CDPQ to fund Xebec Adsorption’s purchase of HyGear

Xebec Adsorption has agreed to acquire HyGear, a Dutch provider of onsite hydrogen generation solutions for industrial and fuel-cell electric vehicle refueling applications.

Blainville, Quebec-based clean energy business Xebec Adsorption has agreed to acquire HyGear, a Dutch provider of onsite hydrogen generation solutions for industrial and fuel-cell electric vehicle refueling applications. The purchase price is about C$156 million. The deal, expected to close this month, is being funded in part by a C$50 million investment by Caisse de dépôt et placement du Québec.

PRESS RELEASE

Xebec Launches Hydrogen Strategy with Transformative Acquisition of HyGear, $100 Million Bought Deal Public Offering and $50 Million Concurrent Private Placement with CDPQ

MONTREAL, Dec. 08, 2020 (GLOBE NEWSWIRE) — Xebec Adsorption Inc. (TSXV: XBC) (“Xebec” or the “Corporation”), a global provider of clean energy solutions, is pleased to announce it has entered today into a definitive agreement to acquire all of the issued and outstanding shares of Green Vision Holding B.V., the parent company of HyGear Technology and Services B.V. (“HyGear”) in the Netherlands for consideration of €82.0 million (approximately $127.3 million) and the assumption of €18.4 million (approximately $28.6 million) in net debt (the “Acquisition”), of which HyGear shareholders are to receive approximately $65.2 million in cash and 10,301,824 Xebec common shares (“Common Shares”) at a price of $6.03 per share. The cash portion of the Acquisition will be funded by way of a $100 million bought deal public offering of subscription receipts (“Subscription Receipts”) and a concurrent private placement of $50 million for aggregate gross proceeds of approximately $150 million (the public offering and concurrent private placement being, collectively, the “Offering”), as further described below. More than 80% of the Common Shares received as consideration by HyGear shareholders will be subject to contractual lock-up restrictions, and all of the Common Shares received as consideration by HyGear shareholders will be subject to a statutory four-month hold period in accordance with Canadian securities laws.

The acquisition of HyGear positions Xebec to execute and accelerate its distributed renewable gas strategy. The acquisition of new hydrogen technology, and the access to new markets will enable Xebec to launch a commercially viable green hydrogen product offering.

“I am excited to be announcing the launch of our hydrogen strategy today with this transformative acquisition. HyGear is strategic in nature and gives us an enormous amount of potential to grow as we accelerate our entry into the industrial hydrogen and hydrogen fuel markets,” said Kurt Sorschak, Chairman, CEO and President of Xebec Adsorption Inc. “I couldn’t be happier with the quality of this acquisition because of its sustainable business model and its ability to deliver attractive profitability today. HyGear will help us execute our renewable gas strategy and gives us a unique technology platform, access to European markets and the potential to realize and create significant product and sales synergies.”

“Ultimately, we believe that hydrogen will be the dominant gas and energy carrier of the future. HyGear has built an outstanding business by first selling to industrial customers and then using the same technology to deliver solutions to the nascent hydrogen refueling industry. Their steam methane reforming (SMR) technology is unique in the sense that it is decentralized, small-scale and can produce cost-effective onsite hydrogen from natural gas. HyGear reduces the need to truck in hydrogen by producing it at the source of use, saving on costs, and most importantly, CO2 and NOx emissions. This results in cost savings of approximately 40% to 75% per Nm3 of hydrogen delivered and an annual reduction of approximately 60,000 KG of CO2 emissions per system. Their reference base of 66 active hydrogen generation installations worldwide is impressive and makes them the world leader.”

“Furthermore, by using Xebec’s technologies to provide a renewable natural gas (RNG) feedstock, we can create a commercially viable green hydrogen offering for customers today. HyGear has deployed this solution to fueling stations across Europe and has shown that the total cost of ownership and emissions are lower than electrolyzer based systems. As we progress into the next decade and beyond, we expect the costs of electrolyzers to come down and to see their accelerated deployment. Today, an SMR based approach with RNG is one of the most cost competitive green hydrogen pathways available. With this transaction, we will also be acquiring electrolyzer based technologies, partnerships and know-how in support of the company’s longer-term outlook as electrolyzers mature. HyGear rounds out Xebec’s renewable gas generation technology portfolio and gives the company a viable, credible and competitive hydrogen business model.”

