Canadian medical company CRH Medical Corp (TSX: CRH) has secured a US$20 million sub-secured loan from Crown Capital Partners, a Canadian provider of alternative debt financing for private equity-backed and non-sponsored mid-market transactions. The deal adds to a US$30 million secured loan extended to CRH by Knight Therapeutics Inc, as well as funding from other sources. The Vancouver-based CRH, which develops products for the treatment of gastrointestinal diseases, will use the credit facilities and other monies to finance its purchase of U.S.-based Gastroenterology Anesthesia Associates LLC. The acquisition is valued at a maximum of US$73.2 million.
CRH Medical Announces Significant Acquisition
Transaction marks significant expansion of CRH’s gastrointestinal business
VANCOUVER, B.C. – December 2, 2014 – CRH Medical Corporation (TSX: CRH) (OTCQX: CRMMF) (“CRH” or the “Company”), a North American medical company focused on providing physicians with innovative products and services for the treatment of gastrointestinal diseases, today announced the acquisition (the “Transaction”) of the business, assets and interests of Gastroenterology Anesthesia Associates, LLC, (“GAA”). GAA is one of the largest providers of anesthesiology services to gastroenterologists in the southeastern United States.
The Company will pay US$58.6 million at closing with up to an additional US$14.6 million payable within 4.5 years based on agreed financial performance requirements of the acquired business. The maximum total purchase price assuming achievement of all performance measures is US$73.2 million.
GAA is a provider of anesthesia services and has strong financial performance with more than US$25 million in revenue and US$16 million in EBITDA for the 12 months ending June 2014. Gastrointestinal endoscopy procedures are highly reliant upon anesthesia services from third-party anesthesia providers, such as GAA. With the acquisition of GAA, CRH further aligns itself with gastrointestinal physician specialists that either are or could be users of CRH’s current business. CRH will initially focus on integrating GAA into the Company. However, as part of the Transaction, CRH will acquire the expertise, skills and exemplary track record from which to pursue a strategy of consolidating additional anesthesia groups. CRH believes this new platform has the potential to not only grow revenues via future accretive acquisitions but also through organic growth of the acquired business.
“The immediate increases in revenues and EBITDA from this transaction are transformational for CRH,” said Edward Wright, Chief Executive Officer of CRH Medical. “Our strong relationships with gastroenterologists as a result of our current business were instrumental in not only identifying the opportunity but throughout the process of acquiring GAA. From this foundation, we look forward to enhancing our reputation as a trusted partner to the gastroenterologist community and will pursue additional opportunities within our core competencies.”
Key benefits of the Transaction
Adds significant revenues and EBITDA to CRH’s business
Historical financial performance for GAA is strong, with more than US$25 million in revenue and US$16 million in EBITDA for the 12 month period ending June 2014
Increases CRH’s brand visibility and product offering
CRH O’Regan System will continue its growth trajectory, potentially enhanced by the Transaction
The Transaction is being financed by cash on hand along with senior and subordinated credit facilities (the “Credit Facilities”) from Knight Therapeutics Inc. (“Knight”) and affiliates of Crown Capital Partners Inc. (“Crown” and, together with Knight, the “Lenders”), in the amounts of US$30 million and approximately US$20 million respectively, a loan from BBF (as described below) and a private placement of the Company’s common shares (“Common Shares”).
“We are thankful for the financial support of such reputable firms as Knight Therapeutics and Crown Capital Partners,” said Richard Bear, CRH Medical’s Chief Financial Officer, “Based on the historical cash flows of GAA, we expect to be able to service and repay the credit facilities from the future cash flows of the acquired business.”
The Credit Facilities are each provided pursuant to credit agreements entered into by the Company and the respective Lenders as of today’s date. The Credit Facilities will incur interest at a rate of between 10-12% per annum and will be secured against the assets of the Company and its subsidiaries. Knight’s Credit Facility will mature after a term of two years, subject to an extension for an additional year under certain circumstances, and Crown’s Credit Facility will mature after a term of 42 months. The Company has issued to the Lenders, as partial consideration for the Credit Facilities, an aggregate of 5,000,000 Common Shares on a private placement basis. The Company also paid other fees and expenses to the Lenders, consistent with Credit Facilities of this nature and has agreed to nominate an individual selected by Knight to CRH’s board of directors.
