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BRAMPTON, ON, Jan. 31, 2017 /CNW/ - DATA Communications
Management Corp. (TSX: DCM)("DATA" or the "Company") announced
today that it has entered into separate agreements to acquire
Eclipse Colour & Imaging Corp. ("Eclipse") and Thistle Printing
Limited ("Thistle"). In connection with these acquisitions,
DATA also announced that it has arranged an increase in the total
available commitment under its senior revolving credit facility
with a Canadian chartered bank by $10
million to up to $35 million
and an amendment to its term facility with the Integrated Private
Debt ("IPD") division of Integrated Asset Management Corp.
(TSX:IAM) which provides DATA with a total borrowing base of up to
$72 million from $50 million.
Acquisition of Eclipse Colour & Imaging Corp.
Eclipse is a leading Canadian large-format and point-of-purchase
printing and packaging company, with approximately 100 employees
operating in an 80,000 square foot facility located in Burlington, Ontario. The acquisition of
Eclipse adds significantly expanded wide format, large format, and
grand format printing capabilities to DATA's portfolio of products
and services, with Eclipse having a product mix focused on in-store
print, outdoor, transit, display, packaging, kitting and
fulfilment capabilities. Upon completion of this transaction,
DATA intends to relocate its current wide format capabilities from
its Ambassador Road, Mississauga,
Ontario facility to Calgary, Alberta. The combined wide
format printing, distribution and fulfilment capabilities of
Eclipse and DATA will provide a unique national offering in the
market to better serve the combined company's customer
base.
Eclipse generated approximately $21.3
million in revenues (unaudited) for the fiscal year ended
November 30, 2016, and, over the past
three years, has experienced average revenue growth rates of
approximately 10% per year, together with consistently strong
levels of gross margins and adjusted EBITDA margins.
"Ralph Misale (COO) and
Grant Malcolm (CFO), the two
principals of Eclipse, have built a tremendous business since they
acquired Eclipse in 2010 by way of a management buyout," said
Michael G. Sifton, CEO of
DATA. "We are excited to have Ralph, Grant and the
entire Eclipse team join DATA," he continued. "Eclipse is a leading
player in the large and wide format print market, and we believe
that this acquisition will position us well in a growing
market. It is consistent with our strategic objective to
expand our capabilities to better serve our customers," stated Mr.
Sifton.
Acquisition of Thistle Printing Limited
Thistle is a full service commercial printing company with
approximately 65 employees operating in a 42,000 square foot
facility located in Toronto,
Ontario. The acquisition of Thistle will provide DATA with a
full service commercial print facility in Eastern Canada and enable DATA to expand its
margins by insourcing commercial printing capabilities which it has
historically outsourced to local tier two suppliers. This
acquisition adds expertise in commercial printing, design, prepress
and bindery services to DATA's portfolio, and complements DATA's
current capabilities in direct mail, fulfilment and data
management.
Thistle generated approximately $16.4
million in revenues (audited) for the fiscal year ended
October 31, 2016, and has a long
history of profitability with strong gross and adjusted EBITDA net
margins.
"Thistle's capabilities are highly complementary to our own",
said Mr. Sifton. "While we have the leading commercial print
capabilities in Western Canada
located in our Calgary, Alberta
centre of excellence, DATA has not had meaningful commercial print
capabilities in Eastern Canada,
historically relying on third party production partners," he
continued. "We believe that the acquisition of Thistle
will enable our sales force to capitalize on having a dedicated
Eastern production facility, close to the important downtown
Toronto market, and we expect to
be able to enhance our margins that we would otherwise have had to
share with outsourced providers," he stated.
Acquisition Funding and Overview
DATA will acquire substantially all of the assets of Eclipse for
a net purchase price of approximately $8.8
million, which will be satisfied as to approximately:
$2.9 million payable in cash on
closing; $1.3 million through the
issuance of 634,263 common shares of DATA; and $4.6 million in the form of a non-interest
bearing vendor take back note, which will be payable in two equal
instalments on each of the first and second anniversaries of
closing of the Eclipse transaction. The purchase price will
be subject to certain closing adjustments relating to working
capital.
The acquisition of Eclipse will be completed pursuant to an
asset purchase agreement dated January 31,
2017 (the "APA") between DATA, Eclipse, Ralph Misale and Grant
Malcom. The APA contains customary representations,
warranties, covenants and other terms and conditions.
DATA will acquire the common shares of Thistle for a net
purchase price of approximately $6.1
million, which will be satisfied as to approximately:
$1.1 million payable in cash on
closing; $1.5 million through the
issuance of 644,445 common shares of DATA; and $3.5 million in the form of a non-interest
bearing vendor take back note, to be payable over a 24 month period
in equal monthly payments. The purchase price will be subject
to certain closing adjustments relating to working
capital.
The acquisition of Thistle will be completed pursuant to a share
purchase agreement dated January 31,
2017 (the "SPA") between DATA, Capri Media Inc., Jive.com
and VRG Investment Corporation. The SPA contains customary
representations, warranties, covenants and other terms and
conditions.
