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Exchange Income Corp
Symbol EIF
Shares Issued 32,246,482
Close 2019-10-08 C$ 39.11
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Exchange Income arranges $70M bought deal offering

2019-10-08 16:23 ET - News Release

Mr. Mike Pyle reports

EXCHANGE INCOME CORPORATION ANNOUNCES TWO ACQUISITIONS AND A $70 MILLION BOUGHT DEAL FINANCING OF COMMON SHARES

Exchange Income Corp. has entered into an agreement to sell, on a bought deal basis, 1.86 million common shares from treasury to a syndicate of underwriters co-led by CIBC Capital Markets, National Bank Financial Inc. and Laurentian Bank Securities Inc. The shares will be offered at a price of $37.65 per share, for gross proceeds to the corporation of approximately $70-million. The net proceeds of the sale of the shares will be used to finance two acquisitions (as described herein) and for general corporate purposes.

The corporation has also granted to the underwriters an overallotment option to purchase up to 279,000 additional shares, representing 15 per cent of the size of the offering. The overallotment option may be exercised, in whole or in part, at the sole discretion of the underwriters, until 30 days following the closing of the offering.

Closing of the offering is expected to occur on or about Oct. 29, 2019. The company expects to report third quarter results on Nov. 7, 2019, which it expects to be in line with or above analyst consensus estimates, prior to an adjustment for a small, one-time bad debt allowance charge related to the insolvency of a single airline customer.

The offering is subject to normal regulatory approvals, including approval of the Toronto Stock Exchange of the listing of the shares, and will be offered in each of the provinces of Canada by way of a short-form prospectus.

Acquisitions

EIC announced today it has acquired L.V. Control Mfg. Ltd. and expects to close the acquisition of Advance Window Inc. (AWI) next week. Further details on L.V. Control follows below. AWI is a full-service glazier that operates in the northeastern United States. Upon the close of the transaction, EIC will announce its completion and provide further details on the acquisition. The closing of the offering is not contingent on the closing of the AWI acquisition.

The aggregate purchase price for the two companies is up to $78-million if certain postclosing targets are achieved. At closing, Exchange Income will pay $72-million financed with $62.6-million in cash and $9.4-million in Exchange Income shares.

The acquisitions, after giving effect to the offering, are expected to be immediately accretive to Exchange Income, resulting in increases to both adjusted net earnings per share and free cash flow less maintenance capital expenditures per share. As a result, the payout ratios calculated using both metrics are expected to further improve. In addition to being immediately accretive, the leverage of the corporation will decrease as a result of these transactions as, at closing, the acquisitions will be fully financed with equity.

"We are very excited about the acquisition of L.V. Control," stated chief executive officer Mike Pyle. "As a leader in their market, they are a great addition to our growing manufacturing segment. The transaction is accretive to our earnings, cash flow and ability to pay a growing dividend. Brent and Grant have built an outstanding business with exceptional customer relationships, a skilled and experienced team of employees, and substantial growth opportunities."

The two owners, Brent Murray and Grant Floren, have committed to continue in their current roles at L.V. Control. In addition to its owners, the company has a solid depth of tenured key managers, and the average tenure of all the company's employees is over 10 years.

In explaining the decision to sell to Exchange Income, Mr. Murray stated: "We decided to sell the business to ensure a smooth succession and strengthen the company's long-term future. We wanted a partner who would work with us to help the company grow."

Mr. Floren added: "L.V. Control is a family-run company, and it's very important to us that we are able to maintain our unique culture, as it's critical to our success. EIC's approach resonated with how we envision the future of L.V. and how we want to treat our valued employees. EIC's track record speaks for itself, and we are confident that this is the right fit for our company, our employees and our customers."

"This is an attractive investment for EIC, as it meets both our financial and qualitative requirements and has a solid outlook," stated Adam Terwin, chief corporate development officer of Exchange Income. "L.V. Control is a successful family business in a niche market, combining engineering with proprietary products and software to generate a one-of-a-kind solution to their customers. It is a unique opportunity to grow our manufacturing segment and increase our exposure to the agricultural sector with a best-in-class operator."

About Exchange Income Corp.

Exchange Income is a diversified acquisition-oriented company, focused on two sectors: aerospace and aviation services and equipment, and manufacturing. The corporation uses a disciplined acquisition strategy to identify already-profitable, well-established companies that have strong management teams, generate steady cash flow, operate in niche markets and have opportunities for organic growth.

About L.V. Control Mfg. Ltd.

For over 40 years, L.V. Control has specialized in the design and manufacturing of electrical distribution equipment and process control systems. The company's focus on expertise is primarily concentrated on meeting the needs of the agricultural industry, including automation of grain handling, feed processing, seed cleaning and fertilizer blending facilities.

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