(all numbers in this release are in Canadian dollars (CDN$) unless
otherwise noted) Alaris Equity Partners Income Trust (the
“Trust”) (TSX: AD.UN) is pleased to announce that
its wholly-owned subsidiary, Alaris Equity Partners USA, Inc.
(collectively with the Trust and its other subsidiaries,
“Alaris”) has completed a strategic transaction
involving Body Contour Centers LLC, dba Sono Bello (collectively
“BCC” or the
“Company”), and
Brookfield Special Investments, a fund managed by Brookfield,
through its Special Investments program
(“
Brookfield” and together with Alaris, the
“
Sponsors”). The transaction includes Alaris
exchanging US$145.0 million of its existing preferred units in BCC
(the
“Existing Preferred Units”) for newly issued
convertible preferred units in the Company (the “
Alaris
Convertible Preferred Units”), Brookfield investing
approximately US$400.0 million in exchange for newly created
convertible preferred units in the Company (together with the
Alaris Preferred Units, the “
Convertible Preferred
Units”) and Alaris receiving cash proceeds of US$20.3
million for the redemption of its remaining Existing Preferred
Units (collectively, the “
BCC Transaction”). The
Convertible Preferred Units are entitled to receive a preferred
distribution of 8.5% per annum, payable quarterly and participate
in as-converted value of BCC. Alaris will also receive (i) an over
allocation of profits (the “
Profit Participation”)
relative to the other Convertible Preferred Units not held by
Alaris if certain return-based performance thresholds are met, and
(ii) an annual Transaction Fee (as defined below) in connection
with the transaction. Alaris’ initial cost on the Existing
Preferred Units is US$156.3 million. Therefore, Alaris realized a
premium of US$9.3 million on a redemption of its Existing Preferred
Units.
President’s Message
The BCC transaction is the first in a previously
disclosed third-party asset management initiative. We are thrilled
to be partnering with Brookfield, a leading global asset manager,
and equally thrilled to be continuing our long-standing partnership
with BCC, who have continued to perform incredibly well in all
different economic environments. Creating an option for our
partners to do larger deals and in different structures will
greatly enhance our ability to deploy more capital and remain
invested in our world-class portfolio partners for longer periods
of time. For our unitholders, not only will this increase the
growth profile of our portfolio, it also creates a return from the
third-party capital, thus increasing our overall return on equity.
While this type of transaction won’t be a regular occurring event
for us, there are other initiatives that we are evaluating that
would (i) provide similar accretive dynamics for our unitholders
and (ii) support our primary preferred equity model as we look to
capitalize on our proprietary deal flow and our industry-recognized
team.
BCC’s management team continues to prove that
they are best in class as they’ve guided the business to top and
bottom-line growth with 5-year CAGRs¹ of over 20% and 50%,
respectively, and have built the infrastructure to grow the
business substantially in the coming years. Organic growth and de
novo expansion are expected to drive returns for all stakeholders
over the next phase of the business.
The BCC Transaction is a result of a strategic
process undertaken by Alaris to identify an additional equity
partner to provide a partial liquidity event for the owners of BCC
as well as support the Company’s continued growth plans. The
transaction has a number of benefits to Alaris and its unitholders,
including:
-
Allowing Alaris to remain invested in a high-performing asset where
an alternative transaction may have seen Alaris fully
redeemed.
-
The Alaris Convertible Preferred Units are convertible at Alaris’
option into common equity prior to the fifth anniversary of their
issuance and participate in the equity upside of BCC, which when
combined with the current pay structure, results in a higher
expected return than the Existing Preferred Units.
-
Alaris will receive an annual Transaction Fee as part of the
transaction and will receive a Profit Participation if certain
return-based performance thresholds are met. These additional
revenues from the BCC Transaction have the potential to magnify the
returns for Alaris’ unitholders.
-
The BCC Transaction demonstrates Alaris’ capability to deliver
flexible capital alternatives to current and prospective partners
over the course of their life cycle. This is expected to allow
Alaris to deploy more capital in the future as well as extend our
investment horizon with current partners.
-
Establishing a partnership with Brookfield, a leading global asset
manager.
