All amounts are in Canadian dollars
(TSX: HEO) – H2O Innovation Inc. (“H2O Innovation” or the
“Corporation”) announces that it has entered into a definitive
arrangement agreement (the “Arrangement Agreement”) with Ember SPV
I Purchaser Inc. (the “Purchaser”), an entity controlled by funds
managed by Ember Infrastructure Management, LP (“Ember”), a New
York-based private equity firm, whereby the Purchaser will acquire
all of the issued and outstanding common shares in the capital of
H2O Innovation (the “Shares”), other than the Shares to be rolled
over by Investissement Québec (“IQ”), Caisse de dépôt et placement
du Québec (“CDPQ”) and the key executives of the Corporation
(collectively, the “Rollover Shareholders”), for $4.251 in cash
(the “Consideration”) per Share (the “Transaction”).
Key Transaction Highlights
- The shareholders of H2O Innovation (the “Shareholders”) will
receive a price of $4.25 per Share, payable entirely in cash, which
represents a premium of approximately 68% to the closing price of
the Shares on the Toronto Stock Exchange (the “TSX”) on October 2,
20232, a premium of approximately 66% to the 20-day volume-weighted
average Share price on the TSX for the period ending on October 2,
2023, and a 26% premium to the 52-week high price on the TSX of
$3.37 per Share achieved on July 4, 2023;
- H2O Innovation’s board of directors (the “Board”) (excluding
any director not entitled to vote) unanimously recommends that
Shareholders vote in favour of the Transaction;
- Ember will leverage the expertise of the existing management
team led by Frédéric Dugré, President, Chief Executive Officer and
co-Founder of H2O Innovation, to continue to support H2O
Innovation’s growth strategy;
- Ember is committed to continue employing the Corporation’s
current key executives and maintaining H2O Innovation’s head office
and substantially the same number of employees in the Province of
Québec; and
- Ember is partnering with IQ and CDPQ, important Québec-based
institutions and significant Shareholders of H2O Innovation, that
together with the key executives of H2O Innovation will, in the
aggregate, hold an equity interest of approximately 21% in H2O
Innovation post-Transaction.
The Transaction values H2O Innovation at $395 million, on a
fully diluted equity basis. Ember is funding its portion of the
purchase price with capital it manages on behalf of its limited
partners via private equity fund capital as well as select
co-investors, including funds affiliated with the Ontario Power
Generation Inc. Pension Fund. Under the terms of the Arrangement
Agreement, the Corporation may solicit a superior offer for a
defined “go-shop” period, as further outlined below, during which
Scotia Capital Inc. (“Scotiabank”), the Corporation’s financial
advisor, will approach potential interested parties with a view to
soliciting a higher offer, which the Purchaser is entitled to
match.
Ember and H2O Innovation have put in place appropriate measures
to ensure a seamless transition to the new ownership, with minimal
disruption for the employees of H2O Innovation, and the
Corporation’s numerous loyal customers and partners across Canada,
the United States, Mexico and Europe.
“After extensive work we have concluded that this transaction is
in the best interest of H2O Innovation and fair to our
Shareholders. Following a comprehensive assessment and our
extensive negotiations with the Purchaser, we are pleased to have
reached an agreement that provides immediate and fair value to our
Shareholders. In addition to the attractive premium offered to H2O
Innovation’s Shareholders, Ember has agreed to key commitments for
H2O Innovation and its stakeholders. Ember appreciates the
significance of H2O Innovation’s Québec roots that will remain an
important foundation for the Corporation as it continues its
growth, and has agreed to maintain H2O Innovation’s head office in
the Province of Québec,” said Lisa Henthorne, Chairwoman of the
Board.
“We are very excited to partner with Ember to accelerate growth.
We look forward to leveraging their relationships, resources, and
expertise as we execute on our growth strategy in a manner
consistent with our core values of loyalty, entrepreneurship,
achievement and unity,” stated Mr. Dugré. “As a private equity firm
investing in infrastructure solutions to reduce carbon intensity,
increase resource efficiency, and enhance climate resilience, Ember
is the ideal partner for H2O Innovation.”
