Axis Auto Finance has agreed to acquire Trend Financial Corp, a Toronto-based sub-prime automotive lender, for about $29.3 million in cash and shares. The deal is expected to close on or about April 2. Ilja Troitschanski, founder and president of Axis, an alternative auto financing firm also based in Toronto, said the acquisition will double the firm’s portfolio of net finance assets to approximately $110 million. It was also announced by Axis that ECN Capital‘s Todd Hudson has been hired as CEO to lead the organization alongside Troitschanski.
Axis Auto Finance Signs Definitive Agreement to Acquire Trend Financial Corp. and Announces the Appointment of Todd Hudson as CEO
The acquisition of Trend Financial Corp. roughly doubles Axis’ portfolio of net finance assets to approximately $110 million.
Todd Hudson will assume the title of CEO of Axis with Ilja Troitschanski remaining as President of as Axis embarks on the next stage of growth
Concurrent marketed overnight underwritten private placement with a syndicate of underwriters, to be led by Canaccord Genuity Corp. and INFOR Financial Inc., of subscription receipts and extendible convertible debentures for aggregate gross proceeds of approximately $24 million.
TORONTO, March 6, 2018 /CNW/ – Axis Auto Finance Inc. (TSXV:AXIS) (“Axis” or “the Company”), one of Canada’s fastest growing publicly-traded automotive finance companies, today announced that it has entered into a share purchase agreement to acquire Trend Financial Corp. (“Trend Financial”) for consideration of approximately $29.3 million (the “Transaction”). Axis plans to fund the transaction through a private placement offering (the “Offering”) of approximately $6.5 million worth of subscription receipts (the “Subscription Receipts”) and approximately $17.5 million worth of extendible convertible debentures.
The purchase price to acquire all of the outstanding securities of Trend Financial will be satisfied by approximately $23.9 million in cash, and the issuance of approximately 6.95 million common shares (the “Common Shares”) and 6.6 million Common Share purchase warrants (each, a “Warrant”). The Common Shares will be issued at a deemed price of $0.70 per share and each Warrant will entitle the holder thereof to purchase a Common Share at a price of $0.90 at any time during a period of 36 months following the closing date of the Transaction. In addition, the vendors of Trend Financial have agreed to allocate $3 million of the cash portion of the purchase price of the Transaction to acquire Debentures (as defined below) under the Offering. The purchase price is subject to possible adjustments with respect to closing date shareholders equity and portfolio losses on the Q4 2016 and the CY2017 receivables.
It is anticipated that the Transaction will acquire all of the issued and outstanding equity securities of Trend Financial by way of an exempt take-over bid under National Instrument 62-104 – Take-over Bids and Issuer Bids. Certain shareholders and option holders of Trend Financials holding, in the aggregate 76% of the class “B” common shares, 100% of the class “A” common shares have entered into lock-up agreements with Axis pursuant to which they have, among other things agreed to tender all of the equity securities of Trend Financial owned or controlled by them to the bid. The Transaction is subject to a number of conditions including, the satisfaction or waiver of all conditions set out in the share purchase agreement, stock exchange approval and the completion of the Offering. The Transaction is expected to close on or about April 2, 2018.
Trend Financial is an independent, sub-prime automotive finance company headquartered in Toronto, Ontario, and was founded in 2012. Since inception, it has originated over $125 million in consumer automotive loans. As of January 31, 2018, Trend Financial had net loans receivables totalling approximately $54 million, with a geographic focus in the GTA and a credit spectrum focus in the sub-prime (D) space. Historically, Axis and Trend have been head-to-head competitors. As part of the Transaction, Axis will assume a credit facility with a Canadian Schedule 1 bank, increasing Axis’ access to growth capital.
With significant realizable operating synergies from both front and back-end operations, the Transaction is expected to be immediately accretive to Axis’ adjusted earnings and book value.
“This is a transformational event in the development of Axis. Not only are we doubling our portfolio, but we are also acquiring our largest direct competitor,” said Ilja Troitschanski, Founder and President of Axis. “Together with the recently completed acquisition of Cars on Credit, Axis has firmly established itself as a dominant force in the Canadian sub-prime automotive finance market,” he added.
INFOR Financial Inc. acted as financial advisor to Axis in connection with the Transaction. Dentons Canada LLP acted as legal counsel to Axis.
Appointment of Todd Hudson as CEO
Axis is also pleased to announce the appointment of Todd Hudson as CEO effective March 15th, 2018.
Mr. Hudson has more than 25 years of sales and operations management experience in the Canadian alternative lending industry. His last position was Chief Operating Officer of ECN Capital (TSX: ECN), having previously been Executive Vice President of Originations at Element Financial Corporation. Prior to joining Element Financial, Mr. Hudson was the President of Hathway Financial, a financial services company that specialized in small to mid-sized commercial credits in the transportation, construction and industrial equipment markets. Before founding Hathway Financial in 2003, Mr. Hudson held key roles at Newcourt and CIT Group and was responsible for national vendor programs in the transportation, construction and automotive verticals.
“I am excited to join the Axis team and feel that I can make meaningful contributions to the Company’s development”, said Mr. Hudson. “Next to the substantial organic growth potential, there is a clearly identified opportunity for a growth-by-acquisition strategy in the Canadian non-prime finance market, something our team did very successfully at Element Financial and ECN Capital”, he added.