In connection with the two acquisitions, DATA will assume a
total of approximately $8.0 million
in outstanding long term indebtedness, including capital lease
obligations, and intends to draw approximately $7.8 million under its revolving credit facility
on closing to refinance certain indebtedness of the two companies
and for related transaction expenses.
DATA has secured lock-up agreements with the vendors of each
company, pursuant to which the vendors have agreed not to sell the
DATA common shares issued pursuant to the sale transactions for a
period of twelve months from the closing of the relevant
transaction. In aggregate, a total of 1,278,708 common shares
of DATA will be issued to the vendors of Thistle and Eclipse, and,
as a result, after having completed both transactions, the number
of DATA's issued and outstanding common shares will increase from
11,975,053 to 13,253,761 common shares outstanding. The
issuance of common shares of DATA in connection with the Eclipse
and Thistle acquisitions is subject to the approval of the Toronto
Stock Exchange.
The acquisitions of Eclipse and Thistle are expected to close on
February 22, 2017 and are subject to
customary closing conditions.
"We believe that these transactions will position DATA to grow
revenue within our Retail and Financial Services client
bases. Both businesses will provide enhanced product
offerings to our sales team, enabling us to target opportunities
with our clients where we've been somewhat limited to date," said
Mr. Sifton.
"Collectively, DATA will become the leading national supplier of
commercial print and large format production, with facilities in
Eastern and Western Canada. Accompanied by DATA's established
national warehousing, distribution and fulfilment capabilities,
DATA is uniquely positioned to simultaneously execute national
marketing campaigns for our customers in a timely and cost
effective manner," added Mr. Sifton.
Independent Committee and Board Approvals
The acquisition of Eclipse has been unanimously approved by the
board of directors (the "Board") of DATA.
Companies controlled by Gregory J.
Cochrane and J. R. Kingsley
Ward, the President of DATA and the Chair of the Board,
respectively, control Capri Media Group Inc. ("Capri"). Capri
is the sole shareholder of Thistle. The Board established a
special committee (the "Independent Committee") comprised of three
independent members of the Board, William
Albino, James J. Murray and
Derek J. Watchorn, to supervise the
negotiation of the terms of the Thistle acquisition and make a
recommendation to the Board as to approval of the transaction.
The Independent Committee retained Cormark Securities Inc.
("Cormark") to provide it with an opinion as to the fairness, from
a financial point of view, to the holders of DATA's common shares
of the consideration to be paid to Capri pursuant to the Thistle
acquisition. Cormark has advised the Independent Committee
that Cormark is independent of DATA, Thistle and Capri and their
respective associates and affiliates. Cormark's fee for
providing its fairness opinion is not contingent on the completion
of the Thistle acquisition.
Cormark has delivered to the Independent Committee a written
opinion to the effect that, as of January
31, 2017 and based upon and subject to the various
assumptions made, procedures followed, matters considered and
limitations on the review undertaken as set forth therein, the
consideration to be paid to Capri for the shares of Thistle
pursuant to the Thistle transaction is fair, from a financial point
of view, to DATA's common shareholders.
After careful consideration of the terms of the proposed
acquisition of Thistle and the associated opportunities, risks and
uncertainties, and consultation with Cormark and the Independent
Committee's legal advisors, the Independent Committee unanimously
determined that the acquisition of Thistle is in the best interests
of DATA and resolved to recommend that the Board approve the
Thistle acquisition.
The Thistle acquisition has been unanimously approved by the
Board (other than Mr. Ward, who did not participate in the Board's
consideration of the transaction) following the recommendation of
the Independent Committee.
Increase in Senior Credit Facilities and Amendment to
Existing Terms
In connection with the acquisitions of Eclipse and Thistle, DATA
has entered into an amended senior revolving credit facility with a
Canadian chartered bank, including an increase in the total
available commitment under that facility from up to $25 million to up to $35
million and the extension of the term of this facility by
one year, to March 31, 2021 from
March 11, 2020. The revolving
credit facility includes a sub facility comprised of a term loan
component of up to $7 million, an
increase from the original sub facility term loan component of
$5 million. The term loan
component will amortize in equal monthly payments over the new term
of the revolver but such reductions will not reduce the amount
available under the revolving facility.
DATA has also entered into an amended term loan agreement with
Integrated Private Debt Fund IV LP ("IPD IV"), by its general
partner, Integrated Private Debt Fund GP Inc. ("IPD GP"), which,
among other things, provides that senior funded debt of DATA may
not exceed $72 million, an increase
from $50 million in the original IPD
IV term facility dated March 10,
2016. Integrated Private Debt Fund III LP is a senior
secured lender to Thistle. At closing, an amendment to that
agreement will be entered into pursuant to which DATA will become a
co-borrower with Thistle and pursuant to which the covenants will
be amended to match those of DATA under its credit agreement with
IPD IV and reported on a consolidated basis.
The increased availability under the senior revolving credit
facility will be used in part, together with the additional
availability under the sub-facility term loan, to finance the
up-front cash components of the acquisitions and related
transaction expenses, and to provide DATA with additional
flexibility to continue to pursue its strategic growth
objectives.