“Ember looks forward to partnering with the H2O Innovation
management team to continue building a leading integrated water
solutions company focused on providing best-in-class technologies
and services to its customers,” declared Elena Savostianova,
Managing Partner of Ember. “Sustainability is core to Ember’s
investment philosophy, and water and wastewater solutions are
central to our sustainability thesis. While H2O Innovation has
achieved significant success in delivering its services and
solutions to its customers both organically and through
acquisition-driven growth since its inception, we see a unique
opportunity for H2O Innovation to enter a new phase of growth
supported by our capital and industry expertise. We intend to take
a long-term view as we support the ongoing implementation of H2O
Innovation’s existing strategy, while continuing to find additional
opportunities to better serve its customers.”
Guy LeBlanc, President and CEO of IQ, added: “Investissement
Québec supports Ember as a partner of choice to help H2O Innovation
on its growth journey. It is committed to maintaining Québec
operations and leveraging H2O Innovation’s expertise to make it a
consolidator and global leader in its field. This investment
project is part of our mission to drive economic development.”
“As a long-time shareholder, CDPQ is pleased to continue its
partnership with H2O Innovation, a growing company operating in a
strategic sector of our economy,” said Kim Thomassin, Executive
Vice‑President and Head of Québec at CDPQ. “With this
privatization, the Corporation will be able to continue executing
its acquisition plan while maintaining its infrastructure and
talent in Québec.”
The process and negotiation of the Transaction were supervised
by a committee of independent directors of H2O Innovation (the
“Special Committee”). The Transaction has been approved unanimously
by the Board (with interested and non-independent directors
abstaining from voting) following the unanimous recommendation of
the Special Committee. Both the Board and the Special Committee
determined, after receiving financial and legal advice, that the
Transaction is in the best interests of the Corporation and is fair
to the Shareholders (other than the Rollover Shareholders). The
Board also unanimously recommends that the Shareholders vote in
favour of the Transaction at the special meeting of Shareholders to
be called to approve the Transaction (the “Meeting”).
As part of the Transaction, IQ, the largest shareholder of the
Corporation, has agreed to roll over all of its Shares and increase
its existing equity ownership in the Corporation by acquiring
approximately $20 million of additional Shares from the Purchaser
for an amount per Share equal to the Consideration. Furthermore,
CDPQ has agreed to roll over the majority of its Shares and the key
executives of H2O Innovation have agreed to roll over a portion of
their Shares for an amount per Share equal to the Consideration.
Upon completion of the Transaction, Ember will be the controlling
shareholder of H2O Innovation, with IQ, CDPQ and the key executives
of H2O Innovation, together, holding an equity interest in the
Corporation of approximately 21%.
The Rollover Shareholders and each other director and officer of
the Corporation, who currently collectively hold approximately 24%
of all issued and outstanding Shares, have entered into customary
support and voting agreements pursuant to which they have agreed to
vote all their Shares in favour of the Transaction at the Meeting,
subject to certain conditions.
Fairness Opinions and Formal Valuation
Desjardins Capital Markets (“Desjardins”), the independent
financial advisor to the Special Committee, has delivered to the
Special Committee a formal valuation of the Shares completed under
the supervision of the Special Committee, as required by
Multilateral Instrument 61-101 – Protection of Minority Security
Holders in Special Transactions (“MI 61-101”), which determined
that as at October 3, 2023 and based upon and subject to the
assumptions, limitations and qualifications communicated to the
Special Committee by Desjardins and to be contained in Desjardins’
written formal valuation, the fair market value of the Shares is in
the range of $3.25 to $4.00 per Share.
Scotiabank, the Corporation’s exclusive financial advisor, and
Desjardins have also each provided an opinion to the Special
Committee and the Board that as at October 3, 2023, subject to the
assumptions, qualifications and limitations communicated to the
Special Committee and the Board and to be set out in each of
Scotiabank’s and Desjardins’ written fairness opinion, the
Consideration is fair, from a financial point of view, to the
Shareholders (other than the Rollover Shareholders in respect of
their Shares being rolled over).
