstanding shares of LifeWorks Corporation Ltd. for US $325 million or CDN $426 million, payable in cash and Morneau Shepell shares. The acquisition is subject to customary conditions and is expected to close in late July 2018.

LifeWorks Corporation, which was formed in 2016 from the merger of WorkAngel Technology Limited and Ceridian LifeWorks business, was majority owned by Ceridian HCM Holding Inc. (NYSE/TSX: CDAY). As part of its initial public offering (IPO), Ceridian distributed LifeWorks shares valued at US $96 million to its majority shareholders, Thomas H. Lee Partners, L.P. (THL) and Cannae Holdings, LLC and other shareholders.

As part of LifeWorks merger agreement, stockholder distributions will occur upon a liquidation event. #Premium Subscribers ONLY Content – Research and Intelligence – know others do not know, be informed.#

photo credit: LifeWorks

News Release

Not for distribution to U.S. news wire services or for dissemination in the U.S.

Morneau Shepell announces acquisition of LifeWorks Corporation Ltd. and concurrent $210 million equity offering

Highlights
 Acquisition of a global EAP and wellness provider with an industry leading technology that bolsters Morneau Shepell’s global footprint
 Total purchase price of approximately $426 million (US$325 million), payable in cash and Morneau Shepell shares
 Significant run-rate synergies of approximately $10 million in 2019 and approximately $15 million per year by 2020
 Anticipated to be over 10 per cent accretive to 2019 earnings per share

TORONTO, July 9, 2018 – Morneau Shepell Inc. (TSX: MSI) (“Morneau Shepell” or the “Company”) is pleased to announce the entering into of a definitive agreement to acquire all of the outstanding shares of LifeWorks Corporation Ltd. (“LifeWorks”) for a total purchase price of approximately $426 million, payable in cash and Morneau Shepell shares. The Acquisition is subject to customary conditions and is expected to close in late July 2018.

LifeWorks is a leading global Employee Assistance Program (EAP) and wellness provider with a recurring revenue business model and an enhanced technology platform that delivers an integrated employee offering. LifeWorks’ platform is focused on transforming total employee well-being across employee assistance programs, rewards and recognition, human resources communications and community, perks and savings and wellness. As a result of the Acquisition, the Company will be able to deliver a comprehensive portfolio of services designed to build and sustain mental and physical health in addition to addressing issues through clinical treatment. Following the Acquisition, the Company will also add the capability to deliver many of its existing services through LifeWorks’ software as a service (“SaaS”) recurring revenue model, enhancing cross-selling opportunities for well-being services and increasing utilization through an integrated platform.

Morneau Shepell is already a market leader in Canada with a growing presence in the U.S. and internationally in key emerging markets. The Acquisition will bolster the Company’s geographic footprint through LifeWorks’ established presence in the U.S., U.K., Australia and Canada.

“This acquisition is aligned with Morneau Shepell’s global growth strategy as well as our focus on technology innovations to create added value for our clients and their employees,” said Stephen Liptrap, President and Chief Executive Officer of Morneau Shepell. “This is a tremendous opportunity to grow our U.S. and global footprint, while building on our technology footprint to create integrated user experiences.”

“LifeWorks brings significant, complementary strengths into our EAP business,” said Rita Fridella, Executive Vice-President, Morneau Shepell and President, Employee Support Solutions. “Morneau Shepell is deeper in the clinical treatment side of workplace health with a strong technology platform. LifeWorks brings an integrated platform focused on EAP, employee engagement, rewards and recognition, and HR communications. Together we create an enhanced integrated employee experience.”

“LifeWorks’ goal is to positively impact the health and well-being of employees globally with our cutting edge technology. This transaction brings us one large step closer to this goal,” said Jamie True, Chief Executive Officer of LifeWorks. “Our more than 500 employees will become a fundamental part of the Morneau Shepell team. LifeWorks’ well-being service and platform combined with Morneau Shepell’s recognized clinical strength and award-winning employee support solutions cements our position as the leading employee well-being power brand.”

