Acasta Enterprises Inc. Announces Proposed Acquisition of Two Investment Platforms and Launch of Long-term Private Equity Manager

  • Acasta's Founder group is demonstrating its ability to select and complete multiple transactions of enormous value potential in diverse industries at attractive prices
  • These acquisitions are proprietary, non-auctioned, strategic and creatively structured
  • These initial acquisitions form the cornerstone for Acasta's launch as a leading long-term investment and private equity management firm
  • Concurrent acquisitions of three companies form two distinct investment platforms:
    • Private label consumer staples platform, comprised of two leading Canadian businesses
    • Aviation finance and asset management platform, comprised of a cross-functional aviation business
  • Aggregate enterprise value of $1.2 billion at closing
  • Acasta estimates the post-closing per share net asset value (NAV) to range from approximately $11.50 to $14.50, based on 2017 estimated results
  • The owners and management teams of the three companies being acquired are remaining in current roles and collectively will own up to 64% of Acasta, ensuring a strong alignment with Acasta shareholders and a commitment to continuing to build their respective businesses
  • Private label consumer staples platform will benefit from substantial organic growth, targeted acquisitions, and from synergies related to cost optimization and cross-selling opportunities
  • Aviation finance and asset management platform provides tremendous growth opportunity as an investment vehicle manager and aircraft management and software services provider to the global aviation industry
  • Led by Anthony Melman (Acasta's CEO & Chair, and former partner and Managing Director of Onex), Acasta will capitalize on a robust deal pipeline with the launch of its first long-term multi-billion dollar private equity fund in early 2017, generating substantial management fees and carried interests, and this material driver in value is not currently reflected in Acasta's estimated NAV
  • Acasta Founders to play a significant role in the growth of the platforms, aligned to Founder experience and relationships
  • Acasta Founders demonstrating their confidence in the qualifying acquisition by voluntarily doubling their at risk promote shares from 25% to 50%, increasing the price hurdle for these shares from $13.00 to $15.00, and committing to buy an additional $10 million of Acasta common shares at $10.00 per share
  • Completion of the transactions is expected in January 2017
  • Acasta intends to pay a quarterly dividend of $0.01/share commencing in Q1 2017

 

All values are in Canadian dollars unless otherwise indicated.

TORONTO, Nov. 10, 2016 /CNW/ - Acasta Enterprises Inc. (TSX: AEF) ("Acasta") today announced its proposed qualifying acquisition of 100% of three exceptional businesses in two highly attractive sectors, alongside its launch as a long-term investment and private equity management firm:

  • Two leading private label consumer staples businesses: Apollo Health & Beauty Care Partnership ("Apollo") and JemPak Corporation ("JemPak")
  • A best-in-class commercial aviation finance advisory and asset management business currently owned by Stellwagen Finance Company Limited ("Stellwagen")
  • Each of the three companies are being acquired at attractive valuations well below publicly-traded peers
  • All three companies are being acquired with virtually no debt to pursue future growth opportunities
  • Calin Rovinescu (Acasta Advisor, CEO of Air Canada) and Michael Neal (Acasta Advisor, former Chair & CEO of GE Capital) enhance Stellwagen's unique position in aviation finance and asset management
  • Geoff Beattie (Acasta's Lead Director, former CEO of Woodbridge Company) and Johan Eliasch (Acasta Director, Chair & CEO of Head N.V.) enhance the private label consumer staples platform and quality of execution by Apollo and JemPak
  • Rick Waugh (Acasta Advisor, former Deputy Chair, President & CEO of The Bank of Nova Scotia) and Gordon Nixon (Acasta Advisor, former President and CEO of the Royal Bank of Canada) enhance Acasta's ability to source, and support execution on, leading long-term private equity transactions
  • Vendors will be aligned with interests of Acasta shareholders by taking a substantial portion of their consideration in Acasta common shares: up to 63% for Apollo, 50% for JemPak, and up to 70% for Stellwagen. The share consideration will have lock-up restrictions (as described below)
  • Apollo vendors have committed in certain instances to take up to an additional $50 million of their consideration in Acasta common shares and Stellwagen has committed to take up to an additional $13 million in Acasta common shares to backstop redemptions
  • Acasta has enough escrow cash to close all three acquisitions with redemptions up to $97 million

 

"These initial acquisitions give Acasta an outstanding platform for growth in sectors with tremendous potential. The acquisitions demonstrate our ability to access unique and proprietary deal flow at compelling valuations. Each was selected for its outstanding management team, strategically differentiated business, and value creation potential. We are confident that we will generate very significant value for our shareholders for many years to come by building on our initial portfolio while pursuing the acquisition of other exceptional businesses through the investment platforms or our planned private equity fund," said Anthony Melman, CEO of Acasta and former Managing Director of Onex Corporation.

