Centric Health to acquire RHI

Toronto-based Centric Health Corp has agreed to acquire Remedy Holdings and Remedy'sRx specialty pharmacy business for up to C$44 million.

Toronto-based Centric Health Corp has agreed to acquire Remedy Holdings and Remedy’sRx specialty pharmacy business for up to C$44 million. Crown Capital Partners and Yorkville Asset Management agreed to provide debt financing of up to C$30 million and C$12 million, respectively, to fund the acquisition and help Centric Health refinance its existing senior and subordinated credit facilities. RHI provides medication management services across Ontario and Western Canada.

PRESS RELEASE

TORONTO, March 24, 2020 /CNW/ – Centric Health Corporation (“Centric Health” or the “Company”) (TSX:CHH) announced today that it has entered into a definitive agreement to acquire Remedy Holdings Inc. (“RHI”) and the Remedy’sRx Specialty Pharmacy business, a leading specialty pharmacy serving more than 18,500 residents of long-term care, assisted living and other institutional settings across Ontario and Western Canada (the “Transaction”). RHI generated revenue of approximately $60 million for the 12-month period ended September 30, 2019. The Transaction also includes a pending acquisition by RHI which will contribute an additional 800 beds serviced. Upon closing, the Company will become the leading Canadian provider of specialty pharmacy services to seniors communities, serving over 50,000 residents.

“This transaction is the culmination of our strategic transformation in the past two years, and it marks the start of an exciting new chapter for our company,” said David Murphy, President and Chief Executive Officer of Centric Health. “We look forward to welcoming the Remedy’sRx Specialty Pharmacy team and customers. Together we can build on our respective strengths and provide a best-in-class service offering to home operators that improves health outcomes for the residents we serve. The combined business will be well positioned to accelerate growth and lead the consolidation of a fragmented industry. In addition to strengthening our existing national platform, this transaction will create opportunities to realize material synergies and generate substantial shareholder value as we integrate the businesses.”

“Remedy’sRx Specialty Pharmacy was founded on the principle of providing best in class care for the residents and customers that we have the honour of servicing,” said Bruce Moody, Founder and Chief Executive Officer of RHI. “There is no better step that we could have taken than to continue our mission with Centric Health, which will drive superior shareholder value. This is a very important day for Centric Health, Remedy’sRx Specialty Pharmacy and Canadian healthcare. The very talented Remedy’sRx Specialty Pharmacy team led by Jeff May are excited to be participants in this journey along with Centric Health.”

“The combined companies will present the best of both of our businesses to deliver industry-leading partnerships with home operators to drive optimal collaborative care,” said Jeff May, Executive Vice President & General Manager of RHI.

Centric Health also announced that it has entered into binding commitment letters with Crown Capital Partners Inc. (“Crown Capital”) and Yorkville Asset Management Inc. for and on behalf of certain managed funds (“Yorkville”) pursuant to which Crown Capital and Yorkville are expected to advance indebtedness to Centric Health to refinance its existing senior and subordinated credit facilities and fund the cash closing price of the Transaction.

“On behalf of the Board of Directors of Centric, we are pleased to welcome Bruce Moody and the Remedy’sRx Specialty Pharmacy team,” said Kevin Dalton, Chairman of the Company. “We are also grateful to Yorkville Asset Management for their continued partnership and support in enabling the execution of our growth strategy.”

“When we invested in Centric Health in 2019, we believed in the company’s strategy and management team and we committed to partnering with them to create the leading Canadian specialty pharmacy,” said Ralph Desando, Managing Director of Yorkville. “We are excited to support this transformative acquisition and proud to be part of the Centric growth story.”

Summary of the RHI Acquisition
On March 23, 2020, Centric Health entered into a share purchase agreement to acquire RHI for a purchase price of up to $44 million, comprised of:
$31 million of consideration due on closing, including $8 million of cash and $23 million of common shares of Centric Health (“Common Shares”). The Common Shares will be issued at an implied issue price of $0.184 per Common Share (subject to adjustment in certain limited circumstances), which will result in the issuance of 125 million Common Shares;
$8 million of deferred consideration, comprised of (i) $4 million of deferred consideration due 12 months following closing, and (ii) $4 million of consideration payable under a vendor take-back note due 18 months following closing, each of which is to be paid in cash, or in certain circumstances Common Shares; and
Earn-out consideration of up to $5 million payable in cash if certain performance targets are achieved over the next two years.

As part of the Transaction, Mr. Moody will receive the right to nominate two directors to the Company’s Board of Directors under certain circumstances and will be entitled to other customary governance rights, including pre-emptive rights and registration rights. Mr. Moody, as well as his second director nominee, will be included in the slate of directors for Centric Health’s 2020 Annual General Meeting.

