02:13:17 EDT Fri 29 Mar 2024
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Medwell Capital Corp (2)
Symbol MWC
Shares Issued 7,282,589
Close 2015-03-31 C$ 0.91
Market Cap C$ 6,627,156
Recent Sedar Documents

Medwell to merge with GDI Integrated in all-share deal

2015-04-01 13:00 ET - News Release

An anonymous director reports

MEDWELL CAPITAL CORP. AND GDI INTEGRATED FACILITY SERVICES INC. ANNOUNCE ARRANGEMENT AND CONCURRENT PUBLIC OFFERING

Medwell Capital Corp. entered into an arrangement agreement on March 31, 2015, with GDI Integrated Facility Services Inc. relating to a transaction, pursuant to which the company proposes to acquire, among other things, all of the issued and outstanding securities of GDI in exchange for the issuance of shares of the company and a cash consideration.

Pursuant to the arrangement agreement, the company has been assigned a value fixed at $11.2-million, an amount equal to approximately $1.54 per currently issued and outstanding common share of the company, representing a premium of approximately 121 per cent over the volume-weighted average price of the common shares on the TSX Venture Exchange of 69.7 cents over the last 20 trading days. The arrangement agreement is the result of arm's-length negotiations conducted between representatives of the company and GDI.

As part of the arrangement, GDI will be combined into Medwell to form a single entity to be renamed GDI Integrated Facility Services Inc., that will carry on the business of GDI. The arrangement requires the approval of the shareholders of the company at an annual general and special meeting of the shareholders to be held on May 13, 2015, or such later date as adjourned or postponed.

In connection with the arrangement, a public offering of securities will be carried out by the company, which will be conditional on, and will close concurrent with, the arrangement.

Trading in the common shares has been halted in accordance with the policies of the exchange, and will remain halted until completion of the offering and the arrangement.

The arrangement will be deemed to be a change of business under the policies of the exchange.

GDI Integrated Facility Services

GDI is a Montreal-based janitorial services provider, which offers a range of commercial cleaning services and other complementary services, such as mechanical maintenance services and restoration services, to owners or managers of large property portfolios, and large specialized facilities in Canada and the United States. With approximately 17,000 employees across Canada and in selected cities in the U.S., GDI is the largest outsourced janitorial services provider in Canada (approximately 1.3 times larger than its nearest competitor), and one of the top five in North America. GDI's services are used by the majority of the largest multiproperty owners or managers in Canada, and by an increasing number of clients in the U.S.

GDI is a private corporation incorporated in its current form on Jan. 1, 2013, under the Canada Business Corporations Act (CBCA). Birch Hill Equity Partners IV LP, Birch Hill Equity Partners (U.S.) IV LP and Birch Hill Equity Partners (Entrepreneurs) IV LP, partnerships formed under the laws of Ontario and acting through their general partner, Birch Hill Equity Partners Management Inc., a corporation incorporated in the province of Ontario, are collectively a controlling shareholder of GDI. Claude Bigras (residing in Montreal, Que.), the current president and chief executive officer of GDI, through his holding company Gestion Claude Bigras Inc., incorporated in the province of Quebec, is also a significant shareholder of GDI.

Unanimous recommendation of the board of directors

The board of directors of the company formed a special committee comprising solely independent directors to consider the arrangement, and to determine if such transactions would be in the best interests of the company and the shareholders.

The special committee retained Deloitte LLP to evaluate the fairness of the arrangement, and Deloitte concluded that, based upon and subject to the various assumptions, matters considered and limitations set forth in its opinion, that the Medwell valuation amount is fair, from a financial point of view, to the shareholders.

The board of directors of the company, following the unanimous favourable recommendation of the special committee, has unanimously determined (with Kevin A. Giese, Michael Salamon and Patrick Barry abstaining) that the arrangement is in the best interests of the company and the shareholders. The board of directors has unanimously (with Mr. Giese, Mr. Salamon and Mr. Barry abstaining) approved the arrangement, and unanimously recommends that shareholders vote in favour of the arrangement.

Concurrent public offering

In connection with the arrangement, the company will carry out the offering. The offering will be conditional on, and will close concurrent with, the arrangement.