“This is the boldest move in the company’s history, with the objective to make Xebec a worldwide renewable gas leader. We’re also very happy to have the strategic support of CDPQ, a large long-term institutional investor who also shares the same vision. As a result, we are now uniquely positioned to leverage a recurring, profitable, and industrial client base to support our growth in renewable natural gas and hydrogen. I’d like to congratulate everyone on all their hard work and give HyGear a warm welcome to the Xebec family,” added Mr. Sorschak.

“By taking a stake in Xebec, CDPQ is contributing to the development of Québec expertise in transitioning toward sources of renewable energy,” said Kim Thomassin, Executive Vice-President and Head of Investments in Québec and Stewardship Investing at CDPQ. “Xebec possesses high-quality assets and has attained an enviable position in its industry, and CDPQ is pleased to support its international expansion.”

HyGear Acquisition Overview and Rationale

Global leader in decentralized and onsite hydrogen generation systems
HyGear was founded in 2002 with the mission to develop cost-effective gas supply by energy efficient on-site generation technologies. The first of these technologies was a containerized, small-scale version of the conventional SMR plants deployed in centralized facilities. Success was quickly realized by helping customers cut out the costliest component of hydrogen, namely transportation. To date, the company achieved significant product market fit and has deployed 66 hydrogen generation installations (with 12 under construction) to customers such as Philips, Plug Power, Praxair, AGC, PMG, Guardian, Global Tungsten & Powders, Exxon Mobil, Shell, Osram and Saint-Gobain.

Robust cleantech IP portfolio and research teams to accelerate hydrogen generation market entry
With the transaction, Xebec will acquire a portfolio of intellectual property and research teams dedicated to hydrogen generation from both SMR and electrolyzer based pathways, as well as on-site industrial gas recycling. HyGear has received 14 patents, which ensure a competitive advantage and are a consequence of successfully executing 108 Research and Development (“R&D”) projects. R&D is expected to continue, in particular on the electrolysis side, to drive down costs of the equipment and improve overall system efficiency. This will allow Xebec to accelerate its entry into the hydrogen generation market with capabilities in designing, constructing, and operating facilities with these new technologies and teams.

Impactful hydrogen production and emissions reductions
Besides cost savings, the combined output of HyGear’s installations is more than 15,000,000 Nm3 of hydrogen per year. The average system saves approximately 27,000 km of transportation and approximately 60,000 KG of CO2 per year. Emissions can be further reduced when using a renewable natural gas feedstock as opposed to fossil natural gas. As a result, a carbon-neutral green hydrogen output can be achieved, and future carbon capture, utilization and storage (CCUS) technologies can reduce emissions even further. In addition, HyGear’s gas recycling systems are able to capture and purify spent gases and feed them back into industrial processes. This reduces the need for fresh gases, leading to a further reduction of CO2 and other harmful emissions.

Profitable business model with one-time equipment and recurring Gas-as-a-Service (GaaS) revenue streams
HyGear is leveraging its profitable industrial customer base to provide a platform to grow the emerging hydrogen refueling business. HyGear’s business model includes selling turnkey equipment, offering Gas-as-a-Service, executing on R&D projects, and providing maintenance and service. All of these revenue streams provide attractive unit economics and will support Xebec’s overall rapid expansion. HyGear generated €11.4 million of revenues, €3.4 million of EBITDA and €2.5 of operating income in 2019 and is expected to experience double-digit annual revenue growth from 2019 to 2021 and maintain strong EBITDA and operating income margins.

