TORONTO, Oct. 23,
2023 /CNW/ - Aecon Group Inc. (TSX: ARE) ("Aecon" or
the "Company") announced today that funds managed by the Power
Opportunities strategy of Oaktree Capital Management, L.P.
("Oaktree") agreed to make a strategic investment in an Aecon
subsidiary, Aecon Utilities Group Inc. ("Aecon Utilities"),
creating an enhanced growth vehicle focused on providing utility
infrastructure services across North
America. On closing, Oaktree will acquire a 27.5% ownership
interest in Aecon Utilities by way of a net $150 million convertible preferred equity
investment (the "Investment"). The Investment is expected to
provide immediate benefits to both Aecon and Aecon Utilities:
- Creates a Strategic Platform – Aecon Utilities is
positioned to address industry growth opportunities across utility
end-markets in Canada and the
U.S., many of which are tied to ongoing energy transition and
decarbonization. As a standalone legal entity, Aecon Utilities will
have enhanced optionality regarding future capital raising.
- Establishes a Value-Add Partnership – Oaktree is a
recognized value-added partner with an over 25-year track record in
utilities infrastructure investing. Aecon Utilities will seek to
leverage Oaktree's expertise and network of relevant investments
and relationships to enable continued growth in its platform in
North America.
- Further Highlights the Value of Aecon's Portfolio – The
conversion value of the Investment implies a $750 million enterprise value for Aecon
Utilities, representing a trailing twelve month ("TTM") Adjusted
EBITDA(1),(2) multiple of 9.3x. On closing Aecon will
own 72.5% of Aecon Utilities.
- Provides Financial Flexibility to Accelerate Acquisition
Strategy – Aecon Utilities will have a standalone committed
revolving $400 million credit
facility and supportive capital partners in Oaktree and Aecon to
enable its growth aspirations. Aecon Utilities' balance sheet will
allow it to complement its track-record of organic growth with
potential strategic acquisitions in Canada and the U.S.
- Generates Significant Proceeds to Aecon Group –
Strengthens Aecon's consolidated balance sheet with Aecon receiving
proceeds of $150 million from the
Investment. This will provide Aecon the financial flexibility to
fund strategic growth initiatives. In addition to Aecon Utilities'
new credit facility of $400 million,
Aecon will have a separate committed revolving credit facility of
$450 million to replace its prior
$600 million facility following the
closing of the Investment.
Aecon Utilities is a leading provider of utility infrastructure
solutions in Canada operating in
four end markets: electrical transmission and distribution,
renewables and in-home services, telecommunications, and pipeline
distribution. A significant portion of Aecon Utilities' revenues
are generated from recurring revenue programs for public and
leading private utility-sector clients. Aecon Utilities has
demonstrated a strong revenue growth profile with an approximate
19% compound annual growth rate from 2019 to 2022. Aecon Utilities
has established a presence in the U.S. and sees attractive
opportunities to expand its geographic reach and range of services
in that market. As of the end of Q2 2023, Aecon Utilities generated
TTM revenue and TTM Adjusted EBITDA(3) of
$931 million and $80 million, respectively.
"This strategic Investment will accelerate growth in Aecon
Utilities, further strengthen Aecon's balance sheet to take
advantage of growth and concession opportunities, and unlock value
for our shareholders as we continue our strategic focus on
infrastructure solutions delivered under more collaborative models
and linked to decarbonization, sustainability and the energy
transition," said Jean-Louis
Servranckx, President & Chief Executive Officer,
Aecon.
"We are delighted to partner with an experienced and value-added
investor in Oaktree to continue to grow Aecon Utilities in
Canada and the U.S.," said
Eric MacDonald, Executive Vice
President, Aecon Utilities.
Jimmy Lee, Managing Director and
Assistant Portfolio Manager in Oaktree's Power Opportunities Group,
said "Aecon Utilities' strong competitive position, long-term
customer relationships and exposure to numerous market tailwinds
provide an exceptional foundation for growth. We look forward to
bringing to bear our resources and relationships to support Aecon
Utilities' talented leadership team and employees as they execute
their strategic plan."