The company will file a prospectus to qualify the distribution of a number of subordinate voting shares of the company, pursuant to the terms of an underwriting agreement to be entered into with certain underwriters.

Upon completion of the offering and the arrangement, the resulting issuer will have two classes of issued and outstanding shares: the subordinate voting shares and the multiple voting shares of the company.

A portion of the proceeds to be received by the company from the offering will be used to pay the cash sonsideration.

Details of the arrangement

The arrangement is expected to be effected by way of a plan of arrangement under Section 192 of the CBCA.

The arrangement agreement and the plan of arrangement are the legal documents that govern the arrangement. The following is a summary of the arrangement and is subject to, and qualified in its entirety by, the full text of the arrangement agreement and the plan of arrangement, copies of which are filed on SEDAR under the company's issuer profile.

Effect of the arrangement

As part of the arrangement, the company will consolidate its currently issued and outstanding common shares by a ratio to be mutually determined by the company and GDI, amend the terms of the common shares to create the subordinate voting shares, and create the multiple voting shares. Moreover, the company will be continued under, and in accordance with, the CBCA.

The closing of the arrangement is subject to, and will occur concurrent with, the completion of the offering, and as a result:

  • Investors in the offering will become shareholders of the resulting issuer, and will hold subordinate voting shares upon completion of the offering and the arrangement;
  • Gestion Claude will receive a portion of the cash consideration and multiple voting shares upon completion of the offering and the arrangement;
  • Certain executives of GDI, excluding Mr. Bigras, will receive a portion of the cash consideration and subordinate voting shares upon completion of the offering and the arrangement;
  • The Birch Hill entities will receive a portion of the cash consideration and multiple voting shares upon completion of the offering and the arrangement;
  • Shareholders holding common shares prior to the closing date of the arrangement will become shareholders of the resulting issuer, and will own subordinate voting shares upon completion of the offering and the arrangement;
  • GDI will be combined into the company to form the resulting issuer;
  • Mr. Bigras, Michael Boychuk, David A. Galloway, Richard G. Roy, David G. Samuel and Carl M. Youngman will join Mr. Giese, Mr. Barry and Will Sawchyn on the board of directors of the company, and Laine Woollard and Mr. Salamon will resign;
  • KPMG LLP, the current auditor of GDI, will be appointed as auditor of the resulting issuer;
  • A new stock option plan with respect to the resulting issuer will enter into force and effect in accordance with its terms;
  • The company's previous stock option plan will be terminated.

Conditions precedent to the completion of the arrangement

The arrangement is subject to the satisfaction of certain conditions including, among other things:

  1. The granting of an interim order of the Superior Court of Quebec (commercial division) providing for, among other things, the calling and holding of the meeting;
  2. The approval by the exchange of the arrangement and the offering;
  3. The approval of the continuance by at least two-thirds of the votes cast by the shareholders present in person or represented by proxy at the meeting;
  4. The approval of the resolution approving the arrangement by:
    • At least two-thirds of the votes cast by the shareholders;
    • At least a simple majority of the votes cast by the shareholders (excluding the Birch Hill entities and Mr. Giese), present in person or represented by proxy at the meeting;
  5. The listing approval of the subordinate voting shares on the Toronto Stock Exchange;
  6. The approval of the new stock option plan by at least a simple majority of the votes cast by the shareholders present in person or represented by proxy at the meeting;
  7. The granting of a final order of the court approving the arrangement;
  8. The offering being simultaneously completed with the arrangement.

Principal shareholders

Following the closing of the arrangement, it is anticipated that Mr. Bigras, through Gestion Claude, and Birch Hill Management, through the Birch Hill entities, will constitute the principal shareholders of the resulting issuer, with no other individual or entity holding greater than 10 per cent of its issued and outstanding shares.

Supporting shareholders

The Birch Hill entities, as well as certain directors and officers of the company (Mr. Giese (president and CEO), Tami Reich (chief financial officer), Michael Kennedy (secretary), and Will Sawchyn (director)), have each entered into a separate support and voting agreement with the company and GDI in connection with the arrangement. The supporting shareholders who have entered into such support and voting agreements beneficially own, directly and indirectly, or exercise control or direction over, in the aggregate, 3,529,340 common shares as at the date hereof, which represent approximately 48.46 per cent of the outstanding common shares, and have agreed, subject to the terms of the support and voting agreements, to vote such common shares held by them in favour of the arrangement resolution.