Two Non-Binding Letters of Intent Executed for Additional Acquisitions
Xebec has also executed a non-binding letter of intent to acquire a leading industrial gas generation technology and manufacturing business, as well as a non-binding letter of intent to acquire a specialty compressed air and air treatment services company (together, the “LOI Acquisitions”). The aggregate purchase price for the LOI Acquisitions (excluding closing costs) is anticipated to be between $35 million and $60 million. As of the date hereof, the parties are in advanced stages of negotiation and it is anticipated that the definitive purchase agreements with respect to the LOI Acquisitions are likely to be executed by the parties in the near term.

While there can be no assurance that the LOI Acquisitions will become subject to binding purchase agreements, Xebec currently expects the transactions to proceed and is announcing today the LOI Acquisitions as it intends to use a small portion of the net proceeds of the Offering to satisfy the purchase price (or a portion thereof) for each of the LOI Acquisitions. The LOI Acquisitions, however, remain subject to the risk that they may not result in the signature of definitive binding agreements or be completed, or that the signing and closing may be delayed beyond the near term, and are otherwise subject to the cautionary and forward-looking statements disclosure below.

Bought Deal Public Equity Offering and Private Placement
To finance the payment of the cash consideration of the Acquisition, Xebec has entered into an agreement with a syndicate of underwriters co-led by Desjardins Capital Markets and TD Securities Inc. acting as joint bookrunners (collectively, the “Underwriters”) to sell, on a bought deal basis, 17,250,000 Subscription Receipts at a price of $5.80 per Subscription Receipt (the “Offering Price”) for gross proceeds of approximately $100,050,000 (the “Public Offering”).

Xebec has granted the Underwriters of the Public Offering an over-allotment option to purchase up to an additional 2,587,500 Subscription Receipts to cover over-allotments, if any, for a period of 30 days following the closing of the Public Offering. If the over-allotment option is exercised in full by the Underwriters, gross proceeds from the Public Offering will be up to $115,057,500.

In addition, the Corporation has entered into a subscription agreement with CDPQ, pursuant to which Xebec and CDPQ have agreed that CDPQ will purchase on a “private placement” basis in Canada, Subscription Receipts at the Offering Price for gross proceeds to Xebec of approximately $50 million upon closing (the “Concurrent Private Placement”). Xebec has also granted CDPQ an option to purchase up to an additional 15% Subscription Receipts in the event that the Underwriters exercise their over-allotment option under the Public Offering. If the additional subscription option is exercised in full by CDPQ, gross proceeds from the Concurrent Private Placement will be up to approximately $57.5 million. The Subscription Receipts sold pursuant to the Concurrent Private Placement (and the underlying Common Shares) will be subject to a statutory four-month hold period following the Closing of the Offering. Desjardins Capital Markets and TD Securities Inc. are acting as joint bookrunning agents on the Concurrent Private Placement.

Each Subscription Receipt will entitle the holder thereof, for no additional consideration and without further action on the part of the holder, to receive one Common Share of Xebec, upon the completion of the Acquisition. The proceeds of the Public Offering and the Concurrent Private Placement will be held in escrow pending the completion of the Acquisition. If the Acquisition is completed on or prior to February 28, 2021, the net proceeds of the Public Offering and the Concurrent Private Placement will be released and the Subscription Receipts will be exchanged on a one-for-one basis for Common Shares for no additional consideration or further action. The Acquisition is subject to, among other things, customary closing conditions, which include the approval from the TSX Venture Exchange, and the availability of the financing required to pay the applicable cash portion of the purchase price relating to the Acquisition. Closing is also subject to a condition for the benefit of the Corporation that there has been no material adverse effect on HyGear and its subsidiaries.

The net proceeds of the Offering will be used to fund the cash consideration payable pursuant to the Acquisition, to fund potential future acquisitions (including the LOI Acquisitions) and for general corporate purposes. The Acquisition is expected to close on or about December 30, 2020. The Acquisition has been unanimously approved by the Board of Directors of Xebec and is subject to regulatory approval and other customary closing conditions, including those set forth above.

