Founders Advantage Capital Corp.
TSX VENTURE : FCF

Founders Advantage Capital Corp.

November 02, 2016 16:30 ET

Founders Advantage Capital Corp. Announces Letter of Intent to Acquire a 60% Interest in CLUB16 Trevor Linden Fitness and She's FIT! Health Clubs

CALGARY, ALBERTA--(Marketwired - Nov. 2, 2016) - Founders Advantage Capital Corp. (TSX VENTURE:FCF) (the "Corporation" or "FA Capital") is pleased to announce that it has entered into a letter of intent to acquire a 60% majority interest (the "Transaction") in a limited partnership ("CLUB16 LP") holding eight (8) Club 16 Trevor Linden Fitness Clubs ("CLUB16") and five (5) She's FIT! Health Clubs ("She's FIT!") in the Vancouver and Lower Mainland area for a total cash purchase price of $20 million (subject to certain closing adjustments) which, after adjusting for debt, represents a multiple of 6.5x EBITDA for the year ended June 30, 2016. The thirteen (13) fitness locations are collectively referred to herein as the "Fitness Clubs". After completion of the Transaction, the current owners of the Fitness Clubs, comprised of Trevor Linden, Chuck Lawson and Carl Ulmer and certain other minority shareholders (the "Founders") will retain a 40% interest in CLUB16 LP and will continue to manage the day-to-day operations. Completion of the Transaction is subject to a number of conditions and is expected to close prior to or concurrent with the Corporation's year end (December 31, 2016). The $20 million purchase price for the Transaction will be funded by the Corporation with available cash and available borrowings under existing credit facilities.

The thirteen (13) Fitness Clubs have over 78,800 memberships and appeal to a large segment of the Vancouver fitness centre market with value pricing, high quality experience, and both ladies only and co-ed facilities.

The Transaction has been structured to provide the Corporation with 60% of annual distributions up to approximately $5.6 million (the "Annual Threshold") paid by CLUB16 LP to its securityholders, with the Founders receiving 40% of annual distributions up to such Annual Threshold (the Annual Threshold being subject to adjustment on closing). The final Annual Threshold will be determined based on 95% of the trailing twelve (12) month EBITDA for the Fitness Clubs based on current information available to the parties. All cash distributions by CLUB16 LP to its securityholders will be subject to Board approval of the general partner and may be adjusted from time to time to pursue expansion or capital initiatives or other corporate purposes. To the extent that any distributions are paid in a year in excess of the Annual Threshold, the Founders will receive 70% of such excess distributions, with the Corporation receiving the remaining 30% of such excess distributions. In addition, with respect to any liquidity event, the net proceeds of disposition will be allocated amongst the Corporation and the Founders based upon their security holdings and adjusted for certain growth in cash distributions received as at the date of the liquidity event.

Prior to completion of the Transaction, the Fitness Clubs will be rolled into CLUB16 LP, whereby the income from CLUB16 LP will be distributed and subsequently taxed at the limited partnership unitholder level. The Corporation anticipates deducting its corporate expenses against the income received from CLUB16 LP in determining its annual tax liability (if any).

Following closing of the Transaction, the business of CLUB16 LP will be overseen by a corporate general partner having a combined Board consisting of Chuck Lawson and two nominees of the Corporation, initially Stephen Reid and Gary Mauris. The Transaction will not be a "significant acquisition" for the Corporation as defined by applicable securities laws.

In the event the Transaction is completed, the Corporation will have two (2) investee entities in its investment portfolio, Dominion Lending Centres ("DLC") and CLUB16 LP. As previously reported, the board of directors of the general partner of DLC resolved to make monthly cash distributions to unitholders of $900,000 in the aggregate (of which 60% or $540,000 per month is anticipated to be paid to the Corporation). The Corporation anticipates receiving additional monthly or quarterly cash distributions from CLUB16 LP and does not anticipate any material increase in general and administrative expenses associated with the investment in CLUB16 LP.

Stephen Reid, Chief Executive Officer of the Corporation, commented: "We are excited to join the CLUB16 & She's FIT! team in offering quality fitness centres at affordable prices and promoting health and wellness in the Vancouver area. The Trevor Linden brand represents trust, loyalty, quality and integrity; characteristics which are also fundamental to the Corporation's brand. We believe in the ability of the Founders to grow CLUB16 LP through both increased memberships at existing Fitness Clubs and through adding new locations."

Chuck Lawson, co-founder of CLUB16 and founder of She's FIT!, commented: "We are pleased to be partnering with FA Capital. CLUB16's brand has a proven track record of delivering high quality facilities at an affordable price to a large segment of the population. We have a significant opportunity to expand our presence in British Columbia and partnering with FA Capital will help drive this expansion plan forward. This transaction will allow us to offer our value-priced clubs to more consumers and create new opportunities for our employees."

Trevor Linden, former NHL hockey player and co-founder of CLUB16, commented: "I am excited about the opportunity to take the CLUB16 Trevor Linden Fitness brand to the next level. Partnering with FA Capital will allow us to take our personal fitness offering to an even larger segment of the BC population."

