Alaris Royalty closes largest deal to date, invests $107 mln in SBI

Canadian alternative equity firm Alaris Royalty Corp has invested about $107.1 million (US$85 million) in Sales Benchmark Index LLC (SBI), a Dallas, Texas management consulting business focused on sales and marketing. The deal, which involves the largest capital contribution by Alaris in its 13-year history, gives the investor US$11.1 million of distributions in the first 12 months following the close. Matt Sharrers, CEO of SBI, said the funds raised will support his company’s growth plans. Calgary’s Alaris specializes in investing risk equity that leaves control of mid-market business partners in the hands of existing owners.

Alaris Royalty Corp. Contributes US$85 Million to a New Partner

CALGARY, Alberta, Aug. 31, 2017 (GLOBE NEWSWIRE) — Alaris Royalty Corp. (“Alaris” or the “Corporation”) (TSX:AD) is pleased to announce that it has contributed US$85.0 million (CAD $107.1 million) (the “SBI Contribution”) to a new partner, Sales Benchmark Index, LLC (“SBI” or the “Company”) in exchange for US$11.1 million (CAD $13.9 million) of distributions (the “SBI Distributions”) in the first 12 months following closing of the SBI Contribution. The SBI Distribution adds approximately $0.38 and $0.20 per share to Alaris’ annualized revenues and net cash from operating activities, respectively.

“Alaris is extremely pleased to have closed the single largest capital contribution in our firm’s 13 year history. SBI has exhibited world class financial results for many years so it was gratifying to have been chosen as the successful bidder to Partner with this management team. Despite the very competitive environment, we continue to be the preferred option for management teams that want to gain or retain full control of their business, experience the majority of the future growth and have a true long-term partnership. Our first year cash returns of 13% are slightly lower than on previous smaller transactions but we balanced that with larger participation in growth by expanding our distribution reset collar to 8% per year from our typical 5 or 6%. Given SBI’s track record of growth, we believe that the higher growth participation will allow us to more than make up for the lower opening returns over time. In replacing the Sequel partnership with SBI, we have also de-risked our portfolio by adding a Partner with a higher earnings coverage ratio than what Sequel had and also adding a Partner that does not have any debt on their balance sheet at closing. We look forward to furthering our already very close relationship with this wonderful management team,” said Steve King, President and Chief Executive Officer, Alaris.

“The SBI team found the Alaris partnership to be an ideal match. When weighing our options, the Alaris model was the perfect fit because it allows entrepreneurs to retain operating control and the majority of the equity in their business. Alaris behaved like a true partner from day 1 and the cultural alignment made it a very easy decision as we get ready for our next wave of growth,” said Matt Sharrers, CEO, Sales Benchmark Index.

The SBI Contribution closed on August 31, 2017 and is made up of US$75.0 million of permanent units (the “Permanent Units”) as well as US$10.0 million of redeemable units (the “Redeemable Units”). The Redeemable Units can be redeemed at par at any time up to the third anniversary following the closing of the SBI Contribution at SBI’s discretion. After the third anniversary the Redeemable Units will have the same repurchase metrics as the Permanent Units. The SBI Distribution will be reset for the first time on January 1, 2019 based on the percentage change in gross revenue from 2018 vs 2017 and will have a collar of plus or minus 8%. The estimated earnings coverage ratio (the “ECR”) on the SBI Distribution is approximately 1.5x based on the debt free proforma capital structure following the closing of the SBI Contribution.

Alaris funded the SBI Contribution with funds drawn on its revolving credit facility (the “Facility”). As previously disclosed, Alaris expects to receive a cumulative total of approximately US$96 million from Sequel in the near future following the repurchase of Alaris’ units in Sequel (the “Sequel Units”). Alaris expects the Sequel Repurchase to take place in the coming days. Following the Sequel Repurchase and SBI Contribution the Facility will have approximately $105 million drawn, leaving approximately $95 million available to invest in new and existing Partners.

Founded in 2006, SBI is a US based management consulting firm specializing in sales and marketing that is dedicated to helping their clients deliver their revenue growth number. SBI uses the benchmarking method to help clients accelerate their rate of revenue growth. Benchmarking allows SBI clients to leap frog their competitors by getting access to emerging best practices from the top sales and marketing leaders. SBI believes it is different from other management consulting firms for 3 reasons: (i) Agilitrust – The SBI delivery methodology involves getting to a working prototype very quickly and then rapidly iterating from this to a finished solution. SBI offers a much faster cycle time from problem identification to problem resolution; (ii) Staffing Process – SBI staffs projects with senior-level executives and former heads of sales and marketing who have real-world experience, which results in practical solutions that actually get implemented; and (iii) Compensation Practices – 30% to 50% of every SBI employee’s compensation package is tied to a bonus that is entirely based on client feedback and overall impact, which naturally fosters client intimacy.

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.

For further information please contact:

Curtis Krawetz
Vice President, Investments and Investor Relations
Alaris Royalty Corp.
P: (403) 221-7305
Suite 250, 333 24th Avenue S.W.
Calgary, Alberta T2S 3E6

Photo courtesy of Sales Benchmark Index LLC