TIDMDUKE
RNS Number : 8816S
Duke Royalty Limited
06 October 2017
6 October 2017
Duke Royalty Limited
("Duke Royalty", "Duke" or the "Company")
Duke Royalty enters royalty financing agreement
Duke Royalty Limited (AIM: DUKE) is pleased to announce that it
has entered into its second royalty financing agreement (the
"Financing") with Lynx Equity (U.K.) Limited ("Lynx UK"), the
UK-based subsidiary of Lynx Equity Limited ("Lynx").
Duke has committed GBP 7.0 million, with an initial tranche of
GBP 4.5 million to be drawn down immediately, with the additional
GBP 2.5 million being drawn down at the completion by Lynx UK of an
imminent acquisition, which is expected to be completed in the
coming weeks.
The Financing represents the beginning of the relationship with
Lynx as a Royalty Partner, as Duke has become Lynx's preferred
European capital provider, with the potential to provide a further
GBP 8 million of funding equating to GBP 15 million over time.
New Royalty Partner - Lynx Equity
Lynx is a Toronto-based private firm that seeks to acquire, own
and operate mature, old-economy businesses in a diverse range of
industries. Over its 10-year history, Lynx has made over 40
acquisitions and grown revenue to over C$300 million per annum for
its financial year ended 31 July 2017. Lynx has been recognized as
one of Canada's Fastest-Growing Companies three years in a row in
the PROFIT 500, the definitive ranking published by Canadian
Business magazine based on five-year revenue growth.
Led by Brad Nathan, founder and President, Lynx's team of senior
managers have a track record of success in acquiring owner-operated
businesses with long-standing profitability where the owners are
looking to retire after a transition period. Lynx's business model
is to own 100% of the acquired companies, but ensures management
retention via part-deferred compensation to the owners. Lynx
believes their buy and hold philosophy gives them an advantage when
approaching companies for sale, since owners know they are becoming
part of a large and profitable company with the intention to
preserve the legacy of the owners.
Lynx's business model has a proven acquisition formula and a
strict set of company characteristics which has resulted in
excellent growth and profitability with operations in Canada, the
United States, and the United Kingdom. From its base in London,
Lynx UK intends to grow operations throughout Western Europe.
About the Financing
As part of the Financing, Duke has become Lynx's preferred
European capital provider with the potential to invest up to GBP 15
million in total (the 'Investment Pool'). Duke is looking to
provide Lynx with the capital it requires to allow it to roll out
its proven and successful North American acquisition strategy
across Europe, with the stated potential Investment Pool to be
deployed as further profitable acquisitions meet Duke's royalty
investment criteria and subject to Duke's due diligence and Lynx UK
maintaining a royalty coverage ratio above 2.0x
post-acquisition.
Under the terms of the Financing, Duke will initially provide
Lynx UK with GBP 4.5 million which will establish Duke as the
senior capital provider to Lynx UK and provides the capital
necessary for past and future obligations with respect to the
acquisition cost of its existing UK businesses, Label Express
(founded in 1984) and Signalhome (founded in 1998).
The Financing will entitle Duke to monthly distributions
("Distributions") beginning in November 2017 which total GBP
540,000 per annum, based on the initial drawdown of GBP 4.5
million. The Distributions will be adjusted annually with the first
adjustment occurring in August 2018, based on the percentage change
in Lynx UK's gross revenues for the fiscal year to July 2017
compared to the prior year. The annual adjustment in the
Distributions will be subject to a collar.
Duke and Lynx are currently undergoing due diligence in regard
to the acquisition of a third company in Europe which is under
exclusive Letter of Intent with Lynx UK and is expected to close in
the coming weeks. Duke has committed GBP 2.5 million to Lynx UK for
this deal pending completion. This would increase the annual
distributions to GBP 840,000 starting the following month.
The Financing has the following benefits to Duke:
-- The term of the Financing is perpetual
-- Duke has provided Lynx UK with a buyback option but only after the first 5 years
-- No currency risk as the Financing is denominated in GBP.
-- No withholding taxes, as Duke's UK subsidiary is transacting with Lynx UK.
-- Diversifies company-specific risk by consolidating the
cashflows from all of Lynx's European companies, now and in the
future.
-- Senior secured position over all present and after-acquired
property and assets of Lynx and shares of the subsidiaries of Lynx
UK.
-- Provision of a guarantee by Lynx UK's parent company,
providing significant downside protection for Duke.
"We were immediately drawn to the structure that Duke presented
which will allow us to aggressively expand our European portfolio.
This permanent capital is a perfect fit for our buy and hold
strategy. Most importantly, the Duke team is made up of fantastic
individuals and we look forward to a long and successful
relationship with them," commented Brad Nathan, President of Lynx
Equity.
"Lynx is an excellent partner for Duke; they are successful
operators, their businesses meet our investment criteria and their
international operations make them a substantial and profitable
partner." said Neil Johnson, CEO of Duke. " Being a Canadian
company, Lynx was familiar with the advantages of royalty finance
and from the first meeting we felt our businesses were very
complementary. We are pleased to assist Brad and his team on their
expansion in Europe."
Update on royalty pipeline
In relation to potential future royalty transactions, Duke is
pleased to report that it is under exclusivity with one and in
advanced discussions with a second royalty opportunity. Both of
these opportunities are mature UK industrial businesses that match
Duke's investment criteria and, while no assurance can be given
that either opportunity will ultimately consummate, Duke is
confident that it will have both under exclusivity agreements in
the near term.
Further, Duke retains its option to invest an additional EUR2m
into Temarca B.V., and also anticipates that the Lynx UK investment
will grow in size from the current GBP 7.0 million up to GBP 15.0
million in due course. As a result of the Financing and further
commitment, Duke will have fully deployed the net proceeds of the
placing undertaken at admission in March 2017 in accordance with
its investing policy.
About Duke Royalty
Headquartered in Guernsey, Duke Royalty Limited provides
alternative financing solutions to a diversified range of
businesses in Europe and abroad. Duke Royalty's experienced team
and exclusive partnership provide financing solutions to private
companies that are in need of capital but whose owners wish to
maintain equity control of their business. Duke Royalty's royalty
investments are intended to provide robust, stable, long term
returns to its shareholders.
Duke Royalty is listed on the AIM market under the ticker DUKE.
For more information, visit dukeroyalty.com.
About Lynx Equity Limited
With sales in excess of $300M CAD, Lynx Equity Limited is a
Toronto-based diversified firm focused on acquiring small and
medium-sized businesses from owners looking to retire. Lynx targets
acquisitions of companies with EBITDA between $500k and $2M and
utilizes a buy and hold strategy.
For further information on Lynx Equity, please visit
www.lynxequity.com
For further information:
Duke Royalty Limited Neil Johnson / Charlie Cannon-Brookes
+44 (0) 1481 741 240
Grant Thornton UK LLP Colin Aaronson / Samantha
(Nominated Adviser) Harrison / Jamie Barklem/
Carolyn Sansom
+44 (0) 20 7383 5100
Cenkos Securities plc Julian Morse / Michael Johnson
(Joint Broker)
+44 (0) 207 397 8900
Mirabaud Securities Peter Krens / Edward Haig-Thomas
LLP (Joint Broker)
+44 (0) 20 3167 7222
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulations (EU) No. 596/2014. Upon the publication of this
announcement, this inside information is now considered to be in
the public domain.
END
This information is provided by RNS
The company news service from the London Stock Exchange
END
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