Environmental solutions provider Newalta has agreed to sell its industrial division to Birch Hill Equity Partners for $300 million. The transaction is expected to be completed in the first quarter of 2015. RBC Capital Markets provided financial advice to Newalta on this deal.
CALGARY, ALBERTA–(Marketwired – Dec. 23, 2014) – Newalta Corporation (“Newalta”) (TSX:NAL) announced today it has reached agreement to sell its Industrial Division and announced its capital budget for 2015.
Industrial Division Sale
Newalta has entered into an agreement with Revolution Acquisition LP, a company formed by Birch Hill Equity Partners of Toronto, Ontario, to sell its Industrial Division for cash proceeds of $300 million plus the assumption of the associated asset retirement obligation (ARO). The Industrial Division includes an integrated network of over 35 locations with approximately 950 employees servicing key markets coast to coast in Canada. This division features the industrial facilities network, industrial-related onsite services, the lead-acid battery recycling facility located at Ville Ste-Catherine, Québec, an engineered non-hazardous solid waste landfill located at Stoney Creek, Ontario, and a used oil collection network and re-refining facility in North Vancouver, British Columbia.
“This transaction advances our strategy of unlocking value as we focus on our core growth divisions, New Markets and Oilfield,” said John Barkhouse, President and CEO. “The Industrial Division is a solid business and has outstanding people but no longer fits with our strategic vision. The transaction is an excellent outcome for Newalta, the employees and customers of the Industrial Division. Birch Hill is a well-respected Canadian private equity firm with a proven track record of investing in leading companies that have demonstrated strong future potential.”
“We are very excited about the prospect of working with Birch Hill to advance the Industrial Division’s ambitious growth initiatives,” said Todd Moser, Senior Vice President, Industrial Division at Newalta, who will now lead the newly formed entity as President and CEO. Pierre Schuurmans, a partner at Birch Hill commented, “We are pleased to add the Industrial Operations of Newalta to the Birch Hill family. We believe the division has tremendous opportunity to build on its strong capabilities, asset base and market positions across Canada and North America. The business of finding sustainable ways to manage waste streams for industry is a growing opportunity worldwide and we look forward to working with the Industrial Division team.”
The sale of the Industrial Division will drive focus and funding to support growth in Newalta’s New Markets and Oilfield divisions. Newalta intends to use the proceeds to capitalize on its strong market position and further strengthen the balance sheet. Proceeds from the sale will immediately be used to pay down debt and reduce net debt leverage to below 2x Adjusted EBITDA at the close of the transaction. Net debt is comprised of $275 million in outstanding unsecured debentures, net of excess cash after reducing the draw on its credit facility. In addition, proceeds will support investment in organic growth opportunities. Newalta will continue to actively pursue acquisitions where the company can add meaningful value and further advance its business strategy.
The transaction is subject to satisfaction of customary closing conditions, as well as regulatory approvals, and is expected to close in the first quarter of 2015. RBC Capital Markets and Bennett Jones LLP acted as financial and legal advisors, respectively, to Newalta on this transaction.
2015 Capital Plan
Newalta’s 2015 capital budget is $190 million, comprised of $165 million in growth capital and $25 million in maintenance capital expenditures. While proceeds from the sale of the Industrial Division will provide the opportunity to increase capital expenditures, Newalta will remain measured in its approach towards capital spending in 2015 and will continue to monitor market activity. Growth capital will be prioritized and allocated towards the $50 million in carryover projects initiated in 2014 as well as those capital projects supporting contract opportunities. Carryover projects include Newalta’s new full scale Heavy Oil facility in Fort McMurray, Alberta, new oilfield satellite facilities in both Canada and the U.S., and an additional drill cuttings treatment unit. All carryover projects are expected to be commissioned and contributing cash flow in 2015. The 2015 capital program will be funded from both funds from operations and proceeds from the sale of the Industrial Division.
“We continue to see excellent opportunities to invest in profitable growth across our business, however, we will be disciplined in our approach to committing to capital and responsive to our customers’ needs,” said Barkhouse. “Investments from 2014 will drive growth in 2015, while our investments in 2015 will contribute to strong, profitable growth in 2016 and the years ahead.”
Newalta’s growth capital investments will be allocated to the following areas:
Heavy Oil – $45 million
U.S. – $45 million
Oilfield – $50 million
Technical Development and corporate investments – $25 million
“Proceeds from the sale of the Industrial Division provide us with the financial flexibility to deploy additional capital investments in 2015 while maintaining a conservative debt leverage ratio through the year, at or close to our long term debt leverage target of 2x Adjusted EBITDA,” said Mike Borys, Executive Vice President and CFO. “With a strong balance sheet and a resilient business model, we are very well positioned to manage through a weakened commodity price environment in 2015 while continuing to invest in proven growth opportunities.”
As Newalta executes on the divestiture of the Industrial Division, the company will drive attention to rationalizing overhead and margin efficiencies. An update on progress and targets will be provided with fourth quarter 2014 results.
Newalta is North America’s leading provider of innovative, engineered environmental solutions that enable customers to reduce disposal, enhance recycling and recover valuable resources from industrial residues. We serve customers onsite directly at their operations and through a network of 85 locations in Canada and the U.S. Our proven processes and excellent record of safety make us the first choice provider of sustainability enhancing services to oil, natural gas, petrochemical, refining, lead, manufacturing and mining markets. With a skilled team of more than 2,100 people, two decade track record of profitable expansion and commitment to commercializing new solutions, Newalta is positioned for sustained future growth and improvement. Newalta trades on the TSX as NAL. For more information, visit www.newalta.com.
About Birch Hill Equity Partners:
With $2 billion in capital under management, 20 partner companies and 33 fully realized investments since 1994, Birch Hill is the leader in long-term value creation in the Canadian mid-market. As a group, Birch Hill’s partner companies represent one of Canada’s largest corporate entities with over $5 billion in total revenue and more than 30,000 employees. For more information about Birch Hill Equity Partners, please visit www.birchhillequity.com.