The formal valuation and both fairness opinions will be included
in the management information circular to be mailed to the
Shareholders in connection with the Meeting and filed by the
Corporation under its profile on SEDAR+ at www.sedarplus.ca and
made available on the Corporation’s website at
www.h2oinnovation.com.
Additional Transaction Details
The Transaction will be implemented by way of statutory plan of
arrangement under the Canada Business Corporations Act and is
subject to court approval, after considering the procedural and
substantive fairness of the Transaction, and the approval of at
least 66 2/3% of the votes cast by Shareholders present in person
or by proxy at the Meeting. The Transaction is also subject to
approval by holders of more than 50% of the votes cast by H2O
Innovation’s minority Shareholders, being all Shareholders
excluding the Rollover Shareholders and any of their respective
affiliates, present in person or by proxy at the Meeting, in
accordance with MI 61-101.
Pursuant to the Arrangement Agreement, H2O Innovation has a
30-day go-shop period that will extend from October 3, 2023 to
November 2, 2023 (the “Go-Shop Period”), during which Scotiabank
will solicit third-party interest in submitting a proposal which is
superior to the proposal made by the Purchaser. The Purchaser will
have a right to match a superior proposal during and after the
Go-Shop Period. There can be no assurance that the go-shop process
will result in a superior proposal. H2O Innovation does not intend
to disclose developments with respect to the go-shop process unless
and until the Board makes a determination requiring further
disclosure.
After the expiry of the Go-Shop Period, H2O Innovation will be
subject to a non-solicitation covenant with customary “fiduciary
out” provisions under the terms of the Arrangement Agreement. The
Arrangement Agreement contains other customary representations,
warranties, covenants and closing conditions. The Transaction is
not subject to any financing condition and is expected to close in
the fourth quarter of 2023.
Upon closing of the Transaction, Ember intends to cause the
Shares to be delisted from the TSX and Euronext Growth Paris and to
be withdrawn from the OTCQX designation, and to cause the
Corporation to submit an application to cease to be a reporting
issuer under applicable Canadian securities laws.
Additional details regarding the terms and conditions of the
Transaction, the rationale for the recommendations made by the
Special Committee and the Board, the fairness opinions and the
formal valuation, and how Shareholders can participate in and vote
at the Meeting, will be set out in H2O Innovation’s management
information circular to be prepared and made available to
Shareholders in connection with the Meeting on SEDAR+ at
www.sedarplus.ca and on the Corporation’s website at
www.h2oinnovation.com. Copies of the Arrangement Agreement, the
voting and support agreements, the management information circular
and proxy materials in respect of the Meeting will be filed by the
Corporation under its profile on SEDAR+ at www.sedarplus.ca.
Advisors
Norton Rose Fulbright Canada LLP is H2O Innovation’s legal
counsel, Weil, Gotshal & Manges LLP and Davies Ward Phillips
& Vineberg LLP are legal counsel to Ember, Fasken Martineau
DuMoulin LLP is legal counsel to IQ and Blake, Cassels &
Graydon LLP is legal counsel to CDPQ. Scotiabank acted as exclusive
financial advisor to H2O Innovation and Desjardins acted as
independent financial advisor to the Special Committee. Raymond
James acted as financial advisor to Ember.
No Prospectus (France)
The Transaction will not imply a prospectus requiring the
approval of France’s Autorité des marchés financiers.
About H2O Innovation
Innovation is in our name, and it is what drives the
organization. H2O Innovation is a complete water solutions company
focused on providing best-in-class technologies and services to its
customers. The Corporation’s activities rely on three pillars: i)
Water Technologies & Services (WTS) applies membrane
technologies and engineering expertise to deliver equipment and
services to municipal and industrial water, wastewater, and water
reuse customers, ii) Specialty Products (SP) is a set of businesses
that manufacture and supply a complete line of specialty chemicals,
consumables and engineered products for the global water treatment
industry, and iii) Operation & Maintenance (O&M) provides
contract operations and associated services for water and
wastewater treatment systems. Through innovation, we strive to
simplify water. For more information, visit
www.h2oinnovation.com.