-
Confirmation of the quality of Alaris’ proprietary deal flow and
portfolio of partners.
-
Maintaining a Run Rate Payout Ratio¹ below 70% due to the yield on
the Convertible Preferred Units and the annual Transaction Fee
payable to Alaris, as described further below.
We look forward to working with Brookfield and
BCC and continuing to provide strong returns for our
unitholders.
“The team at BCC is very excited to be moving to
the next phase of our growth with this milestone transaction. One
of the key factors in deciding to do this was the ability to stay
partnered with Alaris. Over the last five years we have developed a
wonderful partnership during a period of high growth as well as the
disruption caused by the pandemic. We were delighted when Alaris
proposed an opportunity to continue the partnership while also
meeting our growing needs. The addition of Brookfield to our team
along with Alaris will add further expertise and capital as we
continue to expand our business across North America.”, Chris M.
Par, Chief Executive Officer of BCC.
Transaction Details
The Convertible Preferred Units are convertible
at the option of the holder, for a period of up to five years, into
common equity of BCC at a predetermined valuation and are entitled
to receive a preferred distribution of 8.5% per annum, payable
quarterly (the “New Preferred Distribution”), in
priority to any common equity distributions, resulting in an annual
distribution entitlement for Alaris of US$12.4 million. The New
Preferred Distribution is subject to a 1.0% per annum escalator
each year after the fifth anniversary of closing. At
the discretion of the Company, all or a portion of the New
Preferred Distribution may be satisfied by way of an increase to
the liquidation preference and conversion ratio of the Convertible
Preferred Units (a “PIK Distribution”), resulting
in an increase to the Sponsors’ as converted equity ownership. The
Convertible Preferred Units will also be entitled to a pro-rata
share of common equity distributions on an as converted basis after
giving effect to a quarterly catch-up payment to the BCC common
equity holders.
In addition to holding the Convertible Preferred
Units, Alaris will be entitled to a transaction fee of US$1.5
million annually, payable quarterly (the “Transaction
Fee”), provided that, if all or a portion of the New
Preferred Distribution is satisfied by a PIK Distribution, then the
same pro-rata portion of the Transaction Fee will only become
payable upon a liquidity event for the Company or certain transfers
of Brookfield’s Convertible Preferred Units.
Certain employees of Alaris will be entitled to
participate in the above-mentioned Profit Participation that Alaris
will receive if certain return based performance thresholds are
met. This employee participation will be up to 50% of the Profit
Participation and be divided into three tranches that are designed
to promote the alignment of employees and Alaris unitholders.
Receipt of the first tranche will be conditional on the
satisfaction of certain performance hurdles based on Alaris’
performance as a whole during the term of the Alaris investment in
BCC. Receipt of the second tranche will be subject to the
discretion of the Alaris’ trustees and will be evaluated by the
trustees over the course of the investment. Receipt of the third
tranche will not be subject to any additional conditions above the
base BCC performance conditions. If any such performance hurdles or
conditions are not satisfied, then Alaris’ Profit Participation
will increase accordingly. Certain employees of Alaris indirectly
co-invested an aggregate of US$1.0 million into BCC in exchange for
newly issued convertible preferred units of BCC on substantially
the same terms as Alaris.
Additional terms of the Convertible Preferred
Units include: a put right in favour of the Sponsors after five
years or following certain uncured events of default and a call
right in favour of the Company after five years, in each case at a
redemption price equal to the greatest of (i) the liquidation
preference of the Convertible Preferred Units (including increases
attributable to PIK Distributions), (ii) the as-converted value of
the Convertible Preferred Units, and (iii) the amount required to
generate a specified minimum return on invested capital; customary
minority protective provisions; and the right of the Sponsors to
each appoint a board member to BCC’s board.
ABOUT ALARIS:
The Trust, through its subsidiaries, indirectly
provides alternative financing to private companies
("Partners") in exchange for distributions with
the principal objective of generating stable and predictable cash
flows for payment of distributions to unitholders of the Trust.
Distributions from the Partners are adjusted each year based on the
percentage change of a "top line" financial performance measure
such as gross margin and same-store sales and rank in priority to
the owners' common equity position.
