David Gelerman, Advantech's CEO, added that his company is excited to be joining forces with an industry leader that shares the same commitment toward innovation. Wireless carriers have substantial demand for RF and microwave products and as an approved supplier to key carriers, Baylin will be able to more fully take advantage of Advantech's diverse suite of products.
The purchase price for the Acquisition is $49 million (subject to customary adjustments), comprised of the following:
- $48 million in cash; and
- $1 million in Baylin common shares ("Baylin Shares") at a price per share of $3.24, being the volume weighted average price of the Baylin Shares on the Toronto Stock Exchange (the "TSX") for the five (5) trading day period immediately preceding this press release.
The cash portion of the purchase price for the Acquisition was funded through new indebtedness (see details below) and Baylin's existing cash resources. Advantech may be entitled to additional compensation of between $0.75 million and $3 million in each of 2018 and 2019 conditional on the Business meeting certain EBITDA targets in those years.
Headquartered in Montréal, Québec, Advantech is a leading designer and manufacturer of customizable radio frequency, terrestrial microwave and antenna products for several wireless communications markets. Advantech has developed significant innovations for over 25 years, including pioneering the use of Gallium Nitride technology to create smaller, lighter, and more powerful products. Advantech has over 160 clients in over 150 countries and offices across the globe.
Expected benefits of the Acquisition for Baylin include:
Based on consensus research estimates, the Acquisition would:
- be significantly accretive to EPS even before synergies
- result in pro-forma LTM EBITDA of approximately $10 million(1)
- Complementary products strengthen Baylin's offering in wireless infrastructure, allowing it to offer "turnkey" solutions to its customers;
- Gives Baylin access to new untapped verticals;
- Greater sales reach through an expanded geographical footprint in North America, South America and Europe;
- Potential cost synergies through optimization of supply chain, implementation of lean manufacturing, improved procurement practices, and rationalization of corporate overhead; and
- Baylin would acquire title to the "Advantech" business name, intellectual property, customer contracts and other licenses, rights and contracts.
(1) Pro-forma figures represent the combination of Baylin and Advantech's LTM figures as of September 30, 2017. Revenue and cost synergies are not included. Figures are unaudited.
The principals of Advantech have entered into a consulting agreement with Baylin, pursuant to which they will provide their services to Baylin for a period of two years.
Details on Debt Financing
In connection with the Acquisition, Baylin has entered into a credit agreement with Crown Capital Partners Inc. ("Crown"), pursuant to which Crown will provide a $33 million term loan, with a rate of 9.0 percent per annum and maturing in 60 months. In addition, a total of 682,500 warrants of Baylin were issued to Crown.
Post the acquisition, Baylin will have more than $10 million in cash and a net debt/pro-forma LTM EBITDA(1) ratio of approximately 2.4x.
Raymond James acted as exclusive financial advisor and Aird & Berlis LLP acted as legal counsel to Baylin on the Acquisition. Raymond James also acted as exclusive advisor to Baylin on the debt capital raise.