"Aecon Utilities is widely known as a leading provider of
mission critical recurring utility infrastructure services across
Canada. We see tremendous
opportunity to leverage its capabilities to expand with new and
existing customers while maintaining the commitment to workforce
safety and exceptional quality for which Aecon Utilities is known,"
said Andrew Moir, Senior Vice
President in Oaktree's Power Opportunities Group.
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(1) This press release presents
certain non-GAAP and supplementary financial measures, as well as
non-GAAP ratios to assist readers in understanding the Company's
performance (GAAP refers to Canadian Generally Accepted Accounting
Principles under IFRS). Further details on these measures and
ratios are included in the "Non-GAAP and Supplementary Financial
Measures" and "Reconciliations and Calculations" sections of this
press release.
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(2) This is a non-GAAP ratio. Refer
to the "Non-GAAP and Supplementary Financial Measures" section of
this press release for more information on each non-GAAP
ratio.
|
(3) This is a non-GAAP financial
measure. Refer to the "Non-GAAP and Supplementary Financial
Measures" and "Reconciliations and Calculations" sections of this
press release for more information on each non-GAAP financial
measure.
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Investment Summary
The Investment will be effected through the purchase of newly
created convertible preferred equity securities (the "Preferred
Equity") of Aecon Utilities. The gross subscription amount of the
Investment is $154.6 million of
Preferred Equity, which represents $150.0
million after upfront fees ("Net Investment Amount"). The
Investment is convertible at any time by Oaktree into a fixed 27.5%
of the common equity of Aecon Utilities and is mandatorily
convertible upon a qualified IPO. Prior to conversion, the
Preferred Equity will accrue a 12% annual coupon for the first
three years and 14% annual coupon thereafter. At Aecon's option,
the coupon is payable in kind by accreting the principal amount or
in cash. On conversion of the Preferred Equity, Aecon's 72.5%
equity interest in Aecon Utilities is not diluted as a result of
the accretion feature. Aecon has the option to purchase the
Preferred Equity for cash at any time at a value equivalent to the
greatest of: (a) the as-converted value of the Preferred Equity,
(b) the accreted value of the Preferred Equity, and (c) 1.5x the
Net Investment Amount less all cash dividends and distributions
paid to Oaktree. Following the seven-year anniversary of the
Investment, Oaktree may sell its Investment, subject to a right of
first offer in favour of Aecon, or may require Aecon, at Aecon's
election, to either (i) initiate an IPO process and/or (ii)
initiate a sale of Aecon Utilities or (iii) purchase the Preferred
Equity for cash at a price equal to the greater of (A) the accreted
value of the Preferred Equity and (B) the as-converted value of the
Preferred Equity.
A six-person board of directors will oversee Aecon Utilities,
comprised of four members nominated by Aecon and two members
nominated by Oaktree.
In connection with the Investment, Oaktree and Aecon will enter
into customary agreements for investments of this nature including
standstill and transfer restrictions and providing for minority
investor rights. Aecon Utilities' management team will continue to
lead the business, and as the controlling shareholder Aecon will
continue to consolidate the financial results of Aecon
Utilities.
Additional information regarding the Investment and the terms of
the Preferred Equity will be included in a material change report
available through SEDAR+ at (www.sedarplus.com). This press release
is only a summary of certain principal terms of the Investment and
is qualified in its entirety by reference to the more detailed
information contained in the material change report.
The closing is expected to occur within the coming days.
Advisors
CIBC Capital Markets is serving as exclusive financial advisor
to Aecon, and Davies Ward Phillips & Vineberg LLP is serving as
legal counsel.
About Aecon
Aecon Group Inc. (TSX: ARE) is a national Canadian construction
and infrastructure development company with global experience.