About Ember
Ember is a private equity firm investing in businesses
delivering infrastructure solutions that reduce carbon intensity,
enhance resource efficiency, and increase resilience to climate
impacts. Headquartered in New York City, Ember invests across the
energy transition, water, waste and industrial sectors. For more
information, please visit www.ember-infra.com.
About CDPQ
At CDPQ, we invest constructively to generate sustainable
returns over the long term. As a global investment group managing
funds for public pension and insurance plans, we work alongside our
partners to build enterprises that drive performance and progress.
We are active in the major financial markets, private equity,
infrastructure, real estate and private debt. As at June 30, 2023,
CDPQ’s net assets totalled CAD 424 billion. For more information,
visit cdpq.com, consult our LinkedIn or Instagram pages, or follow
us on X.
CDPQ is a registered trademark owned by Caisse de dépôt et
placement du Québec and licensed for use by its subsidiaries.
About IQ
Investissement Quebec’s mission is to play an active role in
Quebec’s economic development by stimulating business innovation,
entrepreneurship and business acquisitions, as well as growth in
investment and exports. Operating in all of the province’s
administrative regions, the Corporation supports the creation and
growth of businesses of all sizes with investments and customized
financial solutions. It also assists businesses by providing
consulting services and other support measures, including
technological assistance available from Investissement Québec –
CRIQ. In addition, through Investissement Québec International, the
Corporation prospects for talent and foreign investment, and
assists Quebec businesses with export activities.
Early Warning Disclosure by IQ
As at the date hereof, IQ owns 9,003,544 Shares, representing
approximately 10% of the issued and outstanding Shares, and
currently files early warning reports pursuant to the requirements
of Regulation 62-104 respecting Take-Over Bids and lssuer Bids and
Regulation 62-103 respecting the Early Warning System and Related
Take-Over Bid and lnsider Reporting Issues with respect to H2O
Innovation. An amended early warning report, stating that IQ has
agreed with the Purchaser to transfer to the Purchaser all of its
Shares (and receive shares of the Purchaser as a counterpart) and
acquire additional Shares from the Purchaser in the context of the
Transaction, and that it has entered into a support and voting
agreement with the Purchaser pursuant to which it has agreed to
vote in favour of the Transaction at the Meeting, will be filed
with the applicable securities commissions and will be made
available on SEDAR+ at www.sedarplus.ca. Further information may be
obtained by contacting Isabelle Fontaine, Senior Director, Media
and Government Affairs of IQ at 438-622-4087.
Cautionary Note and Forward-Looking Statements
The Corporation’s oral and written public communications may
include forward-looking statements. These statements are included
in this press release and may be included in other filings or
communications from the Corporation. The forward-looking statements
are made pursuant to the applicable securities legislation.