In conjunction with the Acquisition, the Company has entered into an agreement with a syndicate of underwriters (the “Underwriters”) co-led by TD Securities Inc. and National Bank Financial Inc. to issue, on a bought deal basis, $210 million of subscription receipts (the “Subscription Receipts”) to finance a portion of the Acquisition (the “Offering”). In addition, the Company will issue approximately $31 million of Shares to Lifeworks executives. The balance of the Acquisition will be financed pursuant to an amended and restated credit facility arranged by National Bank Financial Inc. and underwritten by National Bank of Canada. The Acquisition represents a purchase price multiple of approximately 11.2x anticipated 2019 EBITDA, including in year synergies. See “Forward-Looking Information” and “Non-IFRS Financial Measures” below.

Highlights of the Acquisition

The Acquisition presents a significant addition to the Company’s leading EAP offering and is consistent with its growth strategy and vision to optimize the health and productivity of people – the heart of every organization. LifeWorks has developed an industry-leading and unified well-being technology platform that combines EAP with an immersive wellness and engagement mobile offering. The Acquisition will allow the Company to better address multiple well-being challenges faced by its clients and their employees.

In 2017, LifeWorks generated revenue of $105 million. Management anticipates that the Acquisition will generate significant run-rate synergies of approximately $10 million in 2019 and approximately $15 million per year by 2020. Such synergies are expected to be realized primarily from cost rationalization and efficiency enhancements from the Company’s more cost-efficient delivery of services. In addition, the Company anticipates that it will be able to cross-sell products to existing Morneau Shepell and LifeWorks clients.

The Acquisition is aligned with Morneau Shepell’s financial objectives and management anticipates the Acquisition to be more than 10 per cent accretive to the Company’s 2019 Earnings Per Share excluding acquisition related amortization of acquired intangibles, and including in year synergies.

Subscription Receipt Offering

To finance a portion of the Acquisition, the Company has entered into an agreement with the Underwriters to issue 7,910,000 Subscription Receipts at a price of $26.55 per Subscription Receipt, on a bought deal basis, for gross proceeds of approximately $210 million. The Company has also granted the Underwriters an option to purchase up to an additional 791,000 Subscription Receipts on the same terms and conditions, exercisable at any time, in whole or in part, up to 30 days after the closing of the Offering. If the closing of the Acquisition occurs on the same date as the closing of the Offering, the Company will deliver Shares, instead of Subscription Receipts, to investors on closing of the Offering.

Upon the satisfaction or waiver of each of the conditions precedent to the closing of the Acquisition (other than the payment of the consideration for the Acquisition and such other conditions precedent that, by their nature, are to be satisfied at the time of closing of the Acquisition): (a) one Share will be automatically issued in exchange for each Subscription Receipt (subject to customary anti-dilution protection), without payment of additional consideration or further action by the holder thereof; (b) an amount per Subscription Receipt equal to the per-share cash dividends declared by the Company on the Shares to holders of record on a date during the period that the Subscription Receipts are outstanding, net of any applicable withholding taxes, will become payable in respect of each Subscription Receipt; and (c) the net proceeds from the sale of the Subscription Receipts will be released from escrow to the Company for the purposes of completing the Acquisition.

The net proceeds from the sale of the Subscription Receipts will be held by an escrow agent pending the fulfillment or waiver of all outstanding conditions precedent to closing of the Acquisition (other than the payment of the consideration for the Acquisition). There can be no assurance that the applicable closing conditions will be met or that the Acquisition will be consummated.

If the Acquisition is not completed as described above by October 31, 2018 or if the Acquisition is terminated at an earlier time, the gross proceeds of the Offering and pro rata entitlement to interest earned or deemed to be earned on the gross proceeds of the Offering, net of any applicable withholding taxes, will be paid to holders of the Subscription Receipts and the Subscription Receipts will be cancelled.

The Subscription Receipts will be offered pursuant to a short-form prospectus to be filed in each of the provinces of Canada, which describes the terms of the Offering. The Offering is expected to close on or about July 27, 2018 and is subject to certain conditions including, but not limited to, the approval of the Toronto Stock Exchange.

