CALGARY, ALBERTA–(Marketwired – March 1, 2017) – Founders Advantage Capital Corp. (TSX VENTURE:FCF) (the “Corporation”) is pleased to announce that it has completed its previously announced acquisition of a 52% majority interest (the “Transaction”) in Cape Communications International Inc. (which operates as IMPACT Radio Accessories and is referred to herein as “IMPACT”) for a total cash purchase price of $12.0 million (the “Purchase Price”), subject to post-closing adjustments. The Transaction was completed between the Corporation, Keith Kostek, IMPACT’s President and founder, and Mr. Kostek’s related entities (collectively referred to herein as the “IMPACT Founders”).
IMPACT designs, manufactures, distributes and retails two-way radio accessories in the land mobile radio industry under the tradename IMPACT Radio Accessories and indirectly through its wholly-owned subsidiary, Threat4 Ltd. IMPACT sells through over 1,000 dealers throughout North America, with its products being used in the field by some of the most recognized names in public safety, military, security, retail, and hospitality (including the RCMP, NYPD, GAP, the Bellagio, Wynn Resorts, Yahoo and Google). More information about IMPACT can be found at www.impactcomms.com.
The Transaction provides the Corporation with 52% of after-tax annual cash distributions up to $2.96 million (the “Annual Threshold”) paid by IMPACT to its securityholders, with the IMPACT Founders receiving 48% of annual distributions up to such Annual Threshold. All cash distributions by IMPACT to its securityholders will be subject to Board approval and may be adjusted from time to time to pursue expansion or capital initiatives or other corporate purposes. To the extent that any cash distributions paid in a year are in excess of the Annual Threshold, the IMPACT Founders will receive 65% of such excess distributions, with the Corporation receiving 35% of such excess distributions.
At Closing, it is anticipated that IMPACT will have excess working capital of approximately $1.47 million (above the normal working capital for the business of approximately $3.1 million). The Corporation has agreed to pay the IMPACT Founders an additional $735,000 as a working capital adjustment within 6 months from the closing date.
As part of the Transaction, the Corporation has granted the IMPACT Founders the right to sell the Corporation an additional 22% of IMPACT for a fixed price of $5.1 million (the “Put Option”). The IMPACT Founders may elect to exercise the Put Option at any time between September 30, 2017 and March 31, 2018, provided the TTM EBITDA for IMPACT at the Put Option exercise date exceeds $4.0 million. The Corporation has 90 days to complete such acquisition if the Put Option is exercised. In the event the Put Option is exercised, the Corporation would hold a 74% interest in IMPACT and the IMPACT Founders would hold a 26% interest. Further, in the event the Put Option is exercised, the Corporation would be entitled to 74% of annual cash distributions up to the Annual Threshold and 65% of annual distributions above the Annual Threshold (with the IMPACT Founders entitled to 26% of annual distributions up to the Annual Threshold and 35% of annual distributions above the Annual Threshold).
On closing of the Transaction, the IMPACT board of directors was comprised of Keith Kostek, Stephen Reid and James Bell. For further information on the Transaction please refer to the Corporation’s press release dated December 22, 2016.
Keith Kostek, President and founder of Impact, commented: “As a founder and entrepreneur, the FA Capital model was a perfect fit for me as it allowed me to add a sophisticated partner, enjoy a partial liquidity event and receive a disproportionate share of IMPACT’s future growth. The IMPACT team is proud to have the Corporation as our majority shareholder and we look forward to building value for FA Capital’s shareholders.”
Stephen Reid, Chief Executive Officer of the Corporation, commented: “IMPACT is an excellent addition to our portfolio as it has a talented management team, a history of impressive revenue growth and strong free cash flow. IMPACT has earned its extensive customer list through quality products and industry leading service. We believe that IMPACT is well positioned to take advantage of the current geopolitical environment and the increased focus on public safety, military and security. It is my pleasure to welcome Keith and his team to the FA Capital family.”
Further, the Corporation is pleased to announce that it has entered into an amended credit facility with Alberta Treasury Branches to increase its revolving credit facility from $17.0 million to $28.0 million and to cancel its non-revolving $5.0 million credit facility. As such, the Corporation has increased its available borrowings from $22.0 million to $28.0 million. The Corporation used its available borrowings to fund the Transaction.
Toronto-based WCM Capital acted as exclusive corporate finance advisor to IMPACT, arranging the Transaction with the Corporation (for more information visit www.wcmcapital.ca). Toronto-based Wildeboer Dellelce LLP acted as legal advisor to IMPACT (for more information visit www.wildlaw.ca). Bennett Jones LLP, a national law firm, acted as legal advisor to Founders Advantage Capital Corp. (for more information visit www.bennettjones.com).
About IMPACT Radio Accessories
IMPACT, which was formed in 2002, is a world leader in the design and manufacture of unique radio communication products for mission critical public safety, military, security, retail and hospitality applications. Headquartered in British Columbia, with a distribution center in North Carolina, IMPACT has grown to be one of the largest aftermarket brands of two-way radio accessories in North America.
About Founders Advantage Capital Corp.
The Corporation is listed on the TSX Venture Exchange as an Investment Issuer (Tier 1) and employs a long-term investment approach. The Corporation has developed an investment approach to create long-term value for its shareholders and partner entrepreneurs (investees) by pursuing controlling interest acquisitions of cash flow positive, premium middle-market privately-held entities. The Corporation seeks to win mandates by appealing to the segment of the market which is not aligned with traditional private equity control, royalty monetizations or related structures. The Corporation’s innovative platform offers disproportionate incentives (contractually) for growth in favour of our partner entrepreneurs. This unique platform is designed to appeal to entrepreneurs who believe in the growth of their businesses and who want the added ability to continue to manage the business with a long-term partner.
The Corporation’s common shares are listed on the TSX Venture Exchange under the symbol “FCF”.
For further information please refer to the Corporation’s website at www.advantagecapital.ca.
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