Non-solicitation

Each of the company and GDI has agreed to customary non-solicitation covenants with a right to match any superior proposal. Under certain circumstances where the arrangement is not completed, a termination fee of up to $500,000 is payable by one party to the other.

TSX listing

The company will apply to the TSX for approval of the listing of all the issued and outstanding subordinate voting shares upon completion of the offering and the arrangement under the symbol "GDI." The listing is subject to the company fulfilling all of the requirements of the TSX. If the TSX approves the application, the common shares shall become subordinate voting shares, will be delisted from the exchange and the subordinate voting shares will be listed on the TSX.

Annual general and special meeting of the shareholders

The company will disseminate a subsequent news release confirming the date, time and location of the meeting. The meeting is currently scheduled to be held at 10 a.m. (Edmonton time) on May 13, 2015, at suite 2900, Manulife Place, 10180 101 St., Edmonton, Alta., or on such later date as adjourned or postponed.

Record date

The record date for those shareholders entitled to receive notice of, and vote at, the meeting is April 10, 2015. Only shareholders whose names have been entered in the register of the company as of the close of business on such date are entitled to receive notice and to vote at the meeting.

Matters to be approved at the meeting

At the meeting, shareholders will be asked, among other things, to consider, and if thought advisable, to pass (i) an ordinary resolution authorizing the adoption of the new stock option plan, (ii) a special resolution authorizing and approving the continuance, and (iii) a special resolution authorizing and approving the arrangement. To be effective, each of the continuance resolution and the arrangement resolution requires the affirmative vote of not less than two-thirds (66-2/3 per cent) of votes cast by shareholders in person or represented by proxy at the meeting. Pursuant to TSX Venture Exchange Policy 5.9 and Multilateral Instrument 61-101, the company must also obtain minority shareholder approval for the arrangement resolution (50 per cent plus one). The stock option plan resolution requires the affirmative vote of a majority of votes cast by shareholders in person or represented by proxy at the meeting.

At the meeting, shareholders will also be asked to receive and consider matters independent from the arrangement, including, among others: (i) the report of the directors of the company and the audited financial statements of the company for fiscal 2014, together with auditor's report thereon, (ii) the election of directors of the company to serve for a term expiring on the earlier of the closing date and the date of the next annual general meeting of the company, and (iii) the appointment of PricewaterhouseCoopers LLP as auditor for a term expiring on the earlier of the closing date and the date of the next annual general meeting of the company, and to authorize the board of directors of the company to fix the remuneration to be paid to the auditor.

Management information circular

The company will prepare and mail a management information circular to shareholders. The circular will set forth important information, including the process that culminated in the company entering into the arrangement agreement with GDI, a description of the arrangement, and other information relating to the meeting. The company encourages shareholders to read the circular carefully.

Certain information relating to the offering and the arrangement will not be determinable as of the mailing date, and an estimate of such information will instead be provided in the circular, as applicable. The circular will provide an estimate of, among other things: (i) the ratio by which the common shares will be consolidated pursuant to the consolidation; (ii) the consideration payable by the company in connection with the arrangement, namely the amount of the cash consideration to be paid, and the number of multiple voting shares and subordinate voting shares to be issued, (iii) the number of subordinate voting shares to be sold pursuant to the offering and the price at which they will be offered; (iv) the anticipated net proceeds from the offering; and (v) the number and percentage of the issued and outstanding shares of the resulting issuer which will be held by the shareholders upon completion of the offering and the arrangement.

Upon filing of the final long-form prospectus and at least five days prior to the meeting, the company will file on SEDAR and disseminate a news release, which will confirm and complete any information that was not determinable as of the mailing date of the circular.

Executive officers of the resulting issuer

The executive management team of the resulting issuer will comprise the persons listed below.

