Expected to be over 30% accretive to earnings per share on a pro forma basis
Acquisition provides HDI turnkey entry into the home center and home builder distribution customer channels, with high value architectural building products, established brands, a national footprint, and leading market positions
Novo is a leading
"We are very excited to be adding Novo to HDI. This highly strategic acquisition provides a symbiotic fit with our existing operations as a distributor of high value, specialty, non-commodity building materials with a national footprint and leading market position," commented
Acquisition Highlights
- Turnkey entry into the home center customer segment. Approximately half of Novo's revenue is derived from being a primary supplier to national and regional home improvement retailers. Novo is a critical product category manager for its home center customers in both physical and digital store aisles. Services provided include individual store planning, logistics and supply chain management, marketing and merchandising, e-commerce, and in-store stocking and material handling. Novo's relationships with key home center customers span decades.
- Turnkey entry into the Pro Dealer customer segment. Approximately half of Novo's revenue is derived from the Pro Dealer segment. Novo has achieved preferred vendor status with many Pro Dealers and believes there is a significant opportunity to increase Novo's market share in this attractive segment.
- Significantly enhances the size and scale of the Company, with no overlap. With more than 1,400 employees and operating 14 locations with a strong eastern
U.S. presence, Novo's footprint complements that of HDI. Novo anticipates generating annual revenues of overUS$640 million and annual EBITDA of overUS$55 million in 2021. - Skilled operational leadership team. Novo has a committed and strong management team. Key management have significant industry experience and will continue to lead the Novo business as part of HDI, further adding to the Company's bench strength.
- Accretive with further upside from expected synergies. The Acquisition, if completed, is expected to be over 30% accretive to earnings per share before accounting for any synergies. Management has identified potential synergies, including supply chain, information technology, tax and logistics that are expected to provide further upside to the accretion.
- Efficient use of the Company's debt capacity. The Purchase Price will be funded through an increase in borrowing, which in turn, is expected to improve the efficiency of the Company's balance sheet. The Company expects to have a pro forma bank debt to Adjusted EBITDA after rents ratio (or "Leverage Ratio") of less than 3.0x by the end of the year, and further expects to have significant unused borrowing capacity available to it on close of the Acquisition.
"Novo represents our tenth acquisition in the last five years, and on a pro forma basis we have acquired over
Novo Purchase Agreement
The Company, through its subsidiary
The obligation of the parties to complete the Acquisition is subject to various conditions typical of those contained in equity purchase agreements negotiated between parties dealing at arm's length, including that the applicable waiting period relating to the Acquisition under the Hart-Scott-Rodino Antitrust Improvement Act of 1976 (including all extensions thereof) has expired or been terminated.
The Equity Purchase Agreement contains various termination provisions typical of those contained in equity purchase agreements negotiated between parties dealing at arm's length, including a provision that either party may terminate the agreement in the event that, subject to certain conditions, the closing of the Acquisition has not occurred by
Credit Facility
HDI has received a commitment letter from its existing lender
The New Credit Facility is expected to bear interest at a rate equal to LIBOR plus up to 2.25% or the base rate of interest charged by the Lender from time to time ("Base Rate") plus 1.0%. The LIBOR and Base Rate margins for the New Credit Facility are expected to be subject to performance pricing adjustments, from time to time, based on the Company's then applicable leverage ratio.
The financial covenants under the New Credit Facility are expected to include, among others: (i) a consolidated interest coverage ratio (a ratio of adjusted EBITDA to total interest expense, determined on a consolidated basis of the Company, with the specific definitions to be agreed upon) and (ii) a consolidated leverage ratio (a ratio of total funded debt to adjusted EBITDA, determined on a consolidated basis of the Company, with the specific definitions to be agreed upon).
The commitment letter and advance of the loan facilities are subject to usual conditions including, among others, execution of documents satisfactory to the Lender, completion of the related transactions on terms satisfactory to the Lender, no material adverse change in the business of the Company and its subsidiaries or the sellers of Novo having occurred, delivery of certain interim financial statements, pro forma financial statements and a pro forma compliance certificate confirming compliance with financial covenants and borrowing base on a pro forma basis, receipt of all necessary consents for the Acquisition and completion of the Lender's due diligence.
