JZ Capital Ptnrs Ltd JZCP announces disposal of Water Treatment Industries

 
TIDMJZCP TIDMJZCN 
 
JZ CAPITAL PARTNERS LIMITED (the "Company") 
 (a closed-ended investment company incorporated with limited liability under 
              the laws of Guernsey with registered number 48761) 
                           LEI 549300TZCK08Q16HHU44 
 
         Proposed disposal of a 35.45 per cent. ownership interest in 
                     TWH Water Treatment Industries, Inc. 
 
 
3 September 2018 
 
The Company today announces that TWH Water Treatment Industries, Inc. ("Water 
Treatment Industries"), a subsidiary of one of the Company's portfolio 
companies, Triwater Holdings LLC ("Triwater Holdings") agreed to enter into a 
merger agreement with a newly incorporated subsidiary (incorporated for the 
purposes of the merger) of DuBois Chemicals, Inc. ("DuBois") in relation to the 
proposed merger between Water Treatment Industries and DuBois (the "Merger"). 
 
The shareholders of Water Treatment Industries, including Triwater Holdings, 
will receive for the Merger, in aggregate, initial gross consideration of 
approximately US$148 million in cash on completion of the Merger, subject to 
post-closing adjustments for net working capital of Water Treatment Industries 
and to reflect the amount of cash, indebtedness and transaction expenses of the 
company at the time of closing (the "Initial Consideration") and additional 
contingent earn-out consideration of up to US$17 million in cash based on 
certain revenue targets of Water Treatment Industries (the "Earn-Out 
Consideration"). The Company holds a 35.45 per cent. ownership interest in 
Water Treatment Industries by way of both its 35.43 per cent. ownership 
interest in Triwater Holdings (which owns 89.91 per cent. of Water Treatment 
Industries) and its 3.59 per cent. ownership interest directly in Water 
Treatment Industries. Accordingly, the Merger effectively involves the Company 
disposing of its ownership interest in Water Treatment Industries. For its 
ownership interest, the Company expects to receive approximately US$32 million 
from the Initial Consideration, subject to the post-closing adjustments, and 
potentially up to approximately US$5 million from the Earn-Out Consideration 
(together, the "Transaction"). The amount expected to be received by the 
Company reflects that the aggregate Initial Consideration and Earn-Out 
Consideration (if any) is to be paid out first in respect of senior debt and 
transaction fees, as well as preferred equity which as between investors 
including the Company is held (directly or indirectly) in different percentages 
than the common stock. 
 
The Transaction would be considered a related party transaction under Chapter 
11 of the Listing Rules (with which the Company voluntarily complies and 
insofar as the Listing Rules are applicable to the Company by virtue of its 
voluntary compliance) and therefore shareholder approval is required for the 
Transaction. The Merger through which the Company is proposing to realise its 
investment in Water Treatment Industries is subject to a number of conditions 
customary for US-style mergers (including a no material adverse effect 
condition) as well as obtaining such shareholder approval in relation to the 
Transaction in order to complete the Merger. 
 
Shareholder approval for the Transaction will be sought at an Extraordinary 
General Meeting ("EGM") of the Company which the Company intends to convene by 
giving notice of the EGM as soon as practicable. A shareholder circular 
containing further details of the Transaction and the notice convening the EGM 
will also be sent to shareholders as soon as practicable. A further 
announcement will be made by the Company which will provide details of the 
date, time and location of the EGM. This announcement should be read in 
conjunction with the following announcement together with the shareholder 
circular. 
 
Proposed disposal of Water Treatment Industries 
 
The Company intends to realise its investment in Water Treatment Industries 
through the Merger of Water Treatment Industries with DuBois which the Board 
believes currently provides the best opportunity to realise an attractive and 
certain value for its investment. 
 
Water Treatment Industries is a subsidiary of one of the Company's portfolio 
companies, Triwater Holdings, which owns 89.91 per cent. of Water Treatment 
Industries. The Company holds a 35.45 per cent. ownership interest in Water 
Treatment Industries by way of both its 35.43 per cent. ownership interest in 
Triwater Holdings and its 3.59 per cent. ownership interest directly in Water 
Treatment Industries. 
 
