Mr. Steve King reports
ALARIS ROYALTY CORP. PROVIDES UPDATE ON SEQUEL REDEMPTION
Sequel Youth and Family Services LLC has entered into a merger agreement with a third party, pursuant to which Sequel will redeem all of Alaris Royalty Corp.'s units in Sequel for a price of approximately $96-million (U.S.) (approximately $121-million (Canadian) based on the current exchange rate). The Sequel redemption is expected to close by the end of September, 2017, but is subject to certain customary conditions, including, without limitation, receipt of regulatory approval and all applicable permits and licences. The completion of the Sequel redemption would result in a total return of approximately $71-million (U.S.) ($103-million (Canadian)), or 97 per cent (133 per cent in Canadian dollars) and an internal rate of return of approximately 23 per cent (29 per cent in Canadian dollars). The Sequel redemption would reduce Alaris's outstanding debt to nil and provide approximately $10.0-million (Canadian) of excess cash. Until the Sequel redemption closes, Alaris will continue to collect its monthly distribution of $1.06-million (U.S.).
"Sequel has been a fantastic partner for Alaris over the past several years. Alaris has created another incredible outcome for the entrepreneur by buying out the original private equity sponsor, financing accretive acquisitions, as well as buying out minority shareholders during our partnership. By limiting our annual growth and also our exit participation, we have allowed the entrepreneur to enjoy an unprecedented financial result. At the same time, Alaris shareholders received exactly what we targeted, a very steady revenue stream and market-leading returns. Our internal rate of return on Sequel will come in at 23 per cent per annum, not including foreign exchange gains. Including foreign exchange, our IRR on this partnership increases to 29 per cent. These results are at the very high end of private equity return expectations, particularly in the currently overheated competitive environment, and are consistent with our 13-year track record of returns on partnership exits. While losing a large revenue stream is not our goal, the premium we receive allows us to redeploy the capital very profitably and without requiring equity or debt financing for our next transactions. We are pleased to say that we expect the Sequel revenue to be replaced accretively with new partnerships that are currently in process and exclusive to Alaris. We do not expect any reduction in our revenue expectations for the year but will have a stronger balance sheet with the excess cash that will remain from the Sequel proceeds," said Steve King, president and chief executive officer, Alaris.
The attached table contains key metrics of Alaris's investment in Sequel assuming the Sequel Redemption materializes.
($ millions as of Sept. 30, 2017)
U.S. dollar Canadian dollar
First tranche $ 66.0 $ 69.3
Second tranche $ 7.5 $ 8.2
Total contributions $ 73.5 $ 77.5
Returns to Alaris
Total distributions received $ 48.3 $ 59.8
Sequel redemption proceeds $ 96.4 $ 121.0
Less: total contributions $ (73.5) ($77.5)
Total return $ 71.2 $ 103.3
% total return 97% 133%
Gain on invested capital $ 22.9 $ 43.5
Internal rate of return (IRR) 23% 29%
About Alaris Royalty Corp.
Alaris provides alternative financing to private company partners in exchange for distributions with the principal objective of generating stable and predictable cash flows for dividend payments to its shareholders. Distributions from the partners are adjusted each year based on the percentage change of a top-line financial performance measure, such as gross margin and same-store sales, and rank in priority to the owners' common equity position.
We seek Safe Harbor.
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