Mr. Bigras, director, president and CEO

Mr. Bigras joined GDI in 1994 and later became a major shareholder in 1998. In December, 2004, he became president and CEO of GDI, and has since overseen GDI's significant organic growth. Mr. Bigras has driven the development of GDI's key financial strategic planning, and brings with him an exceptional record of strategic acquisitions. Mr. Bigras holds certificates in finance and management from Ecole des Hautes Etudes commerciales in Montreal.

Mr. Gagne, CFO

Mr. Gagne joined GDI in November, 2014, and is responsible for GDI's finance strategy, investor relations, merger and acquisition activities, financial and operational management, and accounting and administration. From 1995 to 2014, he was the senior vice-president (prior to 2009, vice-president finance) and CFO of Cogeco Inc. and Cogeco Cable Inc. Mr. Gagne holds an MBA from Concordia University, a bachelor's degree in business administration from Ecole des Hautes Etudes commerciales in Montreal, a CPA (CA) designation from the Quebec Order of Chartered Accountants, and an ICD.D designation from the Rotman School of Management at the University of Toronto.

Robert Crozier, president, Atlantic region

Mr. Crozier joined GDI in 2011 and is currently the president of its Atlantic region division. In this role, he oversees all operations in Atlantic Canada and assists GDI's senior management with respect to continuing corporate matters. He holds a bachelor's degree in business administration from Mount Saint Vincent University in Halifax, N.S.

Fred Edwards, president, Western region

Mr. Edwards joined GDI in 2013 and is currently the president of its Western region division. In this role, he oversees all operations in the Western Canadian provinces and co-ordinates efforts with respect to continuing corporate matters. Mr. Edwards has over 35 years of experience in the janitorial services industry, and was previously president and CEO of Servpro Cleaning (Calgary) Inc.

David Hinchey, senior vice-president, strategic development

Mr. Hinchey joined GDI in 2014 as its senior vice-president, strategic development, after a 14-year career in the investment banking industry. Prior to joining GDI, he served as managing partner of Milton Capital Partners Ltd., an advisory firm providing mergers and acquisitions, and capital markets advisory services to public and private companies, where he specialized in the facility services industry for several years. From 2009 to 2011, Mr. Hinchey served as managing director, investment banking, of Laurentian Bank Securities Inc. At GDI, he is responsible for the company's mergers and acquisitions activities, and strategic business initiatives. Mr. Hinchey holds an MBA from McGill University and is a CFA charterholder.

Serge Lavoie, executive vice-president, GDI, and president, Quebec region

Mr. Lavoie joined GDI in 2012 as president of its Quebec division. In this role, Mr. Lavoie oversees all operations in the province and co-ordinates efforts with respect to continuing corporate matters, mainly in connection with business development opportunities. Prior to joining GDI, he spent 17 years at Jevco Insurance Co., where he became president and CEO in 2006, and as such, oversaw the company's general operations. Mr. Lavoie graduated in administration and management from the Universite du Quebec a Montreal (UQAM) in 1986.

Daniel Sklivas, president, central region

Mr. Sklivas joined GDI in 2006, and is currently the president of its central region division. In this role, he oversees all operations in the Central Canadian provinces and co-ordinates efforts with respect to continuing corporate matters. Prior to joining GDI, he spent five years at Manulife Financial as a director of facilities and property management. Mr. Sklivas holds a management certificate from Concordia University, as well as real property administrator and facility management administrator designations from the Building Owners and Managers Institute.

Board of directors of the resulting issuer

In addition to Mr. Bigras, the board of directors of the resulting issuer will comprise the persons listed below.

Mr. Barry, director

Mr. Barry is a partner at the law firm of Davies Ward Phillips & Vineberg LLP. He received his AB from Harvard University in 1988 (magna cum laude), his LLB from the University of Toronto Law School in 1991 and was admitted to the Law Society of Upper Canada in 1993.

Mr. Boychuk, director

Mr. Boychuk has been president and CEO of Bimcor Inc. since 2009. He currently serves as a director at Laurentian Bank of Canada. From 1999 to 2009, he was senior vice-president and treasurer of BCE Inc./Bell Canada, being responsible for all treasury, corporate security, as well as environment and sustainability activities, and for the BCE group of companies' pension plans. Mr. Boychuk is a graduate of McGill University (BComm (1977), GDPA (1978), CPA, CA (1979), FCPA, FCA (2012)), and has been a professional chartered accountant since 1979. He became a fellow of the Ordre des comptables professionnels agrees du Quebec in 2012.

