OTTAWA, Nov. 29, 2017 /CNW/ - Clearford Water Systems
Inc. ("Clearford" or the "Company"), (TSXV: CLI), winner of the
Frost & Sullivan 2017 Best Practices Award for Enabling
Technology Leadership in the Global Decentralized Water and
Wastewater Treatment Industry, today announced the acquisition
of Koester Canada Inc. ("Koester Canada"), an Ontario-based subsidiary of Koester
Associates, Inc., a water and wastewater solutions and equipment
supplier servicing the States of New
York and New Jersey.
Koester Canada's two divisions,
the Koester Canada Design-Build and Koester Team Aquatic Operations
Group, will be renamed Clearford-Koester Canada and Clearford
Waterworks, respectively, while continuing to provide high quality
management of water supply and wastewater treatment systems for
small communities along with the manufacturing and supply of
packaged treatment solutions, including containerized membrane
plants for advanced water treatment. Clearford expects to expand
the Waterworks division by acquiring other operating businesses,
acting as a consolidator in this specialized segment of the North
American water infrastructure sector.
As previously announced on June 22,
2017, and July 28, 2017,
Clearford is implementing a new business plan, which includes the
pursuit of strategic acquisitions supportive of the Company's
growth in the decentralized water and wastewater treatment sector.
The business model provides Clearford with the unique opportunity
to become a utility-like operating company with the resources &
capabilities to deliver water and wastewater solutions at a lower
life-cycle cost to municipal clients and private developers alike
through enabling proprietary technologies and processes. As
indicated in the May 2017 Frost &
Sullivan report, the global decentralized/containerized water and
wastewater treatment systems market is expected to grow from
US$3.99 billion in 2016 to
US$6.08 billion in 2023, reflecting a
compound annual growth rate of 6.2%.
"This is the natural progression of the Company's unified water
management business model", said Kevin
Loiselle, President & CEO of Clearford. "The acquisition
completes Clearford's unique product and service offering, and
positions the Company for growth with sector-leading efficiency and
reliability. By integrating Clearford's product range and service
offering with Koester Canada's
design-build and operating divisions, Clearford is now in control
of its core value chain, enabling the rapid delivery of water
solutions, with a competitive advantage to propel the Company for
growth in the North American market and beyond."
President of Koester Canada,
Richard Nie, commented: "We are very
excited with the path forward and the opportunity to leverage our
packaged treatment solutions within the
Clearford One® wastewater system. The pre-treatment
approach afforded by Clearford's system further enhances the
footprint and technological efficiencies of our modular smart
membrane plant, making it rapidly deployable to communities of any
size."
Koester Canada has $3 million in revenue for its last fiscal year,
representing 6% year-over-year revenue growth on an unaudited
basis. During the 9-month period ended September 30, 2017, and prior to closing the
transaction, Koester Canada recorded
$3.4 million in revenue, with
earnings before interest, taxes, depreciation and amortisation of
$750,000 on an unaudited basis.
Koester Canada revenues include
recurring monthly revenue for operating & maintenance contracts
attributable to the Team Aquatic Operations Group. Team Aquatic
currently operates over 50 privately owned communal water systems
in Ontario, with a significant
number of multi-year contracts representing approximately
$5 million in backlog for existing
service contracts. The Koester Canada Design-Build group has
approximately $1 million in unbilled
backlog at the date of the acquisition. The total revenues
generated by Clearford's operating subsidiaries, including (i) the
newly acquired Clearford-Koester Canada (Design-Build), (ii) the
newly acquired Clearford Waterworks (Team Aquatic Operations
Group), and (iii) UV Pure, with its recently launched new
generation purification product range (Hallett), is forecasted to
exceed $10 million in FY 2018.
Clearford will acquire Koester
Canada in a share-for-share exchange transaction. The
Company will issue 14,485,338 new treasury shares for 16,296,000 of
the issued and outstanding shares of Koester Canada, representing 100% of the issued
and outstanding shares of Koester
Canada. Prior to the exchange, Koester Canada was acquired by an acquisition
vehicle formed and capitalized by long-term debt, bearing interest
at 9.75%, which was assumed by Koester
Canada, as the surviving entity post-amalgamation with the
acquisition vehicle. The acquisition vehicle paid $5.4 million and issued 8,146,000 shares from
treasury to existing Koester Canada
shareholders, with the remaining 8,150,000 shares held by the
principals of the acquisition vehicle. A setup fee of 7.5% was
charged on the transaction. As part of the transaction, the
surviving entity of Koester Canada
assumed the debt of the acquisition vehicle and provided a General
Security Agreement over all of its assets, excluding existing
permitted encumbrances. All parties to the transaction are dealing
at arm's length. The transaction has closed with all documents
signed and held in escrow, pending final approval of the
transaction by the TSX Venture Exchange as a Reviewable
Transaction.