In addition, on closing, DATA will enter into an amended
inter-creditor agreement between a Canadian chartered bank,
Integrated Private Debt Fund IV LP, Integrated Private Debt Fund
III LP and the parties to the vendor take back payments relating to
the acquisitions of Eclipse and Thistle.
About DATA Communications Management Corp.
At DATA, we
are experts at planning and driving business communications. We
help marketers and agencies unify and execute communications
campaigns across multiple channels, and we help operations teams
streamline and automate document and communications management
processes. Our core capabilities include direct marketing, print
services, labels and asset tracking, event tickets and gift cards,
logistics and fulfilment, content and workflow management, data
management and analytics, and regulatory communications. We serve
clients in key vertical markets such as financial services, retail,
healthcare, lottery and gaming, not-for-profit, and energy. We are
strategically located across Canada to support clients on a national basis,
and serve the U.S. market through our facilities in Chicago, Illinois.
Additional information relating to DATA Communications
Management Corp. is available on www.datacm.com, and in the
disclosure documents filed by DATA Communications Management Corp.
on the System for Electronic Document Analysis and Retrieval
(SEDAR) at www.sedar.com.
FORWARD-LOOKING STATEMENTS
Certain statements in this press release constitute
"forward-looking" statements that involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance, objectives or achievements of DATA, or industry
results, to be materially different from any future results,
performance, objectives or achievements expressed or implied by
such forward-looking statements. When used in this press release,
words such as "may", "would", "could", "will", "expect",
"anticipate", "estimate", "believe", "intend", "plan", and other
similar expressions are intended to identify forward-looking
statements. These statements reflect DATA's current views regarding
future events and operating performance, are based on information
currently available to DATA, and speak only as of the date of this
press release. These forward-looking statements involve a
number of risks, uncertainties and assumptions and should not be
read as guarantees of future performance or results, and will not
necessarily be accurate indications of whether or not such
performance or results will be achieved. Many factors could
cause the actual results, performance, objectives or achievements
of DATA to be materially different from any future results,
performance, objectives or achievements that may be expressed or
implied by such forward-looking statements. The principal factors,
assumptions and risks that DATA made or took into account in the
preparation of these forward-looking statements include: the
occurrence of any event, change or other circumstance that could
give rise to the termination of the Eclipse or Thistle purchase
agreements; the risk that any of the closing conditions to either
proposed transaction may not be satisfied in a timely manner; risks
related to disruption of management time from ongoing business
operations due to the proposed transactions; the failure to realize
the expected benefits from either transaction and risks associated
with the integration of either Eclipse or Thistle; the limited
growth in the traditional printing industry and the potential for
further declines in sales of DATA's printed business documents
relative to historical sales levels for those products; the risk
that changes in the mix of products and services sold by DATA which
are related to reduced demand for its printed products will
adversely affect DATA's financial results; the risk that DATA may
not be successful in reducing the size of its legacy print
business, reducing costs, reducing its long-term debt, repaying or
refinancing its outstanding 6.00% convertible unsecured
subordinated debentures, and growing its digital communications
business; the risk that DATA may not be successful in managing its
organic growth, or implementing its restructuring activities within
expected timeframes and related cost estimates; DATA's ability to
invest in, develop and successfully market new digital and other
products and services; competition from competitors supplying
similar products and services, some of whom have greater economic
resources than DATA and are well-established suppliers; DATA's
ability to grow its sales or even maintain historical levels of its
sales of printed business documents; the impact of economic
conditions on DATA's businesses; risks associated with the closing,
management of and successful integration of acquisitions by DATA;
increases in the costs of paper and other raw materials used by
DATA; and DATA's ability to maintain relationships with its
customers. Additional factors are discussed elsewhere in this press
release and under the headings "Risk Factors" and "Risks and
Uncertainties" in DATA's management's discussion and analysis and
in DATA's other publicly available disclosure documents, as filed
by DATA on SEDAR (www.sedar.com). Should one or more of these
risks or uncertainties materialize, or should assumptions
underlying the forward-looking statements prove incorrect, actual
results may vary materially from those described in this press
release as intended, planned, anticipated, believed, estimated or
expected. Unless required by applicable securities law, DATA
does not intend and does not assume any obligation to update these
forward-looking statements.
NON-GAAP MEASURES
This press release includes certain
non-GAAP measures as supplementary information. Except as
otherwise noted, when used in this press release, EBITDA means
earnings before interest and finance costs, taxes, depreciation and
amortization and adjusted EBITDA means EBITDA adjusted for the
impact of certain non-cash items and certain items of note on a
pre-tax basis. EBITDA and Adjusted EBITDA are unlikely to be
comparable to similar measures presented by other issuers.
Investors are cautioned that EBITDA and Adjusted EBITDA should
not be construed as alternatives to net income (loss) determined in
accordance with IFRS as an indicator of DATA's performance. For a
reconciliation of net income (loss) to EBITDA and a reconciliation
of net income (loss) to Adjusted EBITDA, refer to DATA's other
publicly available disclosure documents, as filed by DATA on SEDAR
(www.sedar.com).
SOURCE DATA Communications Management Corp.