EnerCare Inc.
TSX : ECI

EnerCare Inc.

March 07, 2016 16:12 ET

Enercare Signs Agreement to Acquire Service Experts - A Leading North American Provider of HVAC Services and Announces $218 Million Bought Deal Offering

Highly accretive to Normalized pro forma Distributable Cash per common share(1) in 2016

TORONTO, ONTARIO--(Marketwired - March 7, 2016) -

NOT FOR DISTRIBUTION TO U.S. NEWS SERVICES OR DISSEMINATON IN THE UNITED STATES

Enercare Inc. ("Enercare") (TSX:ECI) and its wholly-owned subsidiary, Enercare Solutions Inc. ("Enercare Solutions" and with Enercare, the "Company"), one of Canada's largest home and commercial services and energy solutions companies, announced today that Enercare Solutions has entered into a definitive merger agreement pursuant to which an indirect wholly-owned subsidiary of Enercare Solutions will acquire, through a merger, SEHAC Holdings Corporation ("Service Experts") (the "Transaction") for consideration of US$340.75 million, excluding transaction costs (the "Consideration"), subject to customary working capital and other adjustments.

Transaction Highlights

  • Estimated to be 25% accretive to Normalized pro forma Distributable Cash per common share1 in 2016.
  • Attractive free cash flow reduces Normalized pro forma 2015 Payout Ratio from 82% to 70%.1
  • Provides Enercare with North American market leadership in home services.
  • Geographic diversification provides access to large U.S. HVAC services market.
  • Allows Enercare to introduce its rental products and service offerings to Service Experts' customers.
  • Step up in tax basis provides an estimated US$65 million in tax shelter value.
  • The Transaction is expected to close in the second quarter of 2016.

In conjunction with the Transaction, Enercare also announced that it has entered into an agreement with a syndicate of underwriters led by National Bank Financial Inc. ("National Bank Financial") and TD Securities Inc. ("TD Securities") to issue, on a bought deal basis, approximately $218 million of subscription receipts (the "Subscription Receipts") to finance a portion of the Consideration (the "Offering") with the remainder being financed with a committed term loan provided by Enercare Solutions' existing lenders, The Toronto-Dominion Bank and National Bank of Canada (collectively, the "Lenders").

"Through Service Experts, we become a North American market leader in home services," said John Macdonald, President and CEO of Enercare. "The acquisition, which is a natural extension to our business, creates an opportunity to drive growth and create shareholder value. This Transaction is expected to be immediately accretive to 2016 Normalized pro forma Distributable Cash per common share,1" said John Macdonald, President and CEO of Enercare.

In addition to the Subscription Receipts to be issued in the Offering, the Chief Executive Officer and certain other officers of Service Experts have indicated to Enercare that, concurrently with the closing of the Offering, they intend to subscribe for $1.6 million of Subscription Receipts at the Offering Price (as defined below) on a private placement basis (the "Concurrent Private Placement"). It is expected that the Subscription Receipts (and underlying Common Shares) issued in the Concurrent Private Placement will be subject to a contractual hold period of six months from closing of the Concurrent Private Placement.

The Transaction

Founded in 1996, Service Experts is a leading provider of HVAC service and repairs and related services to residential and commercial customers in 29 states in the United States and three provinces in Canada. Headquartered in Dallas, Texas, Service Experts is one of North America's largest heating and air conditioning companies, with 90 locations, 41 of which are located in the top 100 U.S. metropolitan areas, and approximately 2,800 employees serving approximately 2,000 homes and businesses, on average, each working day.

The segments of the market served by Service Experts include:

  • residential HVAC service and replacement;
  • ancillary residential home services, including plumbing, indoor air quality and energy audits;
  • commercial HVAC service and replacement for both light commercial customers and national accounts; and
  • HVAC installation in commercial and residential new construction.

Service Experts focuses primarily on service and replacement offerings with approximately 95% of revenue coming from these segments.

Closing of the Transaction, which is expected to occur in the second quarter of 2016, is subject to customary closing conditions, including antitrust and competition approvals in the United States and Canada, respectively. The Transaction is not subject to any due diligence or financing conditions.

National Bank Financial acted as financial advisor and Torys LLP acted as legal counsel to the Company with respect to the Transaction. Moelis & Company LLC acted as financial advisor and Arnold & Porter LLP acted as legal counsel to Service Experts with respect to the Transaction.