Aecon delivers integrated solutions to private and public-sector
clients through its Construction segment in the Civil, Urban
Transportation, Nuclear, Utility and Industrial sectors,
and provides project development, financing, investment and
management services through its Concessions segment. Join our
online community on Twitter, LinkedIn, Facebook, and
Instagram @AeconGroupInc.
About Oaktree
Oaktree is a leader among global investment managers
specializing in alternative investments, with $179 billion in assets under management as of
June 30, 2023. The firm emphasizes an
opportunistic, value-oriented and risk-controlled approach to
investments in credit, private equity, real assets and listed
equities. The firm has over 1,100 employees and offices in 20
cities worldwide. For additional information, please visit
Oaktree's website at www.oaktreecapital.com.
In 2019, Brookfield Asset Management acquired a majority
interest in Oaktree. Together, Brookfield and Oaktree provide investors with
one of the most comprehensive offerings of alternative investment
products available today. While partnering to leverage one
another's strengths, Oaktree operates as an independent business
within the Brookfield family, with
its own product offerings and investment, marketing, and support
teams. To learn more about Brookfield, please visit
www.brookfield.com.
NON-GAAP FINANCIAL
MEASURES
This press release presents certain non-GAAP financial measures,
as well as non-GAAP ratios to assist readers in understanding the
Company's performance (GAAP refers to Generally Accepted Accounting
Principles under IFRS). These measures do not have any standardized
meaning and therefore are unlikely to be comparable to similar
measures presented by other issuers and should not be considered in
isolation or as a substitute for measures of performance prepared
in accordance with GAAP.
Throughout this press release, the following terms are used,
which do not have a standardized meaning under GAAP.
Non-GAAP Financial
Measures
A non-GAAP financial measure: (a) depicts the historical or
expected future financial performance, financial position or cash
flow of the Company; (b) with respect to its composition, excludes
an amount that is included in, or includes an amount that is
excluded from, the composition of the most comparable financial
measure presented in the primary consolidated financial statements;
(c) is not presented in the primary financial statements of the
Company; and (d) is not a ratio.
A non-GAAP financial measure presented and discussed in this
press release is as follows:
- "Adjusted EBITDA" represents operating profit
(loss) adjusted to exclude depreciation and amortization, the gain
(loss) on sale of assets and investments, and net income (loss)
from projects accounted for using the equity method, but including
"Equity Project EBITDA" from projects accounted for using the
equity method (Refer to the "Reconciliations and Calculations"
section of this press release for a quantitative reconciliation to
the most comparable financial measure).
Management uses the above non-GAAP financial measure to analyze
and evaluate operating performance. Aecon also believes the above
financial measure is commonly used by the investment community for
valuation purposes, is a useful complementary measure of
profitability, and provides a metric useful in the construction
industry. The most directly comparable measures calculated in
accordance with GAAP are operating profit and profit (loss)
attributable to shareholders.
Primary Financial
Statements
Primary financial statements include any of the following: the
consolidated balance sheets, the consolidated statements of income,
the consolidated statements of comprehensive income, the
consolidated statements of changes in equity, and the consolidated
statements of cash flows.
Key financial measures presented in the primary financial
statements of the Company and presented in this press release are
as follows:
- "Operating profit (loss)" represents the profit (loss)
from operations, before finance income, finance cost, income tax
expense (recovery) and non-controlling interests.
The above measure is presented on the face of the Company's
consolidated statements of income and is not meant to be a
substitute for other subtotals or totals presented in accordance
with IFRS, but rather should be evaluated in conjunction with such
IFRS measures.
Non-GAAP Ratios
A non-GAAP ratio is a financial measure presented in the form of
a ratio, fraction, percentage or similar representation and that
has a non-GAAP financial measure as one of its components and is
not disclosed in the financial statements of the Company.
A non-GAAP ratio presented and discussed in this press release
is as follows:
- "TTM Adjusted EBITDA Multiple" represents the implied
$750 million enterprise value for
Aecon Utilities divided by Adjusted EBITDA.
