CERF Incorporated (“CERF”) (TSXV: CFL) is pleased to announce that it has acquired Zedcor Oilfield Rentals Ltd. (“Zedcor”) creating one of the largest oilfield rental providers in Western Canada (the “Transaction”). The purchase price for the acquisition is approximately $21,000,000 (the “Purchase Price”).
Zedcor is a private oilfield equipment rental company based in Acheson (Alberta) with field offices in Fort St. John (BC), Grande Prairie (Alberta), and a corporate office in Calgary (Alberta). Since 2011, Zedcor has assembled one of the premier oilfield rental fleets in the industry and has developed a brand that is known for providing exceptional service to its clients. Zedcor’s relatively new fleet of rental assets includes wellsite accommodations, light towers, tanks, bins, generators, rig mats and other ancillary equipment. Management of CERF estimates Zedcor’s fleet has an average age of approximately three years and gross asset value of approximately $45,000,000. TRAC Energy Services (“TRAC”), a wholly owned subsidiary of CERF, will be merged with Zedcor, with the combined entity operating under the name Zedcor Energy Services.
PURCHASE PRICE SUMMARY
The Purchase Price consists of the issuance to the shareholders of Zedcor an aggregate of 3,049,968 CERF common shares (“Common Shares”) and 4,400,000 CERF preferred shares (“Preferred Shares”) both at a deemed price of $0.70 per Common Share, as well as the assumption of approximately $10,800,000 in debt and a vendor take back note of $5,000,000 (the “VTB Note”).
Based on management estimates, Zedcor generated approximately $4,900,000 in EBITDA in 2015 and the Transaction is expected to be accretive to CERF shareholders on a 2016E cash flow per share basis. Management estimates annual operational and general and administrative cost saving synergies to be in excess of $1,200,000 and that the Transaction will be leverage neutral to CERF’s balance sheet in 2016.
At an implied purchase price of approximately $21,000,000 including net debt, CERF is acquiring Zedcor at the following transaction metrics:
|EV / 2015E EBITDA (1)
|EV / Net Asset Value (1)(2)
|EV / Gross Asset Value (1)(2)
|(1) Based on management estimates; net debt (calculated as total interest bearing debt less cash) as at January 31, 2016
(2) Calculated as depreciated or gross value of PP&E plus non cash working capital estimated by management as at January 31, 2016
The combination with Zedcor will solidify CERF as a leading Canadian oilfield rentals provider:
- Limited customer overlap – only one of Zedcor and TRAC’s top 10 customers in 2015 overlapped, making up approximately 3.0% of total consolidated revenue;
- Relatively new asset base – Zedcor has one of the newest sizeable rental fleets in the industry with an average age of approximately three years;
- Diversified asset offering – given its operating area, equipment base and client mix, Zedcor is expected to provide more leverage to completions focused projects;
- Expanded geographic footprint – approximately 45% of Zedcor’s revenue was generated from British Columbia in 2015, versus only 5% for CERF; and
- Best-in-class people – the combined entity will have a superior marketing and service team with key management having significant equity positions in CERF.
PREFERRED SHARE, VTB NOTE & CREDIT FACILITY DETAILS
The Preferred Shares are non-voting and non-transferable, have a stated value of $0.70 (the “Stated Value”) per share and a term of five years. The Preferred Shares have a cumulative cash dividend of 5% of the Stated Value commencing on January 31, 2017 until January 31, 2018 and a 10% cumulative cash dividend from January 31, 2018 thereafter, with dividend payments being subject to certain restrictions in CERF’s existing senior secured credit facilities (the “Credit Facilities”). After January 31, 2019, the Preferred Shares may be converted by the holder thereof into Common Shares at a conversion price of $0.70 per share, subject to the right of CERF to redeem the Preferred Shares prior to such conversion for a cash amount per share equal to the lesser of (i) $2.00; and (ii) the current market price of the Common Shares. CERF shall have the right to redeem the Preferred Shares at any time if the current market price of the Common Shares exceeds $2.00 by either, at CERF’s sole option, (i) payment of cash of $2.00 per Preferred Share; or (ii) through the issuance of 4,400,000 Common Shares, subject to certain adjustments. The Preferred Shares may be redeemed at the end of the term, at CERF’s sole option, for either (i) a cash amount per share equal to the lesser of $2.00 and the current market price; or (ii) 4,400,000 Common Shares, subject to certain adjustments.
The VTB Note is unsecured and subordinated to the Credit Facilities. The VTB Note has a five-year term and a 5% annual interest rate, with interest payments subject to certain restrictions in in the Credit Facilities.
As part of the Transaction, CERF’s lending syndicate has agreed to amend the Credit Facilities to increase its maximum senior net debt / EBITDA ratio to 4.25x for Q1 of 2016. All other financial covenants will remain the same, as per CERF’s credit facility update announced on December 30, 2015.
CERF continues to focus its efforts on three core business lines encompassing oilfield rentals, construction rentals and waste and environmental services. Zedcor’s assets, client base, personnel, safety and operational performance meet CERF’s criteria.
Austin Fraser, CERF’s President, said “Zedcor has assembled one of the highest quality oilfield rental fleets in Canada with a strong operations team that consistently achieves industry leading utilization rates. Through this challenging commodity price environment, CERF remains focused on protecting its balance sheet through this leverage neutral transaction, while continuing to explore strategic acquisitions.”
Todd Ziniuk, Zedcor’s General Manager said “This transaction combines two competitors with best-in-class assets to create one of the most dynamic leaders in innovation and new technology amongst oilfield rental companies in western Canada. We are excited about the operational synergies and future growth opportunities that will come as a result of our expanded geographic presence and critical mass in the oilfield rentals business.”
PillarFour Capital Inc. is acting as exclusive financial advisor to CERF with respect to the Transaction.
In conjunction with the announcement of this Transaction, CERF’s Board of Directors have suspended the Company’s quarterly dividend until further notice. This reduction will allow CERF to preserve liquidity and provide the Company with the financial flexibility to pursue further growth opportunities. CERF has made consecutive quarterly dividend payments since 2005 and will look to re-implement the Company’s dividend policy when appropriate.
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