The Corporation is pleased to report that its unique investment strategy to acquire controlling interests in premium privately-owned companies with positive cash flow, and sharing a disproportionate share of growth with the founders, continues to be well received by both founders and their advisors. The Corporation's management team continues to market the Corporation's investment strategy across North America and receives numerous inbound proposals from founders and their advisors each week. The Corporation continues to have a robust pipeline of potential transactions that it continues to review and assess.

KPMG Corporate Finance is acting as lead financial advisor to the CLUB16 shareholders.

About CLUB16 Trevor Linden Fitness

CLUB16 and She's FIT! believes it is revolutionary in the fitness industry. The biggest barrier to joining a health club used to be high membership fees, fixed contracts and the perception that you must be fit to go to a health club. Removing these barriers with "no contract memberships", "affordable start up fees" and "value priced dues" as well as monitoring our health clubs for negative issues that make the average person uncomfortable in the fitness/health club environment, allows our health clubs to be more accessible and affordable to everyone. In pursuing our business model, management feels CLUB16 and She's FIT! can play a large part in helping more people improve their health and their lives.

Chuck Lawson is the founder of She's FIT! and the co-founder and President & CEO of CLUB16. Chuck has over 30 years of experience operating health clubs in the fitness industry and has been instrumental in bringing a high-quality fitness product at a more affordable price. Chuck is also the Area Representative and President & CEO of the Orangetheory Fitness Centres in the Greater Vancouver & Fraser Valley Area of British Columbia.

Trevor Linden, OBC, CM, is the co-founder of CLUB16. A professional hockey player from Medicine Hat, Alberta, Trevor Linden is one of Canada's most respected athletes. He was drafted by the Vancouver Canucks in 1988 who, in recognition of his leadership, named him as captain in 1990. During his playing career, Trevor was the Canucks team representative to the National Hockey League Players' Association (NHLPA) and was elected President of the NHLPA in 1998. The Canucks retired the number 16 jersey in 2008 following Trevor's retirement after 20 years in the NHL. Trevor has since returned to hockey as the Vancouver Canucks' President of Hockey Operations & Alternate Governor, NHL.

Carl Ulmer currently serves as Managing Partner for the Fitness Clubs and will be continuing in this role with CLUB16 LP. Carl has been an integral member of CLUB16's operational team having worked at various levels of the organization over the last six years.

About Founders Advantage Capital Corp.

The Corporation is listed on the TSX Venture Exchange as an Investment Issuer (Tier 1) and employs a long-term investment approach. The Corporation has developed an investment approach to create long-term value for its shareholders and partner entrepreneurs (investees) by pursuing controlling interest acquisitions of cash flow positive, premium middle-market privately-held entities. The Corporation seeks to win mandates by appealing to the segment of the market which is not aligned with traditional private equity control, royalty monetizations or related structures. The Corporation's innovative platform offers disproportionate incentives (contractually) for growth in favour of our partner entrepreneurs. This unique platform is designed to appeal to entrepreneurs who believe in the growth of their businesses and who want the added ability to continue to manage the business with a long-term partner.

The Corporation's common shares are listed on the TSX Venture Exchange under the symbol "FCF".

For further information please refer to the Corporation's website at www.advantagecapital.ca.

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.

Cautionary Statement Regarding Forward-Looking Information

Certain statements in this document constitute forward-looking information under applicable securities legislation. Forward-looking information typically contains statements with words such as "anticipate", "believe", "estimate", "will", "expect", "plan", "schedule", "intend", "propose", or similar words suggesting future outcomes or an outlook. Forward-looking information in this document includes, but is not limited to:

  • completion of the Transaction on the terms set out herein;

  • timing of closing of the Transaction;

  • reorganization of the Fitness Clubs into a limited partnership;

  • the anticipated EBITDA for Club 16 LP;

  • the deduction of corporate expenses by the Corporation against the income received from Club 16 LP;

  • the return on investment for the Corporation in the event the Annual Threshold is achieved; and

  • the receipt of monthly cash distributions of $540,000 from DLC and the receipt of additional monthly or quarterly distributions from Club 16 LP subsequent to the closing of the Transaction.

Such forward-looking information is based on a number of assumptions which may prove to be incorrect. Assumptions have been made with respect to the following matters, in addition to any other assumptions identified in this document:

  • that the future performance of the Fitness Clubs will be consistent with past performance;

  • that all closing conditions will be satisfied or waived; and

  • that the parties will be able to successfully negotiate the definite agreements.

Although the Corporation believes that the expectations reflected in such forward-looking information are reasonable, undue reliance should not be placed on them as the Corporation can give no assurance that such expectations will prove to be correct. Forward-looking information is based on expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by the Corporation and described in the forward-looking information. The material risks and uncertainties include, but are not limited to:

  • the failure to obtain necessary approvals and consents to complete the Transaction;

  • the satisfaction or waiver of all closing conditions;

  • the Transaction will not yield the anticipated benefits to the Corporation;

  • the risks and uncertainties applicable to the operation of fitness centres generally; and

  • the risks and uncertainties applicable to DLC's operations.

The foregoing list of risks is not exhaustive. For more information relating to risks, see the section titled "Risk Factors" in the Corporation's current annual information form. The forward-looking information contained in this document is made as of the date hereof and, except as required by applicable securities law, the Corporation undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise.

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