Water Treatment Industries is incorporated in Delaware and provides water 
treatment chemical supplies and services in the US and Canada. It has a number 
of subsidiaries, including Nashville Chemical & Equipment Company Inc., 
Klenzoid Canada Inc., Eldon Water Inc. and Chemco Products Inc. Water Treatment 
Industries has gross profits of approximately US$15.4 million and total gross 
assets of approximately US$49.2 million (including approximately US$26.7 
million of intangible assets) for the 12 months ending 30 June 2018. These 
figures, all of which are unaudited, are attributable to the whole of the Water 
Treatment Industries business and not the proportionate 35.45 per cent. 
ownership interest held and proposed to be disposed of by the Company through 
the Merger. Existing members of the management team of Water Treatment 
Industries run the Water Treatment Industries business and the key individual 
important to the business is Ted Kusz who is the President of Water Treatment 
Industries. 
 
As mentioned above, the shareholders of Water Treatment Industries, including 
Triwater Holdings, will receive for the Merger, in aggregate, approximately 
US$148 million Initial Consideration in cash on completion of the Merger, 
subject to the post-closing adjustments, and additional contingent Earn-Out 
Consideration of up to US$17 million in cash based on certain revenue targets 
of Water Treatment Industries. 
 
The Initial Consideration is subject to customary financial adjustments to 
reflect the amount of working capital in Water Treatment Industries at 
completion of the Merger as well as the amount of cash, indebtedness and 
transaction expenses of the company at the same time. Following completion of 
the Merger, DuBois and Triwater Holdings will agree or determine the amount of 
the adjustments to the Initial Consideration. In the case of the net working 
capital adjustment, the adjustment to the Initial Consideration will be 
determined by the amount by which the net working capital of Water Treatment 
Industries as at the date of completion is either less than US$9.5 million or 
greater than US$10.5 million. If the networking capital is less than US$9.5 
million the adjustment will be equal to the amount of the deficit, if it is 
greater than US$10.5 million the adjustment will be equal to the amount of the 
excess, and in any other case the adjustment will be zero. For the other 
post-closing adjustments, the adjustments will be made to reflect the amount of 
cash, indebtedness and transaction expenses of the company at the time of 
closing. Any upwards or downwards adjustment of the Initial Consideration will 
be payable upon final determination of such adjustments in accordance with the 
terms of the Merger, which is expected to be between 60 and 120 days after 
completion. 
 
The Earn-Out Consideration is based upon the amount by which Water Treatment 
Industries' total net sales for the 12-month period ending 31 December 2018 
exceeds approximately US$65 million provided that the Earn-Out Consideration 
shall not exceed US$17 million. The Earn-Out Consideration, if any, will be 
paid within 90 days following the publication of the audited financial 
statements of DuBois for the calendar year ending 31 December 2018, which is 
expected to be in or around May 2019. 
 
For the Company's 35.45 per cent. ownership interest in Water Treatment 
Industries, the Company expects to receive in connection with the Merger 
approximately US$32 million from the Initial Consideration, subject to the 
post-closing adjustments, and potentially up to approximately US$5 million from 
the Earn-Out Consideration. The proceeds that the Company will receive in 
connection with the Transaction are intended to be used for the Company's 
general corporate purposes. 
 
Related Party Transaction 
 
Further details of the Transaction will be included in the shareholder circular 
to be sent to shareholders as soon as practicable. However, shareholders should 
note that the Transaction would be considered a related party transaction under 
Chapter 11 of the Listing Rules. 
 
The parent company of the counterparty to the Merger, DuBois is a portfolio 
company of Resolute Fund III, L.P. ("Resolute Fund III") which has a 73.7 per 
cent. ownership interest in DuBois and is one of the funds managed by The 
Jordan Company, L.P. ("The Jordan Company"). Each of David Zalaznick and Jay 
Jordan (together, the "JZAI Founders") who together are the founders and 
principals of the Company's investment adviser, Jordan/Zalaznick Advisers, Inc. 
("JZAI") are also the founders of The Jordan Company. In addition, Jay Jordan 
is the non-executive Chairman of The Jordan Company. Both of the JZAI Founders 
have an economic interest in Resolute Fund III or its affiliated funds by way 
of certain fee arrangements including consultancy or similar fees or income, 
and also receive carried interest in relation to such funds. As such and as 
both of the JZAI Founders are related parties of the Company under the Listing 
Rules, the Transaction would be considered a related party transaction. 
 
