Canadian alternative equity firm Alaris Royalty Corp has sold Chicago-based Sandbox Group LLC, a brand agency. The buyer was not named. The total consideration to Alaris was about C$32.6 million.
CALGARY, Feb. 28, 2020 /CNW/ – Alaris Royalty Corp. (“Alaris” or the “Corporation”) (TSX: AD) is announcing today the sale (the “Sandbox Sale”) of Sandbox Acquisitions, LLC (“SA LLC”) and Sandbox Advertising Limited Partnership (“SA LP” and, together with SA LLC, “Sandbox”) to a third-party buyer (the “Buyer”). As a result of the Sandbox Sale, Alaris received total consideration of approximately $32,609,236 (the “Consideration”) consisting of: (i) $20,003,644 for the senior debt (“Senior Debt”) Alaris held in Sandbox; (ii) $1,916,903 for unpaid interest on the Senior Debt; (iii) $9,144,448 for a partial repurchase of preferred equity held by Alaris in SA LLC, including $4,115,000 escrowed for working capital adjustments and indemnity obligations (the “Escrowed Cash”); and (iv) accrued distributions on the preferred equity of $1,544,241.
Alaris may also receive up to an additional $2,000,000 (“Earnout Proceeds”) pursuant to an earnout if certain financial performance criteria are satisfied. The Sandbox Sale closed on February 28, 2020. Unless otherwise stated all references to dollars are references to United States dollars.
Alaris Royalty Corp. (CNW Group/Alaris Royalty Corp.)
The aggregate payments to Alaris on closing, less the Escrowed Cash and Earnout Proceeds, equals total cash (“Total Cash”) of $28,494,236. The Earnout Proceeds and Escrowed Cash, if released to Alaris, will be paid out over the next 24 months and will be used to redeem additional preferred equity in SA LLC held by Alaris.
The Sandbox Sale resulted in returns much lower than Alaris had initially anticipated, following a material reduction in the initial offer of the Buyer. Based on the Consideration and the $20,209,774 of distributions paid to Alaris by Sandbox over the course of our partnership, the overall IRR on the investment is between -9% and -16% depending on the amount, if any, of Escrowed Cash and Earnout Proceeds received by the Corporation. The net result of the previously announced redemption of Sales Benchmark Index, LLC and the Sandbox Sale (whether or not Alaris receives any Escrowed Cash) is an immaterial change to the Corporation’s total combined historical IRR of 17% on exited investments.
Alaris used the Total Cash from the Sandbox Sale to reduce its senior credit facility (the “Facility”). After today’s announcements, Alaris will have approximately CAD$131,500,000 drawn on the Facility and CAD$248,500,000 available for investment purposes (CAD$198,500,000 available under the Facility and CAD$50,000,000 available on the accordion feature) while the total senior debt to EBITDA on a proforma basis is approximately 1.45x. Alaris estimates its Run Rate Payout Ratio to be under 93% following today’s announcements.
ABOUT THE CORPORATION:
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.