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TSX – FRC
CALGARY, June 18, 2014 /CNW/ – Canyon Services Group Inc. (“Canyon”) is pleased to announce that it has entered into a pre-acquisition agreement (the “Agreement”) pursuant to which it will acquire Fraction Energy Services Ltd. (“Fraction”), a privately held company based in Calgary, Alberta (the “Acquisition”). Total consideration, including the assumption of debt, for the Acquisition will be approximately $101.7 million. The Acquisition is expected to close effective July 1, 2014 (the “Closing Date”).
Fraction was founded in 2012 and has grown into a leading water and fracturing fluid logistics, containment, transfer and storage management company. It provides services to customers focused in northeast British Columbia and northwest Alberta, with field offices in Fort St. John, British Columbia and Grande Prairie, Alberta. Fraction currently employs approximately 150 people and in the five months ending May 2014, has generated approximately $12.1 million of EBITDA (as such term is defined in Canyon’s May 6, 2014 Management’s Discussion and Analysis available at www.sedar.com).
Under the terms of the Agreement, Canyon will issue 5.4 million Canyon common shares (“Canyon Shares”) in exchange for 22.5 million common shares of Fraction (the “Fraction Shares”) based on an exchange ratio of 0.24 Canyon Shares for each Fraction Share. All of the outstanding options to acquire Fraction Shares will be settled in cash, based on the three day volume weighted average trading price of Canyon Shares immediately prior to the Closing Date, totaling an estimated $4.9 million. As part of the total consideration for the Acquisition, Canyon expects to assume $3.5 million of net debt (long and short term debt less cash) plus $4.6 million of positive working capital as at the Closing Date.
Fraction management and employee shareholders have agreed to enter into a three year escrow agreement whereby 25% of the Canyon Shares received will be freely tradable upon closing of the Acquisition with the remaining 75% of the Canyon Shares being released equally on the first, second and third anniversary of the Closing Date. Cash payments for the option holders whom are not shareholders, will be paid 50% on the Closing Date and 50% on the one year anniversary of the Closing Date.
The Acquisition will be effected by way of an exempt takeover bid. Shareholders holding approximately 93% of the Fraction Shares have executed lock-up agreements in support of the Acquisition. The Acquisition is subject to customary stock exchange and regulatory approvals. The Agreement contains customary terms and conditions for a transaction of this nature, including a clause that prohibits Fraction from soliciting or initiating any discussion concerning any other business combination or similar transaction. Break-fees are payable by each of Canyon and Fraction in certain circumstances.
Brad Fedora, President and Chief Executive Officer of Canyon, stated that “Fraction represents the first step in Canyon’s long-term strategy of developing comprehensive service solutions for water and fracturing fluid management. As Canyon continues to align with customers developing large scale projects in the deep basin requiring larger fracturing treatments, more comprehensive fracturing fluid management will become vital. The transaction is very accretive on a cash flow and earnings basis and we believe Fraction provides us with a complementary division that we can grow concurrently with our existing operations”.
Ken Wagner, President and Chief Executive Officer of Fraction, commented that “We are extremely excited to join the Canyon team. Canyon has proven to be an industry leader with a great culture. Its strong balance sheet and exceptional financial performance will allow for sustainable growth going forward”.
Cormark Securities Inc. and Peters & Co. Limited acted as strategic advisors to Canyon. Raymond James Ltd. acted as financial advisor to Fraction and has advised the board of directors of Fraction that it is of the opinion, that the consideration to be received by the Fraction shareholders pursuant to the proposed Acquisition is fair, from a financial point of view, to Fraction shareholders. Kes VII Capital Inc. also acted as a strategic advisor to Fraction.
Certain statements contained in this press release constitute forward-looking statements. These statements relate to future events or Canyon’s future performance. Forward-looking statements are often, but not always, identified by the use of words such as, “can”, “may”, “expect”, “believe”, “objective”, “could”, “ongoing”, “strategy”, “potential”, and “will” and similar expressions, are forward-looking statements. More particularly and without limitation, this press release contains forward-looking statements and information concerning the completion and timing of the Acquisition; the assessment of Canyon following the Acquisition including its strategic benefits; value creation; and deployment of assets. These forward-looking statements and information are based on certain key expectations and assumptions made by Canyon. Although Canyon believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on these forward-looking statements and information as Canyon cannot give any assurance that they will prove to be correct. These statements are subject to a number of known and unknown risks and uncertainties that could cause actual results to differ materially from Canyon’s expectations, such as volatility of industry conditions; seasonality; reliance on personnel; competition; capital markets; current global financial conditions; access to equipment, parts and development of new technology; dependence on suppliers; credit risk; environmental liability; operating risk and insurance; governmental regulations and changes thereto; vulnerability to market changes; operating equipment risks; protection of technology risks; dependence on major customers; alternatives to and changing demand for petroleum products; access to additional financing; conflicts of interest; legal proceedings; climate change legislation; interest rate risk; and other factors, many of which are beyond the control of Canyon. Consequently, all of the forward-looking statements made in this press release are qualified by these cautionary statements and there can be no assurance that actual results or developments anticipated by Canyon will be realized, or that they will have the expected consequences or effects on Canyon or its business or operations. Canyon assumes no obligation to update publicly any such forward-looking statements, whether as a result of new information, future events or otherwise, except as required pursuant to applicable securities laws.
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SOURCE Canyon Services Group Inc.