The Transaction is expected to close in the second quarter of 2020, subject to the satisfaction of customary closing conditions, including the receipt of applicable regulatory approvals and the consent of Centric Health shareholders. Under applicable Toronto Stock Exchange (“TSX”) policies, the Company is required to obtain shareholder approval for the Transaction, which the Company expects to satisfy by providing the TSX with written evidence that holders of more than 50% of the Common Shares support the Transaction.

In the event the Transaction does not close in certain circumstances, a termination fee may be payable by the Company in cash or, in certain circumstances, Common Shares.

In connection with the Transaction, Origin Merchant Partners and BDO Canada LLP acted as the financial advisers to Centric Health, and NewPoint Capital Partners acted as the financial adviser to RHI.

Summary of the Refinancing
The Company has signed a binding commitment letter with Crown Capital pursuant to which Crown Capital will advance credit facilities to the Company of up to $30 million in three tranches (the “Crown Capital Facilities”): (i) an initial tranche of $22 million, which will be used to repay the Company’s outstanding senior and subordinated debt facilities, (ii) a second tranche of $5 million, which will be used by the Company to fund a portion of the closing cash purchase price for the Transaction and (iii) a third tranche of $3 million upon the Company reaching certain financial milestones. Interest on the credit facilities will accrue at the rate of 10% per annum and will be repayable five years from closing, subject to certain prepayment rights. In addition, the Company expects to issue 7,200,000 warrants to Crown Capital, with each warrant entitling the holder thereof to acquire one Common Share at an exercise price of $0.25 per share for a period of five years.

The Company has also signed a binding commitment letter with Yorkville pursuant to which Yorkville will advance a subordinated loan to the Company of up to $12 million (the “Subordinated Loan”) in two tranches: (i) an initial tranche of $6 million, which is expected to close contemporaneously with the first tranche of the Crown Capital Facilities, and (ii) a second tranche of $2 million (which may be increased by an additional $4 million at Yorkville’s option), which is expected to close contemporaneously with the Transaction. The Subordinated Loan will rank in priority to the Company’s existing subordinated convertible debentures but subordinate to the Crown Capital Facilities. Interest on the Subordinated Loan will accrue at the rate of 12% per annum. The Subordinated Loan will mature 24 months from closing, subject to certain prepayment rights of the Company or the mutual agreement of the Company and Yorkville to extend the maturity date.

The Subordinated Loan constitutes a “related party transaction” within the meaning of Multilateral Instrument 61-101 – Protection of Minority Holders in Special Transactions (“MI 61-101”) as Yorkville is a control person of Centric and is therefore a “related party” of Centric under MI 61-101. The Company has relied on the exemption from the minority approval requirement contained in section 5.7(1)(f) of MI 61-101 in respect of the Subordinated Loan as the Subordinated Loan has been obtained from Yorkville on reasonable commercial terms that are not less advantageous to the Company than if the Subordinated Loan was obtained from a person dealing at arm’s length with the Company and is not convertible or repayable in Common Shares. A material change report in respect of the Crown Capital Facilities, Subordinated Loan and the Transaction will be filed as required, but is not expected to be filed 21 days in advance of the closing of the Subordinated Loan due to the Company’s immediate need for the proceeds of the Subordinated Loan. The disinterested members of the Company’s Board of Directors have unanimously approved the Subordinated Loan.

ABOUT CENTRIC HEALTH
Centric Health’s vision is to be the leading provider of pharmacy and other healthcare services to Canadian seniors. Centric Health is one of Canada’s leading, and most trusted providers of comprehensive Specialty Pharmacy services and solutions to seniors. Centric Health operates a large national network of pharmacy fulfilment centres that deliver high-volume solutions for the cost-effective supply of chronic medication and other specialty clinical pharmacy services, serving more than 31,000 residents in over 460 seniors communities (long-term care, retirement homes, and assisted living facilities) nationally.
With services that address the growing demand within the Canadian healthcare system, Centric Health’s unparalleled national care delivery platform provides significant potential for future expansion and growth.

ABOUT REMEDY HOLDINGS INC.
RHI, operating as Remedy’sRx Specialty Pharmacy, provides medication management services to more than 18,500 residents in over 400 long term care, assisted living, independent living, retirement and group homes. Remedy’sRx Specialty Pharmacy operates 13 pharmacies across Ontario, Alberta and British Columbia. The company is well known for its “Your Partner in Care” service model that is focused on quality, compliance, operational efficiency and optimal health outcomes.