Conditions to Complete the Acquisition
Completion of the Acquisition is subject to a number of conditions, including
The Acquisition is expected to close in late July or early
Advisors
About Novo
Novo is a value-added distributor and manufacturer of specialty building products. Novo supplies mouldings, stair parts, doors, and other specialty millwork products to customers throughout
About HDI
HDI is currently one of
Forward-Looking Statements
Certain statements in this news release may constitute "forward-looking information" or "financial outlook" within the meaning of applicable securities laws that involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements or industry results expressed or implied by such forward-looking information and financial outlook. Forward-looking information and financial outlook are identified by the use of terms and phrases such as "anticipate", "believe", "could", "estimate", "expect", "intend", "may", "plan", "predict", "project", "will", "would", and similar terms and phrases, including references to assumptions. Such information may involve, but is not limited to, comments with respect to strategies, expectations, planned operations or future actions. Forward-looking information in this news release includes, without limitation, statements with respect to: the anticipated closing of the Acquisition, the terms thereof and the timing therefor; the expected multi-year runway for growth in the residential and repair and remodel markets; HDI belief there is a significant opportunity to increase Novo's market share in the Pro Dealer segment; Novo's expected annual revenues and annual EBITDA; key management of Novo will remain in place, further adding to the Company's bench strength; the expected accretion to cash flows and earnings resulting from the Acquisition; management has identified potential synergies, including supply chain, information technology, tax and logistics that are expected to provide further upside to the accretion; the increase in borrowing is expected to improve the efficiency of the Company's balance sheet; management's expectations for pro forma Leverage Ratio and further expects to have significant unused borrowing capacity available to it on close of the Acquisition; and, the anticipated entering into of the New Credit Facility and the terms thereof and timing therefor. Actual events or results may differ materially.
The forecasts and projections that make up the forward-looking information and financial outlook in this news release are based on assumptions which include, but are not limited to: the satisfactory timing and receipt of regulatory approval with respect to the Acquisition; the completion of the Acquisition; the Company realizing the expected benefits and synergies of the Acquisition; no undisclosed liabilities associated with the Acquisition; no material adverse changes occur in respect of the acquired assets before the completion of the Acquisition; the Company completes the New Credit Facility in accordance with the terms currently contemplated; the Company can comply with the restrictive conditions required by the New Credit Facility; the financial impact of the Acquisition is as currently expected by management; the Company and Novo do not lose any key personnel; there are no decreases in the supply of, demand for, or market values of products that harm the Company or Novo's business; the Company does not incur material losses related to credit provided to its customers; the Company is able to sustain its level of sales and earnings margins; the Company is able to grow its business long term and to manage its growth; the Company is able to integrate acquired businesses, including Novo; there is no new competition in the markets in which the Company operates that lead to reduced sales and profitability; the Company can comply with existing regulations and will not become subject to more stringent regulations; no material product liability claims; importation of products manufactured with hardwood lumber or sheet goods does not increase and replace products manufactured in
The forward-looking information and financial outlook in this news release is subject to risks, uncertainties and other factors that could cause actual results to differ materially from historical results or results anticipated by the forward-looking information. The factors which could cause results to differ from current expectations include, but are not limited to: failure to close the Acquisition; the actual impacts of the Acquisition on the Company's earnings per share, free cash flow and Leverage Ratio may not be in line with management's expectations; the Company may not be able to reduce its leverage levels by the amount or at the time desired, or at all; the Acquisition may not be immediately accretive to earnings per share; potential undisclosed liabilities associated with the Acquisition; no control by the Company over Novo until completion of the Acquisition; the Company may not be able to obtain the New Credit Facility on the terms currently expected, or at all; the New Credit Facility will be subject to certain restrictive conditions that limit the discretion of management; exchange rate fluctuations between the Canadian and US dollar could affect the Company's performance; the Company's results are dependent upon the general state of the economy; the Company depends on key personnel, the loss of which could harm its business; decreases in the supply of, demand for, or market values of hardwood lumber or sheet goods could harm the Company's business; the Company may incur losses related to credit provided to the Company's customers; the Company's products may be subject to negative trade outcomes; the Company may not be able to sustain its current level of sales or earnings margins; the Company may be unable to grow its business long term or to manage any growth; the Company may be unable to integrate acquired businesses; competition in the Company's markets may lead to reduced sales and profitability; the Company may fail to comply with existing regulations or become subject to more stringent regulations; product liability claims could affect the Company's sales, profitability and reputation; importation of products manufactured with hardwood lumber or sheet goods may increase, and replace products manufactured in
To the extent any forward-looking information or statements in this news release constitute a "financial outlook" within the meaning of securities laws, such information is being provided to demonstrate the potential benefits of the Acquisition and management's estimate of the future financial performance of Novo, and readers are cautioned that this information may not be appropriate for any other purpose and that they should not place undue reliance on such information.
Although HDI has attempted to identify factors that would cause actual actions, events or results to differ materially from those disclosed in the forward-looking statements or information or financial outlook in this news release, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Also, many of the factors are beyond the control of HDI. Accordingly, readers should not place undue reliance on forward-looking statements or information in this news release. The forward-looking information is made as of the date of this news release, and HDI assumes no obligation to publicly update or revise such forward-looking information to reflect new information, subsequent or otherwise, except as may be required by applicable securities law. The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement.
Non-IFRS and Non-
This news release makes reference to certain non-IFRS financial measures, in the case of the Company, or non-
The definitions of the non-IFRS and non-
SOURCE
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