RECONCILIATIONS AND
CALCULATIONS
Set out below is the calculation of Adjusted EBITDA for Aecon
Utilities for the most recent four quarters and the calculation of
TTM Adjusted EBITDA Multiple for the TTM period ended June 30, 2023:
$
millions
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2023
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2022
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Total
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Quarter
2
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Quarter
1
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Quarter
4
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Quarter
3
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TTM
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Operating
profit
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$
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12.3
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$
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7.4
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$
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29.8
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$
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22.9
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$
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72.4
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Depreciation and
amortization
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6.7
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6.7
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7.0
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7.2
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27.6
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(Gain) on sale of
assets
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(0.3)
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(11.5)
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(7.0)
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(0.8)
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(19.6)
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Adjusted
EBITDA(1)
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$
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18.7
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$
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2.6
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$
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29.8
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$
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29.3
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$
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80.4
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Implied enterprise
value for Aecon Utilities
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750.0
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TTM Adjusted EBITDA
Multiple
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9.3
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(1) This is
a non-GAAP financial measure. Refer to the "Non-GAAP Financial
Measures" section in this press release for more information on
each non-GAAP financial measure.
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Statement on Forward-Looking
Information
The information in this press release includes certain
forward-looking statements which may constitute
forward-looking information under applicable securities laws. These
forward-looking statements are based on currently available
competitive, financial and economic data and operating plans but
are subject to risks and uncertainties. Forward-looking statements
may include, without limitation, statements regarding the
operations, business, financial condition, expected financial
results, performance, prospects, ongoing objectives, strategies and
outlook for Aecon and its subsidiaries, including statements
regarding: Oaktree's minority investment in Aecon Utilities, the
expected benefits thereof and results therefrom, including the
acceleration of growth of Aecon Utilities in Canada and the U.S.; the anticipated closing
date of Oaktree's minority investment in Aecon Utilities; the
anticipated use of proceeds from the investment; the expansion of
Aecon Utilities' geographic reach and range of services in the
U.S.; and Aecon Utilities' goal of targeting prudent balance sheet
leverage and liquidity. Forward-looking statements may in some
cases be identified by words such as "may", "will," "plans,"
"believes," "expects," "anticipates," "estimates," "projects,"
"intends," "should" or the negative of these terms, or similar
expressions. In addition to events beyond Aecon's control, there
are factors which could cause actual or future results, performance
or achievements to differ materially from those expressed or
inferred herein, including, but not limited to: the inability to
complete, or potential delays in completing, the closing of
Oaktree's minority investment in Aecon Utilities; the risk that the
strategic partnership with Oaktree will not realize the expected
results and may negatively impact the existing business of Aecon
Utilities; the risk that Aecon Utilities will not realize the
anticipated balance sheet flexibility with the completion of the
investment; the risk that Aecon Utilities will not realize
opportunities to expand its geographic reach and range of services
in the U.S.; and various other risk factors described in
Aecon's filings with the securities regulatory authorities which
are available under Aecon's profile on SEDAR+
(www.sedarplus.com), including the risk factors described in
Section 13 - "Risk Factors" in Aecon's June
30, 2023 Management's Discussion and Analysis filed on
SEDAR+ (www.sedarplus.com).
These forward-looking statements are based on a variety of
factors and assumptions including, but not limited to that: none of
the risks identified above materialize, there are no unforeseen
changes to economic and market conditions and no significant events
occur outside the ordinary course of business. These assumptions
are based on information currently available to Aecon, including
information obtained from third-party sources. While the Company
believes that such third-party sources are reliable sources of
information, the Company has not independently verified the
information. The Company has not ascertained the validity or
accuracy of the underlying economic assumptions contained in such
information from third-party sources and hereby disclaims any
responsibility or liability whatsoever in respect of any
information obtained from third-party sources.
Except as required by applicable securities laws,
forward-looking statements speak only as of the date on which they
are made and Aecon undertakes no obligation to publicly update or
revise any forward-looking statement, whether as a result of new
information, future events or otherwise.
SOURCE Aecon Group Inc.