Platform: Private label consumer staples

  • Exceptionally strong operating environment within consumer staples, specifically private label categories
  • Significant headroom for additional private label penetration in North America
  • Attractive, high growth acquisitions act as strong foundation to build out platform
  • Complementary businesses create compelling revenue and cost synergy opportunities
  • Significant free cash flow generation driven by deep customer relationships, product expertise, and production efficiencies
  • Highly innovative combined platform with excess capacity to accommodate growth
  • Pipeline of future acquisition targets with significant opportunity to consolidate fragmented industry

 

Apollo and JemPak are North American leaders in the private label consumer staples sector, which have significant growth potential and substantial industry-wide consolidation opportunities between them. Apollo manufactures private label health and beauty care products, including shampoo, body wash, liquid soap, oral care, skin care, hand sanitizers, and household cleaning products. JemPak manufactures chemicals, surfactants, and private label cleaning products including dishwasher and laundry detergent. Both are based in the Greater Toronto Area.

Acasta expects these businesses to leverage their combined scale to realize significant synergies, including cost optimization, enhanced technology and production expertise, raw material procurement, product distribution efficiencies, production optimization, and expanded customer relationship opportunities.

"In partnering with Acasta, we will accelerate our growth trajectory through acquiring businesses that are strategic to our platform," said Charles Wachsberg, the President and CEO of Apollo. "These will provide synergies and efficiencies as well as a more diverse product assortment to better serve our cherished client community. Acasta's M&A expertise, strategic initiatives, and access to capital make this a highly attractive long-term partnership for us."

"JemPak is keen to partner with Acasta and align with Apollo to create a leading private label consumer platform. We see tremendous opportunity to further enhance our competitive position and bring even more innovation to our customers," said Charles Zuckerman, CEO of JemPak.

The purchase price for Apollo is approximately $390 million, subject to certain price adjustments. Acasta management believes this reflects an attractive value relative to public peer transactions.  The consideration is to be paid up to 63% in Acasta common shares at $10.00 per share.

The purchase price for JemPak is approximately $135 million, subject to certain price adjustments, and is to be paid in $67.5 million in cash and the remainder in Acasta common shares at $10.00 per share. Affiliates of JemPak's two largest shareholders will acquire JemPak's operating facility in Oakville, Ontario and assume the associated mortgage. The JemPak transaction enterprise value of $127 million is equivalent to 8.0x 2017 estimated EBITDA (excluding synergies), which Acasta management believes reflects a discount to public peer trading multiples.

The share consideration to be received by the Apollo and JemPak vendors will be subject to lock-up restrictions as follows: 35% will be restricted for six months or upon Acasta's share price exceeding $12.00, and 65% will be restricted for five years or upon Acasta's share price exceeding $12.00 (each price trigger being for 20 trading days in any 30-day trading period).

Platform: Aviation finance and asset management

  • Stellwagen is a highly successful aviation financing, brokerage, and aircraft management business that has generated significant and growing fee income since inception
  • Regulatory-driven changes in the commercial aircraft financing area have created enormous opportunity for innovative third-party capital providers and servicers
  • Technology platform creating proprietary software for aviation portfolio analysis and management
  • World-class team of aviation industry professionals with cross-functional expertise and deep industry relationships
  • Scalable investment management platform and establishment of debt financing investment vehicles

 

Dublin-based Stellwagen Group provides best-in-class asset management, financial and technology solutions to the global aviation industry.

Stellwagen is executing on an entrepreneurial business model with a world-class leadership team, and is well positioned to be a major participant in the rapidly expanding aircraft financing industry. Stellwagen's aviation finance and management businesses have experienced significant growth over the past three years and will leverage the access to capital, relationships and expertise of Acasta to accelerate both its existing businesses and growing asset management and technology businesses.

"Aircraft asset management and financing is an extremely attractive industry, with strong returns and much less volatility than the airline sector. The newly launched technology business gives us a high level of confidence that the Stellwagen team can deliver, which is validated by the momentum they have in the market," said Michael Neal, an Acasta Founder and Advisor, a current member of JP Morgan's Board of Directors, and former CEO of GE Capital who oversaw GE Capital Aviation Services' $46 billion commercial aircraft and financing business unit.