Shareholders should also note that, whilst the Listing Rules provide that for a 
related party transaction written confirmation is to be obtained from a sponsor 
that its terms are fair and reasonable as far as shareholders are concerned, 
such a confirmation has not been received in relation to the Transaction. 
Shareholders are reminded that the Company also departed from the same

requirement in relation to the related party transaction of the Company 
concerning Deflecto Holdings, LLC (the "Deflecto Proposal"), as described in 
the circular to shareholders published by the Company on 6 June 2018 and 
approved at the extraordinary general meeting of the Company that took place on 
26 June 2018. 
 
This is because, as was the case with the Deflecto Proposal, the Company has 
been unable to obtain a fair and reasonable written confirmation for the 
Transaction at a cost which can be justified relative to its size and within 
the time constraints needed to be met in order to transact on and complete the 
Transaction on the terms negotiated. The Company understands that the costs and 
time for obtaining such a confirmation can often be greater for a related party 
transaction that concerns an acquisition or disposal, such as the Deflecto 
Proposal and the Transaction respectively. Such additional costs and time can 
be attributed to the additional due diligence and valuation work that may need 
to be undertaken on the target which is the subject of the acquisition or 
disposal (as the case may be). 
 
The Company has therefore decided to depart from the requirement to obtain a 
fair and reasonable written confirmation on this occasion but notwithstanding 
that, and as was also the case with the Deflecto Proposal, JZAI as the 
Company's investment adviser has instead provided written confirmation to the 
Company that the terms of the Transaction are fair and reasonable as far as 
ordinary shareholders are concerned. Whilst the JZAI Founders do have an 
economic interest in Resolute Fund III or its affiliated funds as described 
above, the Company notes that the Merger and the selection of DuBois as the 
preferred bidder for Water Treatment Industries was undertaken following a 
competitive auction process and an assessment of DuBois as presenting the 
superior offer as determined on the basis of price and ability to complete the 
Merger in a short time frame with certainty. The Company also notes that 
Edgewater Growth Capital Partners ("Edgewater") (which holds a 43.23 per cent. 
ownership interest in Water Treatment Industries) is participating in the 
Merger (separate to its ownership interest through the Company) on the same 
terms, which the Company considers provides additional support for JZAI's 
assessment that the terms of the Transaction are fair and reasonable. Moreover, 
Edgewater has led the negotiations in relation to the Transaction on behalf of 
Triwater Holdings and, as one of the Company's major shareholders, has 
interests which are aligned with the Company's interests. 
 
Shareholders are also reminded that the Company is not subject to, but rather 
voluntarily complies with, the Listing Rules and, save for the absence of a 
fair and reasonable written confirmation in a form prescribed by the Listing 
Rules, the Transaction, like the Deflecto Proposal, is otherwise being treated 
in accordance with the Listing Rules including in respect of the requirement to 
obtain shareholder approval. The Directors of the Company, who have been so 
advised by JZAI, consider this departure is justified for the aforementioned 
reasons and is in the best interests of the Company and the ordinary 
shareholders. The Company otherwise intends to continue to comply voluntarily 
with the requirements of the Listing Rules. 
 
______________________________________________________________________________________ 
 
The information contained within this announcement is considered by the Company 
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. The person 
responsible for arranging the release of this announcement on behalf of the 
Company is David Macfarlane, Chairman. 
 
                                     Ends 
 
For further information: 
 
Ed Berry / Kit Dunford                 +44 (0) 20 3727 1046 / 1143 
FTI Consulting 
 
David Zalaznick                        +1 212 485 9410 
Jordan/Zalaznick Advisers, Inc. 
 
Samuel Walden                          +44 (0) 1481 745385 
Northern Trust International Fund 
Administration Services (Guernsey) 
Limited 
 
 
About JZCP 
 
JZ Capital Partners ("JZCP") is one of the oldest closed-end investment 
companies listed on the London Stock Exchange. It seeks to provide shareholders 
with a return by investing selectively in US and European microcap companies 
and US real estate. JZCP receives investment advice from Jordan/Zalaznick 
Advisers, Inc. ("JZAI") which is led by David Zalaznick and Jay Jordan. They 
have worked together for more than 35 years and are supported by teams of 
investment professionals in New York, Chicago, London and Madrid. JZAI's 
experts work with the existing management of microcap companies to help build 
better businesses, create value and deliver strong returns for investors. For 
more information please visit www.jzcp.com. 
 
 
 
END

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September 03, 2018 02:00 ET (06:00 GMT)

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