BENEV Capital Inc.

BENEV Capital Inc.

June 30, 2014 14:13 ET

BENEV Capital Inc. Announces Transformational Transaction to Acquire Top-Line Royalty from Franworks Franchise Corp.

VANCOUVER, BRITISH COLUMBIA--(Marketwired - June 30, 2014) - BENEV Capital Inc. (TSX VENTURE:BEV.H) (the "Corporation" or "BCI") announced today that it has entered into an agreement with Franworks Franchise Corp. of Calgary, Alberta ("Franworks") to acquire an approximate $12 million annual top-line royalty for a purchase price of $103.0 million (the "Transaction"). The purchase price will be satisfied through the use of approximately $64 million of the cash resources of BCI, the use of $8.7 million of the proceeds of a private placement of approximately 5.2 million BCI common shares at $1.66 per share to Maxam Opportunities Fund II LP ("Maxam"), proceeds from borrowings by BCI of $15 million, and the issuance to Franworks of $14.9 million of BCI common shares at $1.66 per share (approximately 9.0 million shares).

Following completion of the Transaction, BCI expects to pay regular monthly dividends of $0.016 per share (approximately $0.19 annually) representing an annual dividend yield of 10.2% based on the 20 day volume weighted average price of the BCI common shares up to and including June 27, 2014 ($1.86 per common share).

Completion of the Transaction remains subject to a number of conditions including approval by the TSX Venture Exchange and by the shareholders of BCI at a special meeting expected to be held in mid August, 2014.


Since the election of the current Board of Directors of BCI in June, 2011, the Company has sought a transformational transaction to utilize the cash resources of BCI and to provide value to shareholders. In its news release of May 27, 2014, BCI announced its current business strategy to seek opportunities to purchase top-line royalties from a number of growing multi-location businesses and franchisors.

Calgary-based Franworks is one of the fastest growing mid-casual dining groups in Canada. On March 31, 2014, Franworks had 62 Original Joe's™, 7 State & Main™ and 16 Elephant & Castle™ restaurants in operation, located in Western Canada (72), Ontario (3) and the United States (10, all Elephant & Castle™). Approximately 40% of the restaurants are wholly owned and operated by Franworks and 60% are franchised locations (65% of which are joint ventures with Franworks). Franworks restaurants had total gross sales of approximately $205.6 million for the twelve months ended March 31, 2014 and employ approximately 3,100 people.

Original Joe's™ and State & Main™ are neighbourhood gathering places, providing scratch-cooked meals, craft beer and an approachable wine list in a casual restaurant and bar setting. Elephant & Castle™ is an English style pub serving an extensive list of draught beer along with classic pub dishes. All three brands focus on providing genuine service, good value and quality comfort food to their guests while supporting the communities they serve through charitable programs.

Franworks began operations in 2000. It has opened 49 restaurants over the past five years and expects to meet or exceed this pace over the next five years. Franworks same store sales growth has averaged 4.9% per annum over the 39 months ended March 31, 2014.

Sean Morrison, Chief Executive Officer of BCI, stated, "The royalty acquisition from Franworks is a platform transaction for BCI and the first step in our recently announced strategy to purchase top-line royalty streams from a number of growing multi-location businesses and franchisors. Franworks is a fast growing chain with strong unit-level economics and a superb management team - key success factors for a top-line royalty acquisition. With the successful completion of this transformational transaction, BCI intends to focus its efforts on acquiring additional royalties from growing multi-location businesses and franchisors."

Lawrence Haber, Executive Chair of BCI, stated, "The BCI board has been evaluating potential value enhancing transactions for the past three years and is pleased to be able to present this high quality transaction to our shareholders. We have consistently stated that we would be patient, and that we would seek a transaction that would enhance value for BCI's shareholders. We believe the strong positive response from our shareholders to our business strategy and this specific transaction is proof that our patience has paid off. The board of BCI unanimously supports the Franworks Transaction."

Derek Doke, Chief Executive Officer of Franworks, stated, "The Transaction with BCI enables Franworks to accelerate its expansion of Original Joe's™ and State & Main™ and provides $8 million to renovate nine of its Elephant & Castle™ restaurants. As a large shareholder of BCI following completion of the Transaction, Franworks is excited to be the first top-line royalty to be purchased by BCI as part of its business strategy. I have witnessed the success of other stand-alone top-line royalty companies and believe the multi-royalty component of BCI's strategy enhances a proven business model and will create long-lasting shareholder value."

Summary of the Transaction and Approvals

The agreement with Franworks provides for the acquisition by BCI of all of the Canadian and U.S. trademarks and other intellectual property rights related to the Original Joe's™, State & Main™ and Elephant & Castle™ restaurant businesses (the "FW Rights") from various wholly owned subsidiaries of Franworks. The purchase price for the FW Rights is $103.0 million.

Franworks will licence the use of the FW Rights from BCI for the payment of a royalty equal to 6% of the gross sales of 58 Original Joe's™, 13 Elephant & Castle™ and 7 State & Main™ restaurants in existence on March 31, 2014 that were opened prior to September 30, 2013 (the "Initial Royalty Pool"). The annualized gross sales for these restaurants, for the 12 month period ended March 31, 2014, was $200.1 million representing an annual payment to BCI of $12.0 million.

The royalty purchase from Franworks is structured similarly to the existing top-line restaurant royalty funds in Canada. The Initial Royalty Pool may be increased by including the gross sales from new restaurants opened by Franworks, net of gross sales from restaurants that are closed. In addition, Franworks must continue to pay the royalty that was payable from restaurants that are closed and not replaced by new restaurants.