ABOUT BCC:
Founded in 2008, BCC is a national leader in
private plastic surgery practice throughout the United States with
over 70 locations. With its head office in Kirkland,
WA, BCC operates in over 30 states and employs over 1200 people.
BCC combines a consistent patient experience with the art of
treating each patient as an individual with unique plastic surgery
needs. BCC has a focused service offering that primarily focuses on
“minimally invasive procedures such as laser-assisted body
contouring (liposuction), mini tummy tucks and other minimally
invasive procedures. Over 150 board-certified surgeons conduct
these procedures, and every surgical center is certified by AAAHC,
the highest-level certification for plastic surgery.
BCC targets the "everyday woman and man" with its service offerings
and price points.
NON-IFRS
MEASURES:¹
Run Rate Payout Ratio refers to
Alaris’ total distribution per unit expected to be paid over the
next twelve months divided by the estimated net cash from operating
activities per unit that Alaris expects to generate over the same
twelve month period (after giving effect to the impact of all
information disclosed as of the date of this report).
CAGR refers to the “Compound Annual Growth Rate”
which is the measure of an investment’s annual growth rate over
time, with the effect of compounding taken into account.
The terms Run Rate Payout Ratio and CAGR (the
"Non-IFRS Measure") are not standard measures under IFRS. Alaris'
calculation of the Non-IFRS Measure may differ from those of other
issuers and, therefore, should only be used in conjunction with the
Trust’s annual audited and unaudited interim financial statements,
which are available under the Trust's (and its predecessor's)
profile on SEDAR at www.sedar.com.
FORWARD LOOKING STATEMENTS
This news release contains forward-looking
statements, including forward-looking statements within the meaning
of "safe harbor" provisions under applicable securities laws
(“forward-looking statements”). Statements other than statements of
historical fact contained in this news release may be
forward-looking statements, including, without limitation,
management's expectations, intentions and beliefs concerning: the
financial impact of the BCC Transaction, including the New
Preferred Distribution, the Transaction Fee and the impact on
Alaris’ revenue, net cash from operating activities and returns (to
both Alaris and Alaris’ unitholders); Alaris’ Run Rate Payout Ratio
and the impact of the BCC Transaction thereon; BCC’s growth
expectations; further initiatives to capitalize Alaris’ proprietary
deal pipeline and the impact thereof; Alaris’ ability to deploy
capital and the impact of new deal structures thereon; and Alaris’
growth profile. Many of these statements can be identified by words
such as "believe", "expects", "will", "intends", "projects",
"anticipates", "estimates", "continues" or similar words or the
negative thereof. Any forward-looking statements herein which
constitute a financial outlook or future-oriented financial
information (including the impact on revenues, net cash from
operating activities and Run Rate Payout Ratio) were approved by
management as of the date hereof and have been included to provide
an understanding of Alaris' financial performance and are subject
to the same risks and assumptions disclosed herein. There can be no
assurance that the plans, intentions or expectations upon which
these forward-looking statements are based will occur.
By their nature, forward-looking statements
require Alaris to make assumptions and are subject to inherent
risks and uncertainties. Assumptions about the performance of the
Canadian and U.S. economies over the next 24 months and how that
will affect Alaris’ business and that of its Partners (including,
without limitation, any ongoing impact of COVID-19) are material
factors considered by Alaris management when setting the outlook
for Alaris. Key assumptions include, but are not limited to,
assumptions that: interest rates will not rise in a matter
materially different from the prevailing market expectations over
the next 12 to 24 months; that COVID-19 or any variants thereof
will not impact the economy or any Partners’ operations in a
material way in the next 12 months; the businesses of the majority
of our Partners will continue to grow; the businesses of new
Partners and those of existing partners will perform in line with
Alaris’ expectations and diligence; more private companies will
require access to alternative sources of capital and that Alaris
will have the ability to raise required equity and/or debt
financing on acceptable terms. Management of Alaris has also
assumed that the Canadian and U.S. dollar trading pair will remain
in a range of approximately plus or minus 15% of the current rate
over the next 6 months. In determining expectations for economic
growth, management of Alaris primarily considers historical
economic data provided by the Canadian and U.S. governments and
their agencies as well as prevailing economic conditions at the
time of such determinations.