No new insiders will be created as a result of the
transaction.
Based on the previous day closing share price of the Company,
the total transaction value, including the assumed long-term debt
of Koester Canada, net of acquired
cash, is approximately $7.8
million.
In conjunction with the transaction, Clearford also entered into
a new C$2,975,000 5-year convertible
debenture. The convertible debenture bears interest at 5%
compounded annually, and is payable at the earlier of (i) the
maturity date, or (ii) the conversion date, of the debenture. The
convertible debenture will have a share pledge granted over
Clearford's shareholding of the newly acquired Koester Canada. The proceeds of the issuance
will be used to repay short-term debt, interest payments and
provide additional working capital to Clearford. The Company will
pay a $100,000 setup fee to the
Subscriber as part of the transaction. This transaction is subject
to the TSX Venture Exchange final approval. There will be a hold
period of 4 months + 1 day on the equity issuable pursuant to the
convertible debenture transaction which will expire on March 2, 2018.
There will also be a hold period of 4 months + 1 day on the
equity issued pursuant to the share for share transaction following
the date of close which will expire on March
30, 2018.
The Company had 87,542,391 issued and outstanding shares and
113,972,391 on a fully diluted basis prior to these transactions.
Subsequent to the close, the Company will have 102,027,729 issued
and outstanding shares and 143,332,729 on a fully diluted
basis.
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.
About Clearford Water Systems Inc.
Clearford Water Systems Inc. (TSX-V: CLI) is a provider of
unified water management solutions for the design, build, finance,
operation and maintenance of water and wastewater infrastructure
systems. The Company's technology-based water solutions include the
Clearford One wastewater infrastructure systems, Clearford
M-brane™ packaged treatment solutions, and a full range of
UV Pure® water disinfection products. Clearford is
the winner of the Frost & Sullivan 2017 Enabling
Technology Leadership Award for Global Decentralized Water &
Wastewater Treatment. For more information on Clearford Water
Systems, please visit www.clearford.com.
About Koester Canada,
Inc.
Koester Canada, Inc. was a
subsidiary of Koester Associates, Inc., a water and wastewater
solutions and equipment supplier servicing the States of
New York and New Jersey. Koester
Canada provides end-to-end water and wastewater system
solutions. Koester Canada's Team
Aquatic Operations Group is a full-service operations &
maintenance company, servicing water and wastewater systems,
primarily for privately owned systems in the Ontario market. Koester Canada has recently expanded into the
New York State market. For more
information on Koester Canada,
please visit www.koestercanada.ca.
Forward Looking Statements
This news release contains certain statements that constitute
forward-looking statements as they relate to the Company and its
management. Forward-looking statements are not historical facts but
represent management's current expectation of future events, and
can be identified by words such as "believe", "expects", "will",
"intends", "plans", "projects", "anticipates", "estimates",
"continues" and similar expressions. Although management believes
that the expectations represented in such forward-looking
statements are reasonable, there can be no assurance that they will
prove to be correct.
By their nature, forward-looking statements include assumptions
and are subject to inherent risks and uncertainties that could
cause actual future results, conditions, actions or events to
differ materially from those in the forward-looking statements. If
and when forward-looking statements are set out in this news
release, Clearford will also set out the material risk factors or
assumptions used to develop the forward-looking statements. The
Company assumes no obligation to update or revise any
forward-looking statements, except as expressly required by
applicable securities law or exchange requirements. The future
outcomes that relate to forward-looking statements may be
influenced by many factors, including, but not limited to: industry
cyclicality; the ability to secure third party agreements;
successful integration of Clearford's system with third party
technology; competition; reduction in demand for products;
collection from customers; relationships with suppliers; product
liability; intellectual property; reliance on key personnel;
environmental; interest rates; uninsured and underinsured losses;
operating hazards; risks of future legal proceedings; income tax
matters; credit facilities; availability and terms of financing;
distribution of securities; restrictions on potential growth;
effect of market interest rates on price of securities; and
potential dilution.
SOURCE Clearford Water Systems Inc.