Mr. Galloway, director

From 1998 to 2002, Mr. Galloway was a member of the Bank of Montreal's board of directors and was appointed chairman of the board of directors on May 1, 2004. While at the Bank of Montreal, he served on the risk review committee, and the human resources and management compensation committee. He was also a director of Harris Financial Corp. and served on its risk oversight committee. Mr. Galloway is the former president and CEO of Torstar Corp., a position he held from 1988 to 2002. Mr. Galloway has a bachelor's degree (honours) in political science and economics from the University of Toronto, and an MBA from Harvard Business School.

Mr. Giese, director

Since 1999, Mr. Giese has been the president and CEO of the company, in addition to holding the office of director and chairman. Mr. Giese completed a bachelor's degree from the University of Alberta in 1980, received his juris doctor in law from the University of Victoria in 1984 and obtained his MBA from York University in 1988.

Mr. Roy, director

For the past 15 years, Mr. Roy has spent his career at Uni-Select Inc., a leader in the automotive after-market industry, the fifth-largest automotive parts distributor and largest independent paint distributor in North America. Mr. Roy has occupied an array of executive positions with Uni-Select -- from 1999 to 2007, he acted as the company's CFO, from 2007 to 2008, he acted as its chief operating officer, and from 2008 on, he assumed the position of president and CEO. Mr. Roy holds a bachelor's degree from Ecole des Hautes Etudes commerciales in Montreal, and holds FCPA and FCA designations.

Mr. Samuel, director

Mr. Samuel joined Birch Hill in 2005 and is currently the chairman of Shred-it International. Prior to joining Birch Hill, Mr. Samuel had over 15 years of experience in private equity, operations, consulting and investment banking. Mr. Samuel received his MBA from Harvard Business School and his HBA from the Richard Ivey School of Business, Western University.

Mr. Sawchyn, director

Mr. Sawchyn has been a practising chartered accountant since 1993. Over the course of his career, Mr. Sawchyn has held senior financial management, mergers and acquisition, and operational management roles in the construction, utility and heavy equipment industries. He is currently a director on the board of directors of the company, and holds a bachelor's degree in commerce from the University of Saskatchewan.

Mr. Youngman, director

Mr. Youngman is founder, chairman and CEO of Youngman & Charm, a private equity investment management and consulting firm, and is on the advisory board of Schultze Asset Management LLC, a U.S.-based distressed securities manager. For over 30 years, he has been helping public and private companies, their managements, investors in companies, and lenders to companies resolve their operational and financial problems. Mr. Youngman holds the designation of certified turnaround professional (CTP) from the Turnaround Management Association and an executive master's degree from the American College of Corporate Directors. Mr. Youngman holds an MBA from Harvard Business School and a BS in electrical engineering from Worcester Polytechnic Institute.

Related-party transaction

The arrangement constitutes a related-party transaction for the company within the meaning of Policy 5.9 and of MI 61-101. The Birch Hill entities hold a significant equity position (78 per cent of the voting interests) in GDI, are creditors of GDI and hold a significant equity interest (44.6 per cent of the voting interests) in the company, and accordingly, Birch Hill Management, the Birch Hill entities and Mr. Salamon are considered to be related parties under Policy 5.9 and MI 61-101. Mr. Salamon is a director of the company and is a partner of Birch Hill Management. Mr. Giese, the president, CEO and a director of the company, will receive a termination payment on completion of the arrangement, and may be considered an interested party under Policy 5.9 and MI 61-101. Mr. Barry is a Birch Hill Management nominee to the board of directors of the company. All matters requiring the consideration of the board of directors of the company have been handled by directors other than Mr. Giese, Mr. Salamon and Mr. Barry, and a special committee comprising Mr. Sawchyn and Ms. Woollard was formed to consider the arrangement.