Pro Forma Financial Highlights for Enercare

For the year ended December 31, 2015, if Service Experts and Enercare had been combined, the following would be the pro forma impact on certain of Enercare's metrics:

  • pro forma revenue of approximately $1,119 million, an increase of 98%;
  • pro forma Acquisition Adjusted EBITDA1 of approximately $272 million, an increase of 16%;
  • Normalized pro forma Distributable Cash1 of approximately $124 million, an increase of 37%;
  • Normalized pro forma Distributable Cash per common share1 of approximately $1.18, an increase of 18%;
  • Normalized pro forma Payout Ratio1 improves to70% from 82%; and
  • assuming the successful closing of the Offering, total debt outstanding will be approximately $1,006 million, including the US$200 million term loan under the Credit Facility referenced below.

Enercare Solutions anticipates that the Transaction will have a substantially similar positive impact on its financial metrics as discussed in this news release in respect of Enercare, having regard to the impact to Enercare of Enercare's sub-metering and corporate segments and the elimination of intercompany amounts.

Financing the Transaction

Equity Financing

In order to finance a portion of the Consideration and costs related to the Transaction, Enercare has entered into an agreement with a syndicate of underwriters (the "Underwriters") co-led by National Bank Financial and TD Securities to sell 14,296,000 Subscription Receipts on a bought deal basis. The Subscription Receipts will be offered at a price of $15.25 per Subscription Receipt (the "Offering Price"), for gross proceeds to Enercare of $218 million. Enercare has also granted the Underwriters an over-allotment option to purchase up to an additional 1,429,600 Subscription Receipts (or, in certain circumstances, common shares), on the same terms and conditions as the Offering, exercisable no later than 30 days after the closing of the Offering.

Each Subscription Receipt represents the right of the holder to receive, upon closing of the Transaction, without payment of additional consideration, one common share of Enercare plus an amount per common share equal to the amount per common share of Enercare of any dividends for which record dates have occurred during the period from the closing date of the Offering to the date immediately preceding the closing date of the Transaction, less withholding taxes, if any. On or before March 11, 2016, Enercare will file with the securities commissions or other similar regulatory authorities in each of the provinces of Canada, a preliminary short form prospectus relating to the issuance of the Subscription Receipts. Closing of the Offering is expected to occur on or about March 30, 2016, subject to TSX and other necessary regulatory approvals. The net proceeds from the Offering will be used to finance, in part, the Transaction, as well as Transaction-related costs and general working capital requirements, once the proceeds are released from escrow.

The securities to be offered have not been and will not be registered under the United States Securities Act of 1933, as amended, or under any state securities laws, and may not be offered, sold, directly or indirectly, or delivered within the United States of America and its territories and possessions or to, or for the account or benefit of, United States persons except in certain transactions exempt from the registration requirements of such Act. This release does not constitute an offer to sell or a solicitation to buy such securities in the United States, Canada or in any other jurisdiction where such offer is unlawful.

Debt Financing

In order to finance the remainder of the Consideration, Enercare Solutions has entered into a commitment with the Lenders pursuant to which the Lenders have committed, subject to customary conditions, to provide debt financing to Enercare Solutions in the form of an unsecured 4-year variable rate term credit facility in an aggregate amount of US$200 million (the "Credit Facility"), which Enercare Solutions expects to fully draw at closing of the Transaction.

In addition, the Lenders have also provided a fully committed bridge facility in the amount of US$140.75 million should the Offering not close.

"We have fully committed financing to fund the Transaction and believe that the financing structure for this transaction is consistent with our desire to maintain a stable conservative capital structure," stated Evelyn Sutherland, Chief Financial Officer of the Company. "Post-closing we expect to retain our strong capital structure and have sufficient cash flow and other capital resources to fund growth and dividends."

Analyst Conference Call and Webcast

The Company's executives, John Macdonald, President and CEO, and Evelyn Sutherland, CFO, will host a conference call and live audio webcast to discuss the Transaction and Enercare's 2015 results. Following a brief presentation, there will be a question and answer session. This call will replace the previously scheduled conference call that was scheduled for Tuesday, March 8, 2016 at 10:00 a.m. (ET).

Details of the call and live audio webcast are as follows:

Date: Monday, March 7, 2016
Time: 4:45 p.m. (ET)
By Telephone: 647.788.4922 or 1.877.223.4471
Please allow 10 minutes to be connected to the conference call.
Webcast: www.gowebcasting.com/7093
Note: This is a listen-only audio webcast. Media Player or Real Player is required to listen to the broadcast.
Replay: An archived audio webcast will be available at: www.enercareinc.com for one year following the original broadcast.
Note: A slide presentation intended for simultaneous viewing with the conference call will be available on our website at: www.enercareinc.com.

Cautionary Note Regarding Forward-Looking Statements

This news release contains forward-looking information within the meaning of applicable Canadian securities laws ("forward-looking statements"). Statements other than statements of historical fact contained in this news release may be forward-looking statements, including, without limitation, management's expectations, intentions and beliefs concerning anticipated future events, results, circumstances, economic performance or expectations with respect to the Company, including the Company's business operations, business strategy and financial condition. Forward-looking statements may include words such as "anticipates", "believes", "budgets", "could", "estimates", "expects", "goal", "intends", "may", "outlook", "plans", "strive", "target" and "will", although not all forward-looking statements contains these words.

