Clearford Water Systems announces the Acquisition of Koester Canada & Team Aquatic, and the Issuance of a Convertible Debenture
OTTAWA, Nov. 29, 2017 – Clearford Water Systems Inc. («Clearford» or the «Company»), (TSX-V: CLI), winner of the Frost & Sullivan 2017 Best Practices Award for Enabling Technology Leadership in the Global Decentralized Water and Wastewater Treatment Industry, today announced the acquisition of Koester Canada Inc. («Koester Canada»), an Ontario-based subsidiary of Koester Associates, Inc., a water and wastewater solutions and equipment supplier servicing the States of New York and New Jersey.
Koester Canada’s two divisions, the Koester Canada Design-Build and Koester Team Aquatic Operations Group, will be renamed Clearford-Koester Canada and Clearford Waterworks, respectively, while continuing to provide high quality management of water supply and wastewater treatment systems for small communities along with the manufacturing and supply of packaged treatment solutions, including containerized membrane plants for advanced water treatment. Clearford expects to expand the Waterworks division by acquiring other operating businesses, acting as a consolidator in this specialized segment of the North American water infrastructure sector.
As previously announced on June 22, 2017, and July 28, 2017, Clearford is implementing a new business plan, which includes the pursuit of strategic acquisitions supportive of the Company’s growth in the decentralized water and wastewater treatment sector. The business model provides Clearford with the unique opportunity to become a utility-like operating company with the resources & capabilities to deliver water and wastewater solutions at a lower life-cycle cost to municipal clients and private developers alike through enabling proprietary technologies and processes. As indicated in the May 2017 Frost & Sullivan report, the global decentralized/containerized water and wastewater treatment systems market is expected to grow from US$3.99 billion in 2016 to US$6.08 billion in 2023, reflecting a compound annual growth rate of 6.2%.
«This is the natural progression of the Company’s unified water management business model», said Kevin Loiselle, President & CEO of Clearford. «The acquisition completes Clearford’s unique product and service offering, and positions the Company for growth with sector-leading efficiency and reliability. By integrating Clearford’s product range and service offering with Koester Canada’s design-build and operating divisions, Clearford is now in control of its core value chain, enabling the rapid delivery of water solutions, with a competitive advantage to propel the Company for growth in the North American market and beyond.»
President of Koester Canada, Richard Nie, commented: «We are very excited with the path forward and the opportunity to leverage our packaged treatment solutions within the Clearford One® wastewater system. The pre-treatment approach afforded by Clearford’s system further enhances the footprint and technological efficiencies of our modular smart membrane plant, making it rapidly deployable to communities of any size.»
Koester Canada has $3 million in revenue for its last fiscal year, representing 6% year-over-year revenue growth on an unaudited basis. During the 9-month period ended September 30, 2017, and prior to closing the transaction, Koester Canada recorded $3.4 million in revenue, with earnings before interest, taxes, depreciation and amortisation of $750,000 on an unaudited basis. Koester Canada revenues include recurring monthly revenue for operating & maintenance contracts attributable to the Team Aquatic Operations Group. Team Aquatic currently operates over 50 privately owned communal water systems in Ontario, with a significant number of multi-year contracts representing approximately $5 million in backlog for existing service contracts. The Koester Canada Design-Build group has approximately $1 million in unbilled backlog at the date of the acquisition. The total revenues generated by Clearford’s operating subsidiaries, including (i) the newly acquired Clearford-Koester Canada (Design-Build), (ii) the newly acquired Clearford Waterworks (Team Aquatic Operations Group), and (iii) UV Pure, with its recently launched new generation purification product range (Hallett), is forecasted to exceed $10 million in FY 2018.
Clearford will acquire Koester Canada in a share-for-share exchange transaction. The Company will issue 14,485,338 new treasury shares for 16,296,000 of the issued and outstanding shares of Koester Canada, representing 100% of the issued and outstanding shares of Koester Canada. Prior to the exchange, Koester Canada was acquired by an acquisition vehicle formed and capitalized by long-term debt, bearing interest at 9.75%, which was assumed by Koester Canada, as the surviving entity post-amalgamation with the acquisition vehicle. The acquisition vehicle paid $5.4 million and issued 8,146,000 shares from treasury to existing Koester Canada shareholders, with the remaining 8,150,000 shares held by the principals of the acquisition vehicle. A setup fee of 7.5% was charged on the transaction. As part of the transaction, the surviving entity of Koester Canada assumed the debt of the acquisition vehicle and provided a General Security Agreement over all of its assets, excluding existing permitted encumbrances. All parties to the transaction are dealing at arm’s length. The transaction has closed with all documents signed and held in escrow, pending final approval of the transaction by the TSX Venture Exchange as a Reviewable Transaction.
