Allen-Vanguard to acquire Med-Eng Systems for $600 million



    
    /NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR
    DISSEMINATION IN THE UNITED STATES/

    - Financing committed for all-cash offer in combination of equity and
      debt
    - Quantum growth in revenue and EBITDA
    - Transforms company into global leader in counter-IED
    

    OTTAWA, Aug. 3 /CNW Telbec/ - Allen-Vanguard Corporation (the "Company"
or "Allen-Vanguard") (TSX: VRS) of Ottawa, Canada announced today that it has
entered into a definitive agreement with the shareholders of Med-Eng Systems
Inc. ("Med-Eng") to purchase all the shares, on a debt and cash free basis, of
Med-Eng for $600 million (the "Transaction") plus an amount estimated at
approximately $50 million for the purchase of excess working capital. All
amounts are in Canadian dollars unless otherwise noted. The Transaction is
expected to close on or about August 31st, 2007, subject to receipt of
required regulatory and other approvals (the "Closing Date").
    Allen-Vanguard was the winning bidder in a limited auction process to
sell Med-Eng whose principal owners are two private equity firms exiting their
position as long term investors. Speaking on behalf of the largest
shareholder, Mr. Paul Echenberg of Schroders & Associates commented that
"Price was not the only consideration in selecting a winner. Compatibility
with the organizational culture and the aspirations of management and staff at
Med-Eng were also priorities, and we believe that these will be best realized
with Allen-Vanguard."

    Deal Highlights

    Med-Eng (www.med-eng.com), headquartered in Ottawa, Canada, is a leading
global supplier of Explosive Ordnance Disposal (EOD) equipment, and is the
world market leader for bomb disposal suits and helmets. Med-Eng is also an
important supplier of Electronic Counter Measures (ECM) equipment to the U.S.
military through General Dynamics Armament and Technical Products, and to
Canadian and Australian military forces. In its fiscal year ended December 31,
2006, Med-Eng recorded revenue of $261 million, and earnings before interest,
taxes, depreciation and amortization ("EBITDA") of $98 million. Almost 90% of
the revenue was from sales in North America, primarily in the U.S.
    "Med-Eng is clearly an exceptional strategic fit with Allen-Vanguard and
meets our other stated acquisition criteria of scale, geographic balance, and
strong growth and earnings visibility," said David E. Luxton, Allen-Vanguard
President and CEO. "We are pleased to have been able to structure the
financing for this major transaction with an ultimate combination of one half
debt and one half new equity in Allen-Vanguard.
    Med-Eng currently has an order backlog in excess of $175 million. On a
combined basis, consolidated revenue and EBITDA for Med-Eng and Allen-Vanguard
together for the trailing twelve month period ended March 31st, 2007, would be
in excess of $335 million and $110 million, respectively (excluding Hazard
Management Solutions Inc.)
    Genuity Capital Markets is acting as financial advisor and Lang Michener
LLP is acting as legal advisor to Allen-Vanguard with respect to the
Transaction. CIBC World Markets is acting as financial advisor and McCarthy
Tétrault LLP is acting as legal advisor to Med-Eng with respect to the
Transaction.

    Financing the Transaction

    
    Committed financing for the Transaction has been arranged as follows:

    - $100 million in a subscription receipt private placement for
      approximately 14.6 million common shares of the Company at $6.85 per
      share ("Private Placement") led by a syndicate comprising Paradigm
      Capital Inc., Versant Partners Inc. and Genuity Capital Markets;
    - $350 million in five year term debt financing ("Senior Debt Facility")
      at LIBOR plus 7%; and
    - $150 million in subordinated debt from a consortium of lenders
      ("Subordinated Debt"). The Subordinated Debt funds will be advanced on
      October 1st, 2007, and will be repayable on December 31st, 2007,
      subject to potential extension. The vendor will also receive
      Subordinated Debt in the amount of the excess working capital.

