Founders Advantage Capital Corp.
TSX VENTURE : FCF

Founders Advantage Capital Corp.

December 22, 2016 16:30 ET

Founders Advantage Capital Corp. Announces Third Acquisition - Signs Letter of Intent to Acquire a 52% Interest in IMPACT Communications

CALGARY, ALBERTA--(Marketwired - Dec. 22, 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 52% majority interest (the "Transaction") in IMPACT Communications ("IMPACT") for a cash purchase price of $12.0 million, subject to closing adjustments. After completion of the Transaction, the current owner of IMPACT, Keith Kostek and certain of his affiliated entities (the "IMPACT Founders"), will retain a 48% interest in IMPACT 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 by March 31, 2017.

IMPACT, based in Kelowna, British Columbia, manufactures and distributes two-way radio accessories in the land mobile radio industry under the tradename IMPACT Radio Accessories and indirectly through its wholly-owned subsidiary, Threat4 Ltd. IMPACT sells through over 1,000 dealers throughout North America, with its products being used in the field by some of the most recognized names in public safety, military, security, retail, and hospitality. Management anticipates IMPACT will have unaudited trailing twelve month EBITDA ("TTM EBITDA") of approximately $4.0 million on the closing date (see Non-IFRS Measures caution herein). More information about IMPACT can be found at www.impactcomms.com.

Stephen Reid, Chief Executive Officer of the Corporation, commented: "After reviewing over 200 potential investee entities across North America in 2016, we are delighted to find our third acquisition in Kelowna, BC. Keith and his team have built an excellent business based on product dependability and customer service. Given IMPACT's potential for growth through additional customers and exciting new products, along with their diverse and extensive customer list, we feel IMPACT is a perfect fit for our investment model."

Keith Kostek, founder of IMPACT, commented: "I am delighted to be partnering with FA Capital, and look forward to working together in the next stage of IMPACT's growth. The FA team truly understands the unique aspects of an owner operated business, and their structure aligns well with my goals as a founder, and the changing needs of the business."

The Transaction has been structured to provide the Corporation with 52% of after-tax annual cash distributions up to approximately $2.96 million (the "Annual Threshold") paid by IMPACT to its securityholders, with the IMPACT Founders receiving 48% of annual distributions up to such Annual Threshold. The final Annual Threshold will be determined based on the TTM EBITDA for IMPACT less anticipated annual income tax payments. All cash distributions by IMPACT to its securityholders will be subject to Board approval and may be adjusted from time to time to pursue expansion or capital initiatives or other corporate purposes. To the extent that any cash distributions paid in a year are in excess of the Annual Threshold, the IMPACT Founders will receive 65% of such excess distributions, with the Corporation receiving 35% 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 IMPACT Founders based upon their security holdings and adjusted for certain growth in cash distributions received as at the date of the liquidity event.

Following closing of the Transaction, IMPACT will have a combined board of directors consisting of Keith Kostek and two nominees of the Corporation. The Transaction will not be a "significant acquisition" for the Corporation as defined by applicable securities laws.

The Corporation intends to fund the Transaction primarily through available borrowings under its existing credit facility, subject to lender approval, and expects to apply for an increase to such facilities to fund any additional amount required.

As part of the Transaction, the Corporation has granted the IMPACT Founders the right to sell the Corporation an additional 22% of IMPACT for $5.1 million (the "Put Option"). The IMPACT Founders may elect to exercise the Put Option at any time between September 30, 2017 and March 31, 2018, provided the TTM EBITDA for IMPACT at the Put Option exercise date exceeds the TTM EBITDA for IMPACT as at the closing date for the initial Transaction. The Corporation has 90 days to complete such acquisition if the Put Option is exercised. In the event the Put Option is exercised, the Corporation would hold a 74% interest in IMPACT and the IMPACT Founders would hold a 26% interest. Further, in the event the Put Option is exercised, the Corporation would be entitled to 74% of annual cash distributions up to the Annual Threshold and 65% of annual distributions above the Annual Threshold (with the IMPACT Founders entitled to 26% of annual distributions up to the Annual Threshold and 35% of annual distributions above the Annual Threshold).

Toronto-based WCM Capital acted as exclusive corporate finance advisor to IMPACT, arranging the Transaction with the Corporation (for more information visit www.wcmcapital.ca ).

About IMPACT Communications

IMPACT is a world leader in the design and manufacture of unique radio communication products for mission critical public safety, military, security, retail and hospitality applications. Headquartered in the city of Kelowna, in the Okanagan Valley of British Columbia, with a distribution center in Wilmington, North Carolina, Impact has grown to be one of the largest aftermarket brands in North America.

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.

Non-IFRS Measures

EBITDA, or earnings before interest, income tax, depreciation and amortization, is a non-IFRS item as it does not have a standardized meaning under IFRS. Management uses EBITDA as a performance and valuation measure. EBITDA is not a substitute for, and should be used in conjunction with, IFRS financial measures. Other companies may calculate EBITDA differently and the Corporation cautions that EBITDA as calculated above may not be comparable to EBITDA as calculated by other issuers.

Non-IFRS measures should not be considered in isolation or construed as alternatives to their most directly comparable measure calculated in accordance with IFRS, or other measures of financial performance calculated in accordance with IFRS. The Non-IFRS measures are unlikely to be comparable to similar measures presented by other issuers.

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;
  • the anticipated TTM EBITDA for IMPACT;
  • the Annual Threshold amount at the closing date;
  • the Corporation funding the Transaction with available borrowings;
  • the Corporation making application to increase its existing credit facility; and
  • the return on investment for the Corporation in the event the Annual Threshold is achieved.

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 IMPACT will be consistent with past performance;
  • that all closing conditions will be satisfied or waived;
  • that the Corporation's lender will approve the Transaction; 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; and
  • the risks and uncertainties applicable to the operation of IMPACT's business generally.

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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