"Acasta's Founders include some of the most highly respected individuals in both the aviation and finance industries globally," said Douglas Brennan, founder and CEO of the Stellwagen Group. "Under the leadership of Tony Melman and the Founders of Acasta, the partnership will accelerate our business model by delivering permanent capital into the Stellwagen Group. This will propel our growth, including the launch of our senior loan investment vehicle and other aviation investment vehicles, fulfilling our goal to provide stable and permanent capital to the aircraft industry. We plan to have several billion dollars in assets under management within three years, and believe that Acasta is a strong partner to enable us to meet these ambitious targets."

The purchase price for Stellwagen is approximately US$270 million, comprised of Acasta common shares, cash, and an earn-out. The purchase price is approximately 4.2x 2017 estimated net income, which Acasta management believes reflects a discount to public peer trading multiples. As a condition to Closing, Acasta will commit US$100 million to Stellwagen's senior loan investment vehicle or another strategic product for which Acasta expects the first draw to occur during the second quarter of 2017.

The share consideration is over half of the total consideration and will be subject to lock-up restrictions. Stellwagen has also committed to take up to an additional US$10 million ($13 million) in Acasta common shares to backstop any redemptions.

Stellwagen earn-out is based on the performance of the business following closing and reflects the high growth nature of its businesses, limiting the multiple paid on current earnings and resulting in enhanced alignment with Stellwagen's management team following closing. 

Creation of long-term private equity manager

  • Acasta's ability to identify and acquire these three unique and proprietary investment opportunities demonstrates the extent and quality of its pipeline of acquisition targets
  • These are ideal private equity investments because they give Acasta the opportunity to pursue strategic growth initiatives to create significant value for shareholders
  • Acasta expects that its evolution will be analogous to that of other prominent private equity managers such as Brookfield Asset Management or The Blackstone Group
  • Acasta will generate management fees and carried interest income from its role as the general partner and manager of its private equity funds
  • Acasta plans to focus on additional investment opportunities in its pipeline directly or through a series of private equity funds, the first of which it plans to launch early in 2017

 

Acasta's initial acquisitions demonstrate its ability to identify and execute multiple acquisitions in diverse business segments covering several jurisdictions. As a proactive investment manager, Acasta will empower its portfolio company management teams to pursue opportunities that create value through strategic and capital raising and allocation initiatives.

"These initial investments in our partner companies demonstrate IRRs potentially well more than our 25% target. We see further opportunities of this same calibre in our deal pipeline," said Melman. 

Acasta's acquired businesses may, as appropriate, be sold into the planned private equity fund, unlocking substantial capital for Acasta to finance other acquisitions, seed additional asset management funds, repurchase Acasta common shares or pay special non-recurring dividends. Alternatively, Acasta may spin out these businesses to shareholders at an appropriate time in the strategic evolution and growth in value of each respective business. These strategies may also serve to provide additional capital to the applicable business to further expand its scope and scale.

Acasta's private equity management model will enable it to offer vendors both the flexibility and attractiveness of private capital through its private equity fund and liquid public capital through Acasta equity, allowing it to pursue a variety of transaction alternatives. Acasta views its ability to fund acquisitions through its private equity funds, through Acasta directly, or in combination, as a key differentiator. Acasta will manage any conflicts between direct and fund investments through a framework which considers the appropriateness of each acquisition to Acasta and the applicable fund. The investment platforms will have a right of first refusal for potential acquisition opportunities to facilitate their continued growth through the consolidation of highly strategic targets.

Acasta has access to an extensive network of key relationships, and unique and proprietary deal flow through its Founders, who have exceptional track records and high ranking business connections across many industries:  

  • Anthony Melman (Director), Chief Executive Officer of Acasta, Partner, President and Chief Executive Officer of Acasta Capital;
  • Geoff Beattie (Lead Director) Chairman of Generation Capital, and Director of General Electric, Royal Bank of Canada, and Maple Leaf Foods;
  • Johan Eliasch (Director), Chairman and CEO of Head N.V.;
  • Belinda Stronach (Director), Partner and Chairman of Acasta Capital, Chair and President of The Stronach Group;
  • Hunter Harrison (Advisor), Chief Executive Officer of Canadian Pacific Railway Limited and Canadian Pacific Railway Company;
  • Michael Neal (Advisor), director of JPMorgan Chase, former Vice Chair of General Electric Company, former Chair and Chief Executive Officer of GE Capital;
  • Gordon Nixon (Advisor), former President and Chief Executive Officer of the Royal Bank of Canada, Chair of BCE Inc. and MaRs Discovery District, and Director of George Weston Limited and Blackrock Inc.;
  • Calin Rovinescu (Advisor), President and Chief Executive Officer of Air Canada, Chairman of the Star Alliance Chief Executive Board, and Director of BCE Inc.;
  • Rick Waugh (Advisor), Vice-Chair/Chair-Elect to the Board of Governors, York University, former Deputy Chairman, President and Chief Executive Officer of The Bank of Nova Scotia, and Director of TransCanada;
  • Richard Smith, Chief Operating Officer and Chief Financial Officer of Acasta
  • Michael Liebrock, Managing Director of Acasta and Acasta Capital
  • Alexander Singh, Secretary of Acasta, Managing Director, General Counsel & Secretary of Acasta Capital