    Additionally, the Company has obtained a revolving credit facility
("Revolver Facility") of $20 million.
    Transaction costs, including agent commissions on the Private Placement,
commitment fees on the Senior Debt Facility, Revolver Facility, Subordinated
Debt and legal and financial advisory fees are estimated to be $35 million,
which will be funded through the Revolver Facility and the Company's existing
cash reserves.
    In connection with the Transaction, Allen-Vanguard intends to issue common
shares by way of a prospectus offering and use these funds to retire the
Subordinated Debt and repay a portion of the Senior Debt Facility. This will
result in a permanent financing structure of the acquisition of approximately
$300 million in long term debt and approximately $300 million in total new
equity. The Company expects to generate strong free cash flow and apply a
significant portion to pay down long term debt.
    "We are extremely pleased with our new financial partners and their belief
in the strengths of the transaction," said Mr. Luxton. "We believe the equity
markets, particularly in the U.S., will be highly receptive to our intended
prospectus offering, valuing the strong fundamentals, strategic value,
impressive growth trajectory and significantly improved liquidity of the
combined enterprise." The Company added that it is a strategic objective to
enlarge its U.S. shareholder base as part of a stated plan to broaden its
organizational base in the U.S.

    Consolidated Operational Overview

    Allen-Vanguard and Med-Eng each operate in common business segments in
electronics and protective product systems. David E. Luxton will remain as
President and CEO of the combined enterprise. Mr. Danny Osadca, President of
Med-Eng, will be retiring from his current position at the end of September,
2007. The combined companies have deep management and operational talent
across all functional and product areas. It is anticipated that the corporate
management team will include senior executives of Med-Eng, the Managing
Director of HMS, and the incoming Managing Director of Allen-Vanguard's U.K.
operations, to be named very shortly.
    "Both companies have known each other well for years", said Mr. Luxton,
"and we have the highest regard for the Med-Eng management team and their
accomplishments. We are very pleased that they will continue to lead our
combined business segments in electronics and protective products. The
combination is a winning, world class management team." Mr. Danny Osadca,
President of Med-Eng, commented that "there are extensive natural synergies
between the two businesses and I expect the consolidated corporate group will
quickly coalesce into a very powerful execution team."
    The Company noted that it expects to realize a number of significant
synergies from the transaction:

    - Market synergies, with extended reach into more markets selling more
      products through a combined global sales and distribution system. In
      ECM, the combined enterprise consolidates incumbency in several
      programs and markets: a significant U.S. military ECM program, through
      a teaming agreement with General Dynamics Armaments and Technical
      Products, and the Symphony ECM program through Allen-Vanguard's
      agreement with Lockheed Martin. Outside the U.S., the ECM market
      synergies encompass Med-Eng's supply relationships with the Canadian
      and Australian military and Allen-Vanguard's relationships as a
      supplier of ECM to other significant NATO and non-NATO countries as
      well as key non-governmental organizations operating in theatres of
      conflict. The complementary facilities footprint of Med-Eng in North
      American and Allen-Vanguard in the U.K. confers a distinct advantage of
      market access in the prime markets of the U.S. and Europe.
    - Technology synergies, including the unique ability to orchestrate a
      global strategy to harmonize different ECM platforms among various
      countries consistent with government policies and export controls, and
      pooling of expertise to ensure a sustained global lead in ECM
      technology.
    - Product synergies, especially in the EOD market, as the only company
      able to serve the global market of bomb disposal teams with proprietary
      products and leading brands in bomb suits, bomb disposal robots and
      tools for bomb technicians - the core product set required by every
      bomb team. A further unique advantage is the ability to establish
      across all radio frequency (RF) components of EOD products a harmonized
      capability to operate in harsh RF environments. Similarly, Allen-
      Vanguard's technology and expertise in protection against Chemical
      Biological Radiological Nuclear (CBRN) hazards can be integrated into
      all EOD product platforms for protection against the full range of CBRN
      and explosive threats.
    - Cost synergies, through the eventual consolidation of multiple Med-Eng
      and Allen-Vanguard facilities in Ottawa into a single facility, and
      optimization of production across Med-Eng's North American
      manufacturing base and Allen-Vanguard's U.K. production base. A further
      potential financial synergy is the ability to utilize approximately
      $13 million in Allen-Vanguard Canadian tax loss carry forwards.