The Subscription Receipts under the Public Offering will be offered in all provinces of Canada pursuant to a short-form prospectus and in the United States by way of private placement to “qualified institutional buyers” in reliance upon the exemption from registration provided by Rule 144A under the U.S. Securities Act of 1933 (the “U.S. Securities Act”). The issuance of the Subscription Receipts and underlying Common Shares pursuant to the Public Offering and Concurrent Private Placement are subject to customary approvals of applicable securities regulatory authorities, including the approval of the TSX Venture Exchange. Completion of the Public Offering is subject to a number of conditions, including the concurrent closing of the Concurrent Private Placement and, similarly, completion of the Concurrent Private Placement is also subject to a number of conditions, including the concurrent closing of the Public Offering. Closing of each of the Public Offering and the Concurrent Private Placement is expected to occur on or about December 30, 2020.

Neither the Subscription Receipts nor the underlying Common Shares offered have been, and they will not be, registered under the U.S. Securities Act of 1933 (the “U.S. Securities Act”), as amended, and such securities may not be offered or sold in the United States, absent registration or an applicable exemption from registration. This press release shall not constitute an offer to sell or the solicitation of an offer to buy the Subscription Receipts or the underlying Common Shares. The offering or sale of the Subscription Receipts and the underlying Common Shares shall not be made in any jurisdiction in which such offer, solicitation or sale would be unlawful.

The transactions contemplated herein are all arm’s length transactions.

Advisors
Desjardins Capital Markets and TD Securities Inc. acted as financial advisors on the Acquisition and Osler, Hoskin & Harcourt LLP acted as legal advisor to the Corporation, Stikeman Elliott LLP acted as legal advisor to the Underwriters and Norton Rose Fulbright Canada LLP acted as legal advisor to CDPQ.

Xebec to Host Live Investor Webinar to Discuss Transformative Acquisition
An investor webinar for shareholders, analysts, investors, media representatives, and other stakeholders will be held today on December 8, 2020 at 4:45PM EST (1:45PM PST).

Register here: https://app.livestorm.co/xebec-adsorption-inc/launches-hydrogen-strategy-transformative-acquisition-hygear

A recording of the webinar and supporting materials will be made available later today in the investor’s section of the Corporation’s website at investors.xebecinc.com.

Related links:
https://www.xebecinc.com

Investor Relations:
Xebec Adsorption Inc.
Brandon Chow, Investor Relations Manager
bchow@xebecinc.com
+1 450.979.8700 ext 5762

Media Inquiries:
Public Stratégies et Conseils for Xebec
Victor Henriquez, Senior Partner
victor@publicsc.com
+514-377-1102

About HyGear
HyGear’s mission is to establish local hydrogen sources globally. The company developed cutting-edge technologies for on-site generation of industrial gases and recycling of spent gases from the end-user’s process. By combining these technologies with traditional supply methods, HyGear guarantees the most optimal hydrogen supply in terms of cost, reliability, and environmental impact. These services are provided in the existing industrial gases market as well as the upcoming market of hydrogen energy. HyGear has offices in The Netherlands and Singapore. For more information, www.hygear.com.

About Caisse de dépôt et placement du Québec (CDPQ)
Caisse de dépôt et placement du Québec (CDPQ) is a long-term institutional investor that manages funds primarily for public and parapublic pension and insurance plans. As at June 30, 2020, it held CA$333.0 billion in net assets. As one of Canada’s leading institutional fund managers, CDPQ invests globally in major financial markets, private equity, infrastructure, real estate and private debt. For more information, visit cdpq.com, follow us on Twitter @LaCDPQ or consult our Facebook or LinkedIn pages.

About Xebec Adsorption Inc.
Xebec is a global provider of gas generation, purification and filtration solutions for the industrial, energy and renewables marketplace. Well-positioned in the energy transition space with proprietary technologies that transform raw gases into clean sources of renewable energy, Xebec’s 1,500+ customers range from small to multi-national corporations, governments and municipalities looking to reduce their carbon footprints. Headquartered in Montréal, Québec, Canada, Xebec has several Sales and Support offices in North America and Europe, as well as two manufacturing facilities in Montréal and Shanghai. Xebec trades on the TSX Venture Exchange under the symbol “XBC”. For more information, www.xebecinc.com.