 

"Our qualifying acquisition process reaffirmed the collective deal flow and insight that our Founder group can bring to bear. The establishment of a private equity fund will allow us to continue working together while creating significant value for our shareholders through generating both management fees and carried interest," said Geoff Beattie, Chairman of Generation Capital, Lead Director of Acasta, and Director of General Electric, Royal Bank of Canada, and Maple Leaf Foods.

Dividend, Increased Founders' Commitment and Other Matters

Acasta intends to pay a quarterly dividend of $0.01/share commencing in Q1 2017.

In connection with its qualifying acquisition, Acasta's Founders will increase their at risk promote shares from 25% to 50%, increase the share price hurdle for these shares from $13.00 to $15.00 beginning after the first anniversary of closing and to $18.00 per share beginning after the fifth anniversary of closing (each price trigger being for 20 trading days in any 30-day trading period). Acasta's Founders will also purchase $10 million of additional Acasta common shares at $10.00 per share

"The changes to the Founders' promote shares and the additional investment in Acasta shares evidences the Founders' confidence in these acquisitions and Acasta's future growth path," said Melman.

Based on a sum-of-the-parts analysis with reference to public peer trading multiples, estimated 2017 operating results for each of the acquired businesses and estimated achievable near-term synergies within the private label consumer staples platform, Acasta estimates the net asset value per Acasta share to be in the range of $11.50 to $14.50 post-closing.

Acasta may simultaneously raise additional capital prior to closing the acquisitions by way of a private placement of Acasta shares.

These transactions will constitute Acasta's qualifying acquisition under the rules governing special purpose acquisition corporations. Completion of the qualifying acquisition, which is expected to occur in January 2017, is subject to the satisfaction or waiver of certain closing conditions, including, among other things, the delivery of closing documentation and the receipt of required consents and authorizations, including regulatory and shareholder approvals.

In connection with its qualifying acquisition, Acasta will file an information circular and a long-form prospectus in each of the provinces and territories of Canada. The information circular, prospectus and material agreements relating to each of the acquisitions contain further details of the terms and conditions of these transactions. Investors and security holders may obtain a copy of the information circular, the prospectus and other documents (once available) on the SEDAR website at www.sedar.com under Acasta's profile. The preliminary prospectus is expected to be filed on November 11, 2016.  

Goodmans LLP is acting as legal counsel to Acasta, and BMO Capital Markets, Canaccord Genuity Corp., and TD Securities are acting as co-financial advisors to Acasta in connection with these transactions. Cassels Brock & Blackwell LLP is acting as legal counsel to Apollo. Stikeman Elliott LLP is acting as legal counsel to JemPak. Hogan Lovells International LLP and Blake, Cassels & Graydon LLP are acting as legal counsel to Stellwagen.

Conference call information

Senior management of Acasta will host an investor conference call to allow shareholders an opportunity to hear from and ask questions of management.

Please call in at least 10 minutes prior to the call to register.

Date: November 11, 2016, at 1:00 p.m. (EST)
Dial: 1 (416) 695-7806 or 1 (888) 789-9572
Passcode: 3946292

About Apollo

Apollo is one of the largest private label personal care manufacturers in North America. Supported by industry leading research and development, Apollo's premium private label health and beauty care products deliver value-added retail branded alternatives as well as custom product solutions for global retailers.

www.apollocorp.com

About JemPak

JemPak manufactures and distributes store brand laundry and dish cleaning products for a full range of retail stores. It has established relationships with large North American retailers and strong research and development capabilities. In mid-2011, the current management team executed a turnaround resulting in growth, efficiencies and a foundation for future success.

www.jempakgk.com

About Stellwagen

Stellwagen is a fully-integrated provider of asset management, technical management and fleet and capital financing solutions to the global aviation industry and its investors. Stellwagen was formed in 2013 to fill a gap in the aviation finance market following the financial crisis. Since then, Stellwagen has also expanded into aircraft servicing and investment management.

www.stellwagengroup.com

About Acasta Enterprises Inc.