Some of the specific forward-looking statements in this news release include, but are not limited to, statements with respect to the following:

  • timing and completion of the Transaction;
  • the investment by the chief executive officer and certain other officers of Service Experts in Subscription Receipts pursuant to the Concurrent Private Placement;
  • Enercare's ability to pay dividends to shareholders;
  • other statements made in this news release regarding accretion or other financial enhancements anticipated to arise as a result of the Transaction;
  • the impact of the Transaction on the Company's business and current and anticipated economic conditions.

These forward-looking statements may reflect the internal projections, expectations, future growth, results of operations, performance, business prospects and opportunities of the Company and are based on information currently available to the Company and/or assumptions that the Company believes are reasonable. Actual results and developments may differ materially from results and developments discussed in the forward-looking statements, as they are subject to a number of risks and uncertainties. In developing these forward-looking statements, certain material assumptions were made. These forward-looking statements are also subject to certain risks. These factors include, but are not limited to:

  • actual future market conditions being different than anticipated by management; and
  • the failure to realize the anticipated benefits of the Transaction.

Material factors or assumptions that were applied to drawing a conclusion or making an estimate set out in forward-looking statements including pro forma financial information include:

  • the view of management regarding current and anticipated market conditions;
  • industry trends remaining unchanged;
  • the successful completion of the Transaction and the financing thereof;
  • the financial and operating attributes of the Company and Service Experts as at the date hereof and the anticipated future performance of the Company and Service Experts following the Transaction;
  • assumptions regarding the interest rates of the debt financing and foreign exchange rates;
  • the extent to which the Transaction is accretive, which may be impacted by final financing arrangements, the realization and timing of synergies and the operating performance of the Company and Service Experts post-Transaction;
  • assumptions regarding non-recurring transaction costs estimated to be incurred by the Company in connection with the Transaction; and
  • assumptions regarding future selling, general and administration costs estimated to be incurred by the Company in connection with the running of Service Experts by it following the Transaction.

There can be no assurance that the Transaction will occur or that the anticipated strategic benefits and operational, competitive and cost synergies will be realized. The Transaction is subject to various conditions, including anti-trust and competition approvals in the United States and Canada, respectively, and there can be no assurance that any such approvals will be obtained and/or any such conditions will be met. The Transaction could be modified, restructured or terminated at any time.

Readers are cautioned that the preceding list of material factors or assumptions is not exhaustive. Although forward-looking statements contained in this news release are based upon what management believes are reasonable assumptions, there can be no assurance that actual results will be consistent with these forward-looking statements. Accordingly, readers should not place undue reliance on such forward-looking statements and assumptions as management cannot provide assurance that actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company. These forward-looking statements are subject to change as a result of new information, future events or other circumstances in which case they will only be updated by the Company where required by law. These forward-looking statements speak as of the date of this news release.

About the Company

Enercare is headquartered in Toronto, Ontario and publicly traded on the Toronto Stock Exchange (TSX:ECI). As one of Canada's largest home and commercial services and energy solutions companies with approximately 1,000 employees, the Company provides water heaters, furnaces, air conditioners and other HVAC rental products, plumbing services, protection plans and related services to more than 1.2 million customers. Enercare is also the largest non-utility sub-meter provider, with electricity, water, thermal and gas metering contracts for condominium and apartment suites in Ontario, Alberta and elsewhere in Canada, and through its Triacta division, a premier designer and manufacturer of advanced sub-meters and sub-metering solutions.

For more information on Enercare visit enercare.ca. Additional information regarding Enercare and Enercare Solutions is available on SEDAR at www.sedar.com or through Enercare's investor relations website at www.enercareinc.com or www.enercare.ca.

Source: Enercare Inc. and Enercare Solutions Inc.

1 Excludes transaction costs estimated to be $16.5 million and potential synergies in the Transaction. Normalized pro forma Distributable Cash per common share, Normalized pro forma Payout Ratio, pro forma Acquisition Adjusted EBITDA and Normalized pro forma Distributable Cash are non-IFRS measures. Refer to the Non-IFRS Financial and Performance Measures section in Enercare's management's discussion and analysis for the year ended December 31, 2015.

Contact Information

  • Investors & Analysts
    Evelyn Sutherland
    Chief Financial Officer
    1.416.649.1860
    esutherland@enercare.ca

    Trish Moran
    Investor Relations
    1.416.564.4290

    Media
    Jeff Lanthier
    Manager, External Relations & Social Media
    1.647.221.4763
    jeff.lanthier@enercare.ca