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Alaris-backed Sequel to merge with GPAC in $423 mln deal

Sequel Youth and Family Services LLC, a portfolio company of Canadian alternative equity firm Alaris Royalty Corp, has agreed to combine with Global Partner Acquisition Corp (GPAC). In a separate release, Sequel and GPAC said the deal has an initial enterprise value of about US$423.3 million. Alaris, which invested in the company in 2013, will receive a cash distribution of US$30 million as a result. It will also retain a US$62.2 million investment in the new business, also called Sequel, and continue receiving annual distributions of US$6.2 million. Huntsville, Alabama-based Sequel develops programs for young people with behavioral, emotional, or physical challenges.

PRESS RELEASE

Alaris Royalty Corp. Announces a Proposed Transaction With Sequel and Provides a Corporate Update

CALGARY, ALBERTA–(Marketwired – Jan. 11, 2017) –

Alaris Royalty Corp. (“Alaris” or the “Corporation”) (TSX:AD) is pleased to announce a proposed transaction (the “Sequel Transaction”) with Sequel Youth and Family Services, LLC (“Sequel”), whereby it is proposed that Alaris will receive a cash distribution of USD$30 million from Sequel as well as retain USD$62.2 million of new preferred equity in Sequel, a total value of USD$92.2 million on Alaris’ invested capital of USD$73.5 million (approximately 7.5x the current annual distribution). It is also proposed that Alaris will receive a continuing annual distribution of USD$6.2 million representing a 14.2% yield on Alaris’ remaining cost base in Sequel of USD$43.5 million. The Sequel Transaction is subject to approvals and conditions as described below. Alaris is also providing a brief corporate update on other matters.

Sequel Transaction

Sequel, an Alaris Private Company Partner since July 2013, has entered into a merger agreement pursuant to which Sequel will be purchased by Global Partner Acquisition Corp. (“GPAC”), a U.S. listed Special Purpose Acquisition Corporation. The transaction is subject to approval by the shareholders of GPAC and certain other closing conditions with closing expected to occur in early Q2 2017. In connection with the Sequel Transaction, Alaris will receive a USD$30 million cash distribution from Sequel and will retain USD$62.2 million of new preferred units in Sequel for a total value of $92.2 million. This represents a profit of USD$18.7 million over and above Alaris’ original cost of USD$73.5 million. In Canadian dollar terms the total value of this transaction is approximately $121.7 million representing a profit of $44.2 million over Alaris’ Canadian dollar cost of $77.5 million.

Alaris will remain invested in Sequel and will receive a continuing annual distribution of USD$6.2 million that will be adjusted annually based on the percentage change in same program revenues, subject to a 5% collar. Going forward, Alaris’ units in Sequel can be repurchased at any time for a fixed amount of USD$62.2 million subject to an annual increase of 3% starting 42 months from the closing date of the transaction. To date, Alaris has received over USD$47 million in regular monthly distributions from Sequel and has had positive resets on the Sequel distributions in all years since partnering with Sequel in 2013. The current senior management team of Sequel will be remaining on in entirety to run the business following the closing of the proposed merger agreement with GPAC.

“The potential transaction with Sequel represents another significant milestone for Alaris. In addition to another excellent return on our invested capital, it also continues to show the private equity market how our unique capital can be used by entrepreneurs to get an outcome superior to other options. While we’re happy to be crystalizing a significant profit with some capital coming back for redeployment, we are also pleased to be keeping the majority of our capital invested in a very stable business and with a management team that have been fantastic partners for us over the years. We look forward to continuing on as Sequel’s preferred equity partner”, said Steve King, President and Chief Executive Officer, Alaris.

Corporate Update

On Dec 21, 2016, as a result of a sale of Mid-Atlantic Holdings, LLC (“MAHC”) to a third party, as previously disclosed, Alaris received payment of USD$18.3 million (the “MAHC Redemption”) from MAHC as consideration for: (i) redemption of all of Alaris’ units in MAHC; and (ii) prepayment of future distributions to which Alaris was entitled under its agreement with MAHC. Alaris’ agreement with MAHC provided for a prepayment of certain distributions, to which Alaris would have received in the first three years following our initial contribution where there is an exit event in such initial three year period. This results in USD$3.3 million of additional distributions on top of the USD$15 million repurchase price for the MAHC units. As a result, Alaris has a total return of 53% (in US dollar terms) on its USD13.28 investment in the one year the MAHC units were held by Alaris, including distributions received in 2016. The proceeds from the MAHC redemption were used to reduce the US dollar amounts drawn on Alaris’ credit facility.

During December 2016, the Corporation received $1.1 million from KMH Limited Partnership (“KMH”) as a result of the closing of the first of a number of transactions in the process to provide Alaris with $28 million for its units in KMH. The remaining transactions are expected to be completed over the next several weeks and the Corporation continues to expect the full $28 million, which it has previously expected to receive from KMH.

Recent monthly results from SCR Mining and Tunneling, LP (“SCR”) have seen significant improvement and positive cash flow. The sharp increase in activity requires working capital so distributions are not yet ready to be restarted but the Corporation is pleased with the sooner than expected turn in results.

Agility Health, LLC (“Agility”) continues to work toward its redemption of Alaris’ units within the prescribed 90 day timeframe effective early November 2016 and we will provide an update when a definitive outcome has been achieved.

Subsequent to management changes and significant costs reductions being made at Kimco Holdings, LLC, the Corporation continues to work with Kimco and its senior lenders on a long-term plan and we will provide an update when more definitive outcomes have been achieved.

The Corporation continues to monitor the international legal dispute involving SM Group International, LP (“Group SM”) and one of its international customers. During December, the arbitrator delivered a partial judgment but did not address, nor did it quantify, the most significant issues including the monetary damages SM expects to receive as a result of the dispute. Alaris and Group SM continue to expect a favorable outcome and we will provide an update when a definitive outcome has been achieved.

Alaris is estimating that the net results for those Partners that have distribution resets effective January 1, 2017, and that are paying current distributions to Alaris, will be an increase of approximately $1.7 million for 2017 based on internal financial results from Alaris’ Partner’s to date, to be confirmed with the receipt of audited information in Q2-17.

The net results of today’s updates, excluding the proposed Sequel Transaction, is a slight increase to the cash flow guidance provided on November 8, 2016 in Alaris’ Q3 2016 earnings results. The amount drawn on Alaris’ credit facility also decreases from $118 million to approximately $97 million while Alaris also has an unencumbered cash balance of approximately $15 million as of today. Alaris expects to use a portion of the available room on its credit facility for future investments in new partners and follow on contributions to a current partner in the near term.

About the Corporation:

Alaris provides alternative financing to private company partners (the “Partners”) in exchange for distributions with the principal objective of generating stable and predictable cash flows for dividend payments to its shareholders. Distributions from the Partners are adjusted each year based on the percentage change of a “top line” financial performance measure such as gross margin and same-store sales and rank in priority to the owners’ common equity position.

CONTACT INFORMATION:
Alaris Royalty Corp.
Curtis Krawetz
Vice President, Investments and Investor Relations
(403) 221-7305
www.alarisroyalty.com

Photo courtesy of Sequel Youth and Family Services LLC