Concurrently with closing the Transaction, the Company also completed a non-brokered private placement for 6,967,845 Common Shares (the “Private Placement”), at a subscription price of $0.82 per share, to, among others, the owner of GAA and associated individuals, which further aligns the GAA sellers and CRH’s business prospects.
Bloom Burton & Co. (“Bloom Burton”) acted as financial advisor to CRH in connection with the Transaction. Bloom Burton subscribed for 1,027,980Common Shares pursuant to the Private Placement and the Bloom Burton Healthcare Structured Lending Fund II (“BBF”) agreed to provide the Company with an unsecured loan in the principal amount of US$2million. BBF’s loan accrues interest at a rate of 12% per annum and will mature after a term of 54 months.
The proceeds received by CRH from the Credit Facilities, the loan from BBF and the Private Placement were used to close the Transaction.
All securities issued pursuant to the Transaction will be subject to a hold period of four months plus one day from the closing of the Transaction. The Common Shares issued pursuant to the Private Placement were issued in a private offering to accredited investors in accordance with Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in offshore transactions in accordance with Regulation S promulgated under the Securities Act. The Common Shares have not been registered under the Securities Act or any state securities laws and may not be offered or sold in the United States without registration or an applicable exemption from registration requirements.
This press release does not constitute an offer to sell, or the solicitation of an offer to buy, any securities and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale would be unlawful
Transaction Overview Conference Call Notification
CRH will host a telephone conference call to discuss the acquisition of GAA on December 2, 2014 at 10:45 am Eastern Time. The telephone numbers for the conference call are (888) 231-8191 or (647) 427-7450.
At the call’s completion, an audio replay will be available by calling (855) 859-2056 or (416) 849-0833 and using passcode 44232294. The phone replay will be available through January 2, 2015.
About CRH Medical Corporation:
CRH Medical Corporation is a North American company focused on providing physicians with a growing range of innovative products and services for the treatment of gastrointestinal diseases. The Company markets the CRH O’Regan System, a single use, disposable, hemorrhoid treatment that is rapidly emerging as the standard of care with gastroenterologists who treat hemorrhoids. In addition to the product, CRH delivers clinical, marketing and operational support directly to its partner physicians.
For more information, please contact:
Edward Wright, Chief Executive Officer
CRH Medical Corporation
Adam Peeler, Media and Investor Relations
416.815.0700 x 225
Forward looking statements:
The information in this news release contains statements not based on historical or current facts and these statements are so-called “forward-looking” statements. These include statements regarding CRH’s expectations and plans relating to its business, statements about CRH’s expectations, beliefs, intentions or strategies for the future, which may be indicated by words or phrases such as “anticipate”, “expect”, “intend”, “plan”, “will”, “we believe”, “CRH believes”, “management believes”, and similar language. All forward-looking statements are based on CRH’s current expectations and are subject to risks and uncertainties and to assumptions made. Such forward looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be materially different from any future results, events or developments expressed or implied by such forward-looking statements. Assumptions include: the effect of the Transaction on the Company’s business and operations, financial performance and results, revenue forecasts, the Company’s existing relationships and ability to leverage those relationships, any growth or increase in use of the Company’s products by physicians or specialists, the Company’s ability to integrate GAA into its business and to expand GAA’s business, any increase in the Company’s brand visibility, the Company’s ability to repay the Credit Facilities, or to reduce their interest rates and extend their terms, and the positive impacts of the Transaction. Important risk factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements include: our use of proceeds from the Credit Facilities and the Private Placement; our ability to repay the Credit Facilities as our obligations come due; that we may not continue to attract gastroenterologists and other licensed providers to purchase and use the CRH O’Regan System; our forecasted growth and use of the CRH O’Regan System; our need for additional financing and our estimates regarding our capital requirements and future revenues and profitability; our ability to successfully market and sell our products and integrate the GAA business into our operations; our ability to maintain and grow GAA’s business, including any growth or maintenance of revenue; our estimates of the size of the potential markets for our products; our ability and forecasts of expansion and the Company’s management of anticipated growth; risks related to currency exchange rates; risks associated with the trading of our common shares on a public marketplace; and other factors referenced in the Company’s filings with Canadian securities regulators. Although the Company believes that expectations conveyed by the forward-looking statements are reasonable based on the information available to it on the date such statements were made, no assurances can be given as to the future results, approvals or achievements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The Company does not assume the obligation to update any forward-looking statements except as otherwise required by applicable law.
SOURCE CRH Medical Corporation
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