Acasta is a special purpose acquisition corporation that raised $402.5 million in an Initial Public Offering, in July 2015, with the purpose of effecting a qualifying acquisition. With the approval of these three transactions, Acasta will become a private equity manager and will launch a private equity fund to pursue further market opportunities.

www.acastaenterprises.com

Cautionary Note Regarding Forward-Looking Statements

This news release may contain forward-looking statements (within the meaning of applicable securities laws) which reflect Acasta's current expectations regarding future events. Forward-looking statements are identified by words such as "believe", "anticipate", "project", "expect", "intend", "plan", "will", "may", "estimate" and other similar expressions. These statements are based on Acasta's expectations, estimates, forecasts and projections and include, without limitation, statements regarding the completion of the initial acquisitions, the estimate of NAV per share following closing, the growth opportunities in the private label consumer staples platform and the aviation finance and asset management platform, Acasta's intention to launch a multi-billion dollar private equity fund in early 2017 and that such funds will generate substantial shareholder value, the contributions to the platforms by Acasta's founders, the synergies expected from combining Apollo and JemPak, Stellwagen's plan to launch a senior loan investment vehicle in early 2017 and have several billion dollars of in assets under management within three years, the expected evolution of Acasta as a private equity manager, Acasta's expectations regarding the IRR to be generated by the acquisitions and Acasta's intention to pay a quarterly dividend commencing in Q1 of 2017.  

The forward-looking statements in this news release are based on certain assumptions, including without limitation the receipt of any required regulatory and shareholder approvals, and the expected timing related thereto, the expected operations, financial results and condition of Acasta, Apollo, JemPak and Stellwagen following closing, expectations regarding industry trends, overall market growth rates and Acasta's growth rates, Acasta's future objectives and strategies to achieve those objectives will not change, including, without limitation, its plan to raise its first private equity fund, the expectation that no event, change or other circumstance will occur that could give rise to the termination of any of the purchase agreements, that each of Apollo, JemPak and Stellwagen is capable of meeting its respective future objectives and priorities, that each of Apollo's, JemPak's and Stellwagen's respective future projects and plans are achievable and will proceed as anticipated, as well as assumptions concerning general economic and industry growth rates, commodity prices, currency exchange and interest rates and competitive intensity. The forward-looking statements are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to, the following risks: Acasta's qualifying acquisition may not be completed as planned, Apollo, JemPak and/or Stellwagen may not perform as expected and their financial results for 2016 and 2017 and beyond may not meet expectations, growth opportunities in the private label consumer staples industry and the aviation finance and asset management industry may not be available, Acasta may not succeed in raising its private equity funds, Stellwagen may not be successful in launching its senior loan investment vehicle in early 2017, the investments in any private equity funds raised by Acasta and Stellwagen may not be successful, expected cost synergies for Apollo and JemPak may not be realized, the initial acquisitions may not generate expected IRRs and Acasta may not pay its first dividend in Q1 of 2017, Readers, therefore, should not place undue reliance on any such forward-looking statements. Further, these forward-looking statements are made as of the date of this news release and, except as expressly required by applicable law, Acasta assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Non-IFRS Measures

NAV and EBITDA are not measures recognized under international financial reporting standards ("IFRS") and do not have a standardized meaning prescribed by IFRS. They are therefore unlikely to be comparable to similar measures presented by other companies. Acasta believes that these non-IFRS financial measures provide meaningful supplemental information regarding Apollo's, JemPak's, and Stellwagen's, as applicable, underlying performance and may be useful to investors because they allow for greater transparency with respect to key metrics used by Apollo's, JemPak's, and Stellwagen's management, as applicable, in its respective financial and operational decision making, normalized for non-recurring events. Acasta believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers and to compare each of Apollo's, JemPak's and Stellwagen's performance against others in its respective industries. Please see Acasta's preliminary long form prospectus to be filed at www.sedar.com for a detailed description of these measures and a reconciliation of the measures to the nearest IFRS measure.  

SOURCE Acasta Enterprises Inc.

Image with caption: "Acasta Enterprises INC. (CNW Group/Acasta Enterprises Inc.)". Image available at: http://photos.newswire.ca/images/download/20161110_C8092_PHOTO_EN_815382.jpg

For further information: Acasta Enterprises Inc., Richard Smith, Chief Operating Officer and Chief Financial Officer, Telephone No.: 647-725-6707

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