The decision to split the President and CEO roles gives Axis greater depth of management to continue its rapid organic growth and effectively evaluate and integrate potential acquisition targets. Mr. Hudson has significant experience growing companies both organically and through acquisitions, having overseen and integrated 14 acquisitions throughout his career.
“We are delighted to welcome Mr. Hudson to our team”, said Ilja Troitschanski, Founder and President of Axis. “His decades of experience in alternative finance, specifically with respect to execution and integration of M&A transactions, will be a great boost to Axis’ acquisition and integration activities”, he added.
Concurrent with the Transaction, Axis announced that it plans to sell, on a private placement basis, approximately 9.3 million Subscription Receipts at a price of $0.70 per Subscription Receipts for gross proceeds of approximately $6.5 million (the “Subscription Receipt Offering”). Each Subscription Receipt will entitle the holder thereof to receive, without payment of additional consideration or further action, one Common Share following the closing of the Transaction. The Subscription Receipt Offering will be conducted through a syndicate of underwriters led by Canaccord Genuity Corp. and INFOR Financial Inc. (the “Underwriters”).
In addition, the Underwriters have been granted an option, exercisable in whole or in part not later than the closing date of the Subscription Receipt Offering, to purchase at the offer price up to an additional 15% Subscription Receipts. The Subscription Receipt Offering is subject to customary closing conditions including the receipt of regulatory approval and is scheduled to close on or about March 22, 2018. The Company will use the net proceeds of the Subscription Receipt Offering to partially finance the cash portion of the purchase price of the Transaction.
The Subscription Receipts will be issued pursuant to a subscription receipt agreement (the “Subscription Receipt Agreement”). Pursuant to the Subscription Receipt Agreement, the proceeds of the Subscription Receipt Offering, net of 50% of the underwriters’ fee payable and expenses in connection therewith, will be held in escrow pending delivery of notice of the closing of the Transaction. If: (i) the Transaction closing does not occur prior to 5:00 p.m. (Toronto time) on the date that is 120 days from the closing of the Subscription Receipt Offering; (ii) the share purchase agreement is terminated at an earlier time; or (iii) Axis advises Canaccord Genuity Corp. and INFOR Financial Inc. or announces to the public that it does not intend to proceed with the Transaction (the earliest to occur being the “Termination Date”), holders of Subscription Receipts will be returned an amount per Subscription Receipt equal to the offering price plus a pro rata share of the interest earned or deemed to be earned on the escrowed funds, net of any applicable withholding taxes.
Extendible Convertible Debentures
Concurrent with the Transaction, Axis announced that it plans to sell, on a private placement basis, an aggregate of approximately $17.5 million worth of extendible convertible unsecured subordinated debentures (the “Debentures”) (the “Debenture Offering”). The Debenture Offering will be conducted through a syndicate of Underwriters led by Canaccord Genuity Corp. and INFOR Financial Inc.
The Debentures will have an initial maturity date of the Termination Date, which will be automatically extended to March 31, 2023 upon the closing of the Transaction. The Debentures will be issued at a par value of $1,000 and will have an interest rate of 7.50% per annum, payable semi-annually in arrears on the last day of June and December in each year commencing on June 30, 2018. Subject to the trust indenture governing the Debentures (the “Indenture”), the Debentures will be convertible at the holder’s option at any time after the Transaction closing date and prior to the close of business on the earlier of the business day immediately preceding the Final Maturity Date and the date specified by Axis for redemption of the Debentures, into fully paid and non-assessable Common Shares at a conversion price of $0.95 per Common Share, being a conversion ratio of approximately 1,052.6316 Common Shares for each $1,000 principal amount of Debentures, subject to adjustment in accordance with the Indenture. The Debenture will not be redeemable prior to March 31, 2021. On and after March 31, 2021 and prior to March 31, 2022, the Debenture may be redeemed in whole in or in part from time to time, on not more than 60 days and not less than 30 days prior notice, at a price equal to the principal amount plus accrued and unpaid interest, provided that the volume weighted average on the Exchange for the 20 consecutive trading days preceding the date on which to notice of redemption is given is not less than 125% of the conversion price. On or after March 31, 2022, the Debentures will be redeemable in whole or in part at Axis’ option at any time up to March 31, 2023.
In addition, the Underwriters have been granted an option, exercisable in whole or in part not later than the closing date of the Debenture Offering, to purchase at the offer price up to an additional 15% of Debentures. The Debenture Offering is subject to customary closing conditions including the receipt of regulatory approval and is scheduled to close on or about March 22, 2018 except for the $3 million to be acquired by the Vendors as discussed above which will close simultaneously with the closing of the Transaction. The Company will use the net proceeds of the Debenture Offering to partially finance the cash portion of the purchase price of Transaction.
About Axis Auto Finance
Axis provides non-standard financing options targeting roughly 30% of Canadians (Source: Equifax) that do not qualify for traditional bank-type financing for their used vehicle purchase. Through personalized service and a commitment to building strong, long-lasting relationships with dealer partners, Axis continues to be one of Canada’s fastest-growing auto-financing companies.
Further information on the Company can be found at www.axisautofinance.ca.
For further information: Axis Auto Finance Inc., Ilja Troitschanski, President, (416) 633-5626, firstname.lastname@example.org
Photo courtesy of Reuters/Lucy Nicholson