This news release is not an offer of any securities for sale in the United States. The securities offered pursuant to the Offering may not be offered or sold in the United States absent registration or an available exemption from the registration requirements of the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”) and applicable U.S. state securities laws. Morneau Shepell will not make any public offering of the securities in the United States. This news release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities, in any jurisdiction in which such offer, solicitation or sale would be unlawful.

Debt Financing

In order to finance the remaining purchase price and costs related to the Acquisition, Morneau Shepell has entered into a commitment letter with National Bank of Canada and National Bank Financial Inc., pursuant to which National Bank of Canada has committed, subject to customary conditions, to provide up to a $600 million five-year revolving credit facility, which will amend and restate Morneau Shepell’s existing $300 million four-year credit facility.

Advisors and Counsel

TD Securities Inc. is acting as exclusive financial advisor to Morneau Shepell. Seyfarth Shaw LLP is acting as legal counsel to Morneau Shepell in connection with the Acquisition. Goodmans LLP is acting as legal counsel to Morneau Shepell in connection with the Offering and the debt financing.

KeyBanc Capital Markets Inc. is acting as exclusive financial advisor to LifeWorks. Weil, Gotshal & Manges LLP is acting as legal counsel to LifeWorks in connection with the Acquisition, along with Taylor Wessing LLP and Goodmans LLP.

Conference Call

Management of Morneau Shepell will host a conference call on July 9, 2018 at 4:15 p.m. ET to discuss the Acquisition. The conference call is open to all those wishing to attend. In order to participate in the live conference call, please call 416-695-7850 (participant code 9752078#) in the Toronto area, or 1-866-696-5894 (participant code 9752078#) throughout the rest of Canada. An overview presentation will be available on the Company’s profile at sedar.com following the call. A replay of the call will be available via the Morneau Shepell website at morneaushepell.com.

About Morneau Shepell Inc.

Morneau Shepell is the only human resources consulting and technology company that takes an integrated approach to employee assistance, health, benefits and retirement needs. The Company is the leading provider of employee and family assistance programs, the largest administrator of retirement and benefits plans and the largest provider of integrated absence management solutions in Canada. As a leader in strategic HR consulting and innovative pension design, the Company helps clients solve complex workforce problems and provides integrated productivity, health and retirement solutions.

Established in 1966, Morneau Shepell serves approximately 20,000 clients, ranging from small businesses to some of the largest corporations and associations. With more than 4,000 employees in offices across North America, Morneau Shepell provides services to organizations across Canada, in the United States and around the globe. Morneau Shepell is a publicly-traded company on the Toronto Stock Exchange (TSX:MSI). For more information, visit morneaushepell.com.

About LifeWorks Corporation Ltd.

LifeWorks is an employee well-being business which combines employee assistance, wellness, recognition and incentive programs in the United States, Canada, Australia and the United Kingdom. Offering the only unified, modular platform in the employee well-being market, LifeWorks’ solution features an evolved employee assistance program, HR communications and community, perks and savings, rewards and recognition, and a wellness program. Its best-in-class user experience and support services help improve employee health and productivity. Formed in 2016 as a result of a joint venture between Work Angel Technology Limited and Ceridian HCM Holding Inc., LifeWorks serves over 4,200 employers across 57 industries, including technology, medical and pharmaceuticals, benefits, banking and finance, insurance, hospitality and consulting. LifeWorks employs a workforce of more than 500 people, and has access to a worldwide network of 24,000 qualified counsellors, certified coaches and specialized professionals across a variety of disciplines. For more information, visit lifeworks.com.

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For further information please contact:
Morneau Shepell Inc. Helen Reeves 416.345.5633 hreeves@morneaushepell.com


Ted Liu
Ted Liu, M.Sc. (Mining), MBA (Finance), is the Editor of Private Capital Journal, TechnologyMetals.ca, GoldSilverMetals.ca, and former Editor of Canadian Private Equity. Ted has been passionately tracking Canadian private capital industry since 1992, most recently served as Research Director for The Canadian Venture Capital and Private Equity Association (CVCA). Ted was the architect of CVCA infobase, and is the architect of sophisticated and advanced CPE Media Private Capital Dealbase. Ted is President of CPE Media Inc., Canada's independent, trusted and unbiased data provider tracking Canadian VC/PE, private capital industry and public market.
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