The arrangement is exempt from the formal valuation requirements of Policy 5.9 and MI 61-101 pursuant to the provisions of Section 5.5(b) of MI 61-101, in that the securities of the company are not listed on certain specified exchanges. The arrangement is subject to the evidence of value requirements of exchange Policy 5.4.

Selected financial information regarding GDI

The attached table sets out selected consolidated financial information for the fiscal year ended Dec. 31, 2014, the fiscal year ended Dec. 31, 2013, and the fiscal year ended Dec. 31, 2012. The selected consolidated financial information set out below for each fiscal year-end has been derived from GDI's consolidated financial statements and accompanying notes.

 
                           FINANCIAL HIGHLIGHTS
                         (in thousands of dollars)

                                                                     Fiscal                    
                                       2014            2013            2012     

Revenues by segment                                                         
Canada -- janitorial              $ 452,326       $ 424,373       $ 388,638 
United States -- janitorial         100,593          36,942           6,025 
Complementary services               55,880          41,566          34,336 
Intersegment                         (6,359)         (2,624)         (1,103)
Total revenue                       602,440         500,257         427,896 
Cost of services                    497,239         414,995         356,271 
Selling and administrative                                                  
expenses                             68,183          54,863          43,774 
Transaction and reorganization                                              
costs                                 1,665           1,512           2,263 
Depreciation and amortization        17,134          11,250          10,006 
Goodwill impairment                   2,023              --              -- 
Operating income                     16,196          17,637          15,582 
Net finance expense                  32,347          17,731           8,066 
Income (loss) before income                                                 
taxes                               (16,151)            (94)          7,516 
Income tax expense (recovery)         2,442         (11,479)          2,709 
Net (loss)/income                   (18,593)         11,385           4,807 
Net (loss)/income
attributable to                                                                        
Owners of the company               (21,100)          7,776           4,898 
Non-controlling interest              2,507           3,609             (91)
EBITDA (1)                           35,353          28,887          25,588 
As a percentage of revenues            5.87%           5.77%           5.98%
Adjusted EBITDA (2)                  37,507          31,818          27,851 
As a percentage of revenues            6.23%           6.36%           6.51%
EBITDA normalization                                                        
adjustments (3)                       2,145                                 
Normalized adjusted EBITDA (4)       39,652 

Notes:
(1) EBITDA is a non-IFRS (international financial reporting standards)
measure used by GDI to assess its operating performance, and is calculated
as net loss/income before net finance expense, income tax expense or recovery,
depreciation and amortization, and goodwill impairment.
(2) Adjusted EBITDA is a non-IFRS measure used by GDI to assess its
operating performance, and is calculated as EBITDA, adding back
transaction and reorganization costs, and capital appreciation plan
expense or stock-based compensation expenses.
(3) EBITDA normalization adjustments consist of: (i) $3-million addition
for full-year contribution from acquisitions completed in fiscal 2014
(Matrix LLC, Atelier Multi Expert (2003) Inc., Cardinal Building
Maintenance Inc. and Ability Janitorial Services (Ottawa) Ltd.), and
(ii) $900,000 reduction for full-year compensation expense for
executives hired in 2014. Furthermore, GDI generated $7.8-million (U.S.) of
EBITDA in fiscal 2014 in the U.S., including full-year adjustments for
U.S. acquisitions. EBITDA normalization adjustments do not include the
benefit of foreign exchange movement from an average rate of $1.10 per
$1 (U.S.) over 2014 to $1.27 per $1 (U.S.) as at March 31, 2015, which
would have added a further $1.3-million to adjusted EBITDA. 
(4) Normalized adjusted EBITDA is a non-IFRS measure used by the entity to
assess its operating performance, and is calculated as adjusted EBITDA
plus EBITDA normalization adjustments. 

Completion of the transaction is subject to a number of conditions, including exchange approval and shareholder approval. The transaction cannot close until the required exchange and shareholder approvals are obtained. There can be no assurance that the transaction will be completed as proposed or at all.

Investors are cautioned that any information released or received with respect to the transaction that is not disclosed or derived from the circular to be prepared in connection with the transaction may not be accurate or complete, and should not be relied upon. Trading in securities of the company should be considered highly speculative.

We seek Safe Harbor.

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