Alaris Royalty invests in Carey Electric Contracting

Canadian alternative equity firm Alaris Royalty Corp has invested US$17 million in Carey Electric Contracting.

Canadian alternative equity firm Alaris Royalty Corp has invested US$17 million in Carey Electric Contracting. Based in McHenry, Illinois, Carey is a provider of electrical contracting services to the industrial, commercial, and residential markets.


CALGARY, AB, June 16, 2020 /CNW/ – Alaris Royalty Corp. (“Alaris” or the “Corporation”) (TSX: AD) is pleased to announce that it has invested a total of $17.0 million (CAD$23.1 million) (the “Carey Investment”) into a new Partner, Carey Electric Contracting, LLC (“Carey”). The Carey Investment consists of a $16.1 million investment in preferred equity (the “Carey Contribution”) as well as an investment of $0.9 million in exchange for a minority ownership of the common equity in Carey (the “Carey Common Equity”). The Carey Contribution results in an anticipated first year increase of approximately CAD$0.10 and CAD$0.04 per share of revenue and net cash from operations respectively. Based on Carey’s history of paying dividends on its common equity, Alaris expects to receive dividends on the Carey Common Equity on an annual basis, as cashflow permits. All dollar values presented above and to follow are in US dollars unless otherwise noted.

Alaris Royalty Corp. (CNW Group/Alaris Royalty Corp.)
Pursuant to the agreements (the “Carey Agreements”) among Alaris and Carey, Alaris made the $16.1 million Carey Contribution in exchange for preferred equity in Carey entitling Alaris to receive an initial annualized cash distribution of $2.4 million (the “Carey Distribution”), a pre-tax yield of 15%. Commencing on January 1, 2022, the Carey Distribution will be adjusted annually based on the percentage change in gross revenue for the most recently completed fiscal year vs the prior fiscal year, subject to a collar of 5% (January 1, 2022 reset based on fiscal 2021 vs fiscal 2020). The proceeds from the Carey Investment were used to fully redeem certain existing Carey shareholders in full, provide a partial liquidity event for another shareholder and transfer equity to other members of the management team.

Based on Alaris’ review of Carey’s internal pro forma financial results for the most recent trailing twelve-month period in 2020, as well as the post-closing capital structure, management of Alaris believes that Carey would have an earnings coverage ratio between 1.5x and 2.0x, which gives effect to the Carey Investment and other changes to Carey’s capital structure and the Carey Distribution payable to Alaris.

Construction, which includes electrical contracting, was deemed an essential service throughout the novel coronavirus disease 2019 (“COVID-19”) pandemic and therefore Carey operated with limited restrictions during the state of Illinois lockdown. Carey’s management, customers and operating partners have taken and continue to follow all necessary and required protocols to ensure the safety of their employees. As an essential service, Carey has been able to continue its consistent record of financial performance with year to date May 2020 volume exceeding the same period in 2019. Carey has also secured a number of new private and public projects over the past three months which has resulted in an increase in their backlog.

“It has been an absolute pleasure working with Tom Carey, Jerry Gillund and the rest of the Carey team. Over the past 97 years, the Carey family has created an incredible culture with a focus on their people and customers while providing high quality service. Alaris is excited that we can provide a structure that facilitates the continuation of the Carey legacy,” said Gregg Delcourt, Senior Vice President, Alaris.
“I’m pleased that our team has been able to identify and execute on a transaction with a company that has continued to excel during such a difficult economic environment. I believe that excellent opportunities will continue to present themselves coming out of this pandemic with high performing companies like Carey that do not want to give up control or all of the future upside. We also believe that North American infrastructure will continue to be a sector of strength for many years to come,” said Steve King, President and Chief Executive Officer, Alaris.

Following the Carey Investment, Alaris will have approximately CAD$174 million drawn on its senior credit facility (the “Facility”) and CAD$168 million available for investment purposes while the total senior debt to EBITDA on a proforma basis is approximately 1.7x. Alaris intends to provide a general corporate update on June 22, 2020.

New Partner – Carey Electric
Founded in 1923, Carey Electric Contracting is a third-generation, family-owned, electrical contracting services company servicing the industrial, commercial, and residential markets. Services include power distribution, lighting, bucket truck services, trenching, underground locating, fire alarm services, generator testing and other specialized offerings.

Carey Electric was first established by Walter Carey in McHenry, Illinois as Carey Appliance. Carey Electric was launched and incorporated in 1958 as its own entity by founder Richard Carey, Walter’s son. The company transitioned to its third generation under the leadership of Tom Carey in the late 1980s. Carey is one of the premier electrical contractors in the McHenry, Lake, Kane and Cook county markets in the suburban Chicagoland area just northwest of Chicago, Illinois. Carey’s head office is located in McHenry, Illinois.

Carey Electric built its brand around its ability to complete complex projects on time and on budget. Carey’s reputation built on hard work and honesty has led to long term relationships with some of the largest contracting firms in the area. Carey’s reputation of performing work on time and on budget makes them a preferred electrical contractor to a number of their long-term customers.

Alaris provides alternative financing to private companies (“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.