    "These kinds of synergies underline the considerable gains from combining
both enterprises," said Mr. Luxton. The Company added that it expects other
benefits to be realized and is excited at the opportunity to build a much more
strategic and powerful global business than either company could achieve
independently.
    "We are pleased to have been able to conclude fair terms for such a
strategic transaction and one with such a strong growth trajectory," said
Mr. Luxton. The Company added that on a consolidated basis it expects revenue
in fiscal 2008, which commences October 1st, 2007, of approximately
$500 million and EBITDA of approximately $160 million, with visibility on
further significant growth in profitability in fiscal 2009 and beyond, driven
largely by combined ECM sales in complementary markets. "Military and security
forces everywhere, especially in the U.S., remain strongly committed to ECM as
essential "electronic armour" protection under any current or future conflict
scenario," commented Mr. Luxton. The installed base of Med-Eng ECM units
currently numbers several thousand and on a combined basis with
Allen-Vanguard's ECM is projected to grow significantly to several thousand
more over the next few years. This provides a stable recurring revenue base
for years to come from upgrades, maintenance, repair and overhaul, and
training services.
    "This transaction is clearly transformational," concluded Mr. Luxton. "We
believe it promises superior returns to Allen-Vanguard shareholders, enlarged
career opportunities for staff, and more value for customers. On the latter
point, both companies have in common a deep commitment to provide customers
sustainable capability against the evolving threat of improvised explosive
devices ("IED's)", including "dirty bombs", and the number one threat of
remotely detonated devices that account for so many civilian as well as
military casualties. Fulfilling this mission is our common bond."

    Conference call

    Allen-Vanguard will be hosting an investor and analyst conference call and
webcast at 11:00 a.m. ET on Friday August 3, 2007.

    Dial-in numbers: 800-814-4859 or (416) 644 3429
    Web access:
    http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=1966580

    For those unable to listen to the call live, a replay will be available
for a two week period beginning at 1:00 p.m. on August 3, 2007. The replay
phone number is 877-289-8525 and the access code is 21243031 (pound key).

    About Allen-Vanguard

    Allen-Vanguard Corporation and its subsidiaries worldwide operate under
the brand "Allen-Vanguard". The Company develops and markets technologies,
tools and training for defeating and minimizing the effects of hazardous
devices and materials, whether Chemical, Biological, Radiological, Nuclear or
Explosive (CBRNE). The Company's equipment is in service with leading security
and military forces in more than 120 countries. Products include Electronic
Counter-Measures ("ECM") equipment for jamming remote detonation of terrorist
devices, specialty security equipment for Explosive Ordnance Disposal ("EOD"),
remote intervention robots for hazardous applications, vehicle barrier
systems, and personal protective wear for use in dealing with bio-chemical
agents. Allen-Vanguard is the sole, worldwide licensee and/or developer of
patented technologies such as the Universal Containment System and CASCAD Foam
for blast mitigation and decontamination of bio-chemical warfare agents. Head
office operations are located in Ottawa, Ontario, Canada, with manufacturing
or training operations in Stoney Creek, Ontario; Wiltshire UK, Tewkesbury,
U.K.; and Cork, Ireland, and sales offices in Canada, the U.S., the U.K. and
Asia. The Company's shares are listed on The Toronto Stock Exchange (TSX:
VRS).

    This press release contains forward-looking statements, which reflect
Allen-Vanguard's current expectations regarding future events, its strategy,
expected performance and condition. Forward-looking statements include
statements that are predictive in nature, that depend upon or refer to future
events or conditions, or that include words such as "expects," "anticipates,"
"plans," "believes," "estimates" or negative versions thereof and similar
expressions. In addition, any statement that may be made concerning future
performance, strategies or prospects, and possible future acquisitions or
dispositions, is also a forward-looking statement. Forward-looking statements
are based on current expectations and projections about future events and are
inherently subject to, among other things, risks, uncertainties and
assumptions about the Company and economic factors. Forward-looking statements
are not promises or guarantees of future performance, and actual events and
results could differ materially from those expressed or implied in any
forward-looking statements made about the Company. Any number of important
factors could contribute to these digressions, including, but not limited to,
general economic, political and market factors in North America and
internationally, interest and foreign exchange rates, global equity and
capital markets, business competition, technological change, changes in
government regulations, unexpected judicial or regulatory proceedings, and
catastrophic events. We stress that the above-mentioned list of important
factors is not exhaustive. We encourage you to consider these and other
factors carefully before making any investment decision and we urge you to
avoid placing undue reliance on forward-looking statements. Further, you
should be aware that the Company disclaims any obligation to publicly update
or revise any such forward-looking statements whether as a result of new
information, future events or otherwise, prior to the release of the next
Management Discussion and Analysis to be released by the Company.

    To find out more about Allen-Vanguard Corporation (TSX:VRS), visit our
website at www.allen-vanguard.com.
    




For further information:

For further information: David Luxton, President and CEO, (613)
769-5353; Rob Ryan, Chief Financial Officer, (416) 277-0288

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ALLEN-VANGUARD CORPORATION

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