No new insiders will be created as a result of the transaction.
Based on the previous day closing share price of the Company, the total transaction value, including the assumed long-term debt of Koester Canada, net of acquired cash, is approximately $7.8 million.
In conjunction with the transaction, Clearford also entered into a new C$2,975,000 5-year convertible debenture. The convertible debenture bears interest at 5% compounded annually, and is payable at the earlier of (i) the maturity date, or (ii) the conversion date, of the debenture. The convertible debenture will have a share pledge granted over Clearford’s shareholding of the newly acquired Koester Canada. The proceeds of the issuance will be used to repay short-term debt, interest payments and provide additional working capital to Clearford. The Company will pay a $100,000 setup fee to the Subscriber as part of the transaction. This transaction is subject to the TSX Venture Exchange final approval. There will be a hold period of 4 months + 1 day on the equity issuable pursuant to the convertible debenture transaction which will expire on March 2, 2018.
There will also be a hold period of 4 months + 1 day on the equity issued pursuant to the share for share transaction following the date of close which will expire on March 30, 2018.
The Company had 87,542,391 issued and outstanding shares and 113,972,391 on a fully diluted basis prior to these transactions. Subsequent to the close, the Company will have 102,027,729 issued and outstanding shares and 143,332,729 on a fully diluted basis.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
About Clearford Water Systems Inc.
Clearford Water Systems Inc. (TSX-V: CLI) is a provider of unified water management solutions for the design, build, finance, operation and maintenance of water and wastewater infrastructure systems. The Company’s technology-based water solutions include Clearford One® wastewater infrastructure systems, Clearford M-brane™ packaged treatment solutions, and a full range of UV Pure® water disinfection products. Clearford is the winner of the Frost & Sullivan 2017 Enabling Technology Leadership Award for Global Decentralized Water & Wastewater Treatment.
About Koester Canada, Inc.
Koester Canada, Inc. was a subsidiary of Koester Associates, Inc., a water and wastewater solutions and equipment supplier servicing the States of New York and New Jersey. Koester Canada provides end-to-end water and wastewater system solutions. Koester Canada’s Team Aquatic Operations Group is a full-service operations & maintenance company, servicing water and wastewater systems, primarily for privately owned systems in the Ontario market. Koester Canada has recently expanded into the New York State market. For more information on Koester Canada, please visit www.koestercanada.ca.
Forward Looking Statements
This news release contains certain statements that constitute forward-looking statements as they relate to the Company and its management. Forward-looking statements are not historical facts but represent management’s current expectation of future events, and can be identified by words such as «believe», «expects», «will», «intends», «plans», «projects», «anticipates», «estimates», «continues» and similar expressions. Although management believes that the expectations represented in such forward-looking statements are reasonable, there can be no assurance that they will prove to be correct.
By their nature, forward-looking statements include assumptions and are subject to inherent risks and uncertainties that could cause actual future results, conditions, actions or events to differ materially from those in the forward-looking statements. If and when forward-looking statements are set out in this news release, Clearford will also set out the material risk factors or assumptions used to develop the forward-looking statements. The Company assumes no obligation to update or revise any forward-looking statements, except as expressly required by applicable securities law or exchange requirements. The future outcomes that relate to forward-looking statements may be influenced by many factors, including, but not limited to: industry cyclicality; the ability to secure third party agreements; successful integration of Clearford’s system with third party technology; competition; reduction in demand for products; collection from customers; relationships with suppliers; product liability; intellectual property; reliance on key personnel; environmental; interest rates; uninsured and underinsured losses; operating hazards; risks of future legal proceedings; income tax matters; credit facilities; availability and terms of financing; distribution of securities; restrictions on potential growth; effect of market interest rates on price of securities; and potential dilution.
For further information:
President & CEO
Clearford Water Systems Inc.
Phone: (613) 599-6474 ext. 303