Under its agreement with BCI of August 6, 2013, Maxam will acquire approximately 5.2 million common shares of BCI at a price of $1.66 per common share (representing 9.9% of the issued common shares of BCI following the closing of the Transaction). Frankworks will be issued approximately 9.0 million common shares at a price of $1.66 per common share (representing 17.0% of the issued common shares of BCI following the closing of the Transaction) in the Transaction. The issue price of $1.66 per common share for Maxam and Franworks is based on the estimated net book value per common share of BCI immediately prior to closing before giving effect to the Transaction. Sean Morrison is the Chief Executive Officer of BCI and a Managing Director of Maxam.

The board of directors of BCI retained Laurentian Bank Securities Inc. to provide a fairness opinion and a sponsorship letter in respect of the Transaction. Laurentian Bank Securities Inc. is of the opinion that the terms of the Agreement are fair, from a financial point of view, to the shareholders of BCI and the $103.0 million purchase price paid by BCI to Franworks is fair, from a financial point of view, to the shareholders of BCI. The board of directors of BCI also obtained advice and reports on the Transaction from Capital West Partners, KMPG LLP, Farris, Vaughan, Wills & Murphy LLP and Stikeman Elliott LLP.

The board of directors of BCI, after carefully and thoroughly reviewing the Transaction and considering the fairness opinion of Laurentian Bank Securities Inc. and the advice and reports of its other advisors, unanimously approved the Transaction and unanimously recommends that shareholders of BCI vote to approve the Transaction.

Shareholders of BCI holding in aggregate 33.8% of the issued common shares of BCI, including Second City PE II Limited Partnership, have either agreed to vote in favour, or have indicated their support and intention to vote in favour, of the Transaction. The vote will be by ordinary resolution and dissent rights will not apply.

Credit Facility

BCI has received a term sheet from an institutional lender for a senior credit facility of up to $17 million in respect of the Transaction. Approximately $15 million is to be used to fund the purchase of the FW Rights and the remainder is to be used for working capital purposes. The credit facility is expected to have a term of 36 months, be non-amortizing, and have either a fixed interest rate or a floating interest rate, currently estimated to be BA Rate plus 4.15%. The credit facility will be secured by the FW Rights and the royalties payable by Franworks and has covenants usual for this type of a credit facility. The credit facility will also be guaranteed by BCI and be secured against BCI's assets, including its interest in the Partnership.

Conditions To Complete the Transaction

Completion of the Transaction is subject to a number of conditions, including approval of the Exchange, BCI shareholder approval, completion of the senior credit facility, receipt by BCI of audited financial statements of Franworks, as well as other conditions customary for a transaction of this nature.

Completion of the Maxam private placement is also subject to a number of conditions, including closing of the Transaction and approval of the Exchange.

The parties have agreed to pay one another a break fee of $2 million in certain circumstances, including payment of the fee to Franworks if the BCI shareholders do not approve the Transaction by September 8, 2014, subject to extension in certain circumstances.

There can be no assurance that the Transaction or the private placement will be completed as proposed or at all. The BCI management information circular to be prepared in connection with the Transaction is expected to be mailed to shareholders in mid July for a meeting to be held in mid August.

A copy of the acquisition agreement in respect of the Transaction will be filed and available under BCI's profile on SEDAR within 10 days of this news release.

BCI intends to graduate to the TSX following closing of the Transaction, subject to approval by the TSX.

Trading Halt

Trading of BCI's shares on the Exchange will remain halted until satisfactory documentation to effect a resumption of trading is filed with the Exchange, or the proposed Transaction is terminated.

Completion of the Transaction is subject to a number of conditions, including Exchange acceptance and shareholder approval. The Transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the Transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed herein or in the management information circular to be prepared in connection with the Transaction, any information released or received with respect to the change of business Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of BCI should be considered highly speculative.

The Exchange has in no way passed upon the merits of the proposed Transaction and has neither approved nor disapproved the contents of this press release.

Laurentian Bank Securities Inc., subject to completion of satisfactory due diligence, has agreed to act as sponsor to BCI in connection with the Transaction. An agreement to sponsor should not be construed as any assurance with respect to the merits of the Transaction or the likelihood of completion.

Forward-Looking Statements

Certain statements contained in this press release and in certain documents incorporated herein by reference may constitute forward-looking statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The use of any of the words "anticipate", "continue", "estimate", "expect", "intend", "may", "will", "project", "should", "believe", "confident", "plan" and "intends" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events, performance, or achievements of BCI to differ materially from those anticipated or implied in such forward-looking statements. BCI believes that the expectations reflected in these forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct. In particular, there can be no assurance that BCI will: (i) close the Transaction, (ii) enter into one or more other royalty transactions or, if closed, that any of them will be successful, or that the strategy will be successful, (iii) make monthly distributions at expected levels or at all, (iv) obtain necessary regulatory, stock exchange and shareholder approvals to complete the Transaction, and/or (v) graduate to the TSX. Given these uncertainties, readers are cautioned that forward-looking statements included in this press release are not guarantees of future performance, and such forward-looking statements should not be unduly relied upon. These statements speak only as of the date of this press release. BCI undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by law.

All of the forward-looking statements made in this press release are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, BCI.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • BENEV Capital Inc.
    Sean Morrison
    Chief Executive Officer
    (604) 235-3146