Forward-looking statements are subject to risks,
uncertainties and assumptions and should not be read as guarantees
or assurances of future performance. The actual results of the
Trust and the Partners could materially differ from those
anticipated in the forward-looking statements contained herein as a
result of certain risk factors, including, but not limited to: an
increase in COVID-19 or similar heath crises restrictions; the
ability of our Partners and, correspondingly, Alaris to meet
performance expectations for 2023; any change in the senior lenders
under the Facility’s outlook for Alaris’ business; management's
ability to assess and mitigate the impacts of any local, regional,
national or international health crises like COVID-19 or its
variants; the dependence of Alaris on the Partners; reliance on key
personnel; general economic conditions in Canada, North America and
globally; failure to complete or realize the anticipated benefit of
Alaris’ financing arrangements with the Partners; a failure of the
Trust or any Partners to obtain required regulatory approvals on a
timely basis or at all; changes in legislation and regulations and
the interpretations thereof; risks relating to the Partners and
their businesses, including, without limitation, a material change
in the operations of a Partner or the industries they operate in;
inability to close additional Partner contributions in a timely
fashion, or at all; a change in the ability of the Partners to
continue to pay Alaris’ distributions; a change in the unaudited
information provided to the Trust; a failure of a Partner (or
Partners) to realize on their anticipated growth strategies; a
failure to achieve the expected benefits of the third-party asset
management strategy or similar new investment structures and
strategies; a failure to achieve resolutions for outstanding issues
with Partners on terms materially in line with management’s
expectations or at all; and a failure to realize the benefits of
any concessions or relief measures provided by Alaris to any
Partner or to successfully execute an exit strategy for a Partner
where desired. Additional risks that may cause actual results to
vary from those indicated are discussed under the heading "Risk
Factors" and "Forward Looking Statements" in the Trust’s Management
Discussion and Analysis for the year ended December 31, 2021, which
is filed under the Trust’s profile at www.sedar.com and on its
website at www.alarisequitypartners.com.
This news release contains future-oriented
financial information and financial outlook information
(collectively, "FOFI") about increases to the Trust's net operating
cash per flow per unit and liquidity, each of which are subject to
the same assumptions, risk factors, limitations, and qualifications
as set forth above. Readers are cautioned that the assumptions used
in the preparation of such information, although considered
reasonable at the time of preparation, may prove to be imprecise
and, as such, undue reliance should not be placed on FOFI and
forward-looking statements. Alaris' actual results, performance or
achievement could differ materially from those expressed in, or
implied by, these forward-looking statements and FOFI, or if any of
them do so, what benefits the Trust will derive therefrom. The
Trust has included the forward-looking statements and FOFI in order
to provide readers with a more complete perspective on Alaris’
future operations and such information may not be appropriate for
other purposes. Alaris disclaims any intention or obligation to
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, except as
required by law.
Readers are cautioned not to place undue
reliance on any forward-looking information contained in this news
release as a number of factors could cause actual future results,
conditions, actions or events to differ materially from the
targets, expectations, estimates or intentions expressed in the
forward-looking statements. Statements containing forward-looking
information reflect management’s current beliefs and assumptions
based on information in its possession on the date of this news
release. Although management believes that the assumptions
reflected in the forward-looking statements contained herein are
reasonable, there can be no assurance that such expectations will
prove to be correct.
The forward-looking statements contained herein
are expressly qualified in their entirety by this cautionary
statement. The forward-looking statements included in this news
release are made as of the date of this news release and Alaris
does not undertake or assume any obligation to update or revise
such statements to reflect new events or circumstances except as
expressly required by applicable securities legislation.
Neither the TSX nor its Regulation
Services Provider (as that term is defined in the policies of the
TSX) accepts responsibility for the adequacy or accuracy of this
release.
For further information please
contact:ir@alarisequity.comP: (403) 260-1457Alaris Equity
Partners Income TrustSuite 250, 333 24th Avenue S.W.Calgary,
Alberta T2S 3E6www.alarisequitypartners.com
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