Forward-looking statements may include, but are not limited to,
statements and comments with respect to the rationale of the
Special Committee and the Board for entering into the Arrangement
Agreement, the expected benefits of the Transaction, the
undertakings of Ember with respect to the Corporation’s operations
and stakeholders, the terms and conditions of the Arrangement
Agreement, the Consideration and premium to be received by
Shareholders, the anticipated timing and the various steps to be
completed in connection with the Transaction, including receipt of
Shareholder, regulatory and court approvals, the anticipated timing
of closing of the Transaction, the anticipated delisting of the
Shares from the TSX and Euronext, the withdrawal of the Shares from
the OTCQX designation and the Corporation ceasing to be a reporting
issuer under Canadian securities laws. Forward-looking information
also relates to, among other things, the Corporation’s strategies
to achieve its objectives, as well as information with respect to
management’s beliefs, plans, expectations, anticipations,
estimations and intentions, and may also include other statements
that are predictive in nature, or that depend upon or refer to
future events or conditions. The management of H2O Innovation would
like to point out that forward-looking statements involve a number
of uncertainties, known and unknown risks and other factors which
may cause the actual results, performance or achievements of the
Corporation to materially differ from any future results,
performance or achievements expressed or implied by such
forward-looking statements. In preparing its outlook, the
Corporation made assumptions that do not consider extraordinary
events or circumstances beyond its control. When used in this press
release, words such as “aim”, “anticipate”, “assume”, “believe”,
“continue”, “could”, “estimate”, “expect”, “forecast”, “foresee”,
“future”, “goal”, “guidance”, “indicate”, “intend”, “likely”,
“maintain”, “may”, “objective”, “outlook”, “plan”, “potential”,
“predict”, “project”, “seek”, “should”, “strategy”, “synergies”,
“target”, “undertake”, “view”, “vision”, “will”, “would” or the
negative or comparable terminology as well as terms usually used in
the future and the conditional are generally intended to identify
forward-looking statements, although not all forward-looking
statements include such words.
The information contained in forward-looking statements is based
upon certain material assumptions that were applied in drawing a
conclusion or making expectations, forecasts, projections,
predictions, or estimations, including, without limitation: that
the Transaction will be completed on the terms currently
contemplated, and in accordance with the timing currently expected;
that all conditions to the completion of the Transaction will be
satisfied or waived and the Arrangement Agreement will not be
terminated prior to the completion of the Transaction; and various
assumptions and expectations related to premiums to the trading
price of Shares and returns to Shareholders. A change affecting an
assumption can also have an impact on other interrelated
assumptions, which could increase or diminish the effect of the
change. Forward-looking statements are presented for the purpose of
assisting investors and others in understanding certain key
elements of the Corporation’s current objectives, strategic
priorities, expectations and plans, and in obtaining a better
understanding of the Corporation’s business and anticipated
operating environment.
Forward-looking statements are necessarily based on a number of
opinions, assumptions and estimates that, while considered
reasonable by the Corporation as of the date of this press release,
are subject to inherent uncertainties, risks and changes in
circumstances that may differ materially from those contemplated by
the forward-looking statements. Moreover, the proposed Transaction
could be modified or the Arrangement Agreement terminated in
accordance with its terms. Several factors, risks or uncertainties
could cause the actual results to differ materially from the
results discussed in the forward-looking statements. Should one or
more of these factors, risks or uncertainties materialize or should
the assumptions underlying those forward-looking statements prove
incorrect, actual results may vary materially from those described
herein. Such factors include, without limitation: (a) the failure
of the parties to obtain any necessary regulatory approvals or the
required Shareholder and court approvals or to otherwise satisfy
the conditions to the completion of the Transaction, and failure of
the parties to obtain such approvals or satisfy such conditions in
a timely manner; (b) lack of assurance that if the Corporation had
solicited expressions of interest from other potential arm’s length
investors or acquirors prior to entering into the Arrangement
Agreement, that one or more would not have been willing to complete
a Transaction on more favourable terms than the Purchaser; (c) the
Arrangement Agreement restricts the Corporation from taking
specified actions until the Transaction is completed without the
Purchaser’s consent, which may prevent the Corporation from
pursuing or attracting business opportunities; (d) the ability of
the Board to solicit and approve a superior proposal during the
Go-Shop Period; (e) the ability of the Board to consider and
approve a superior proposal following the expiry of the Go-Shop
Period; (f) significant Transaction costs or unknown liabilities;
(g) litigation relating to the Transaction may be commenced which
may prevent, delay or give rise to significant costs or
liabilities; (h) the Arrangement Agreement may be terminated prior
to its consummation; (i) the Corporation may be required to pay a
termination fee to the Purchaser in certain circumstances if the
Transaction is not completed or if the Arrangement Agreement is
terminated by the Corporation to accept a superior proposal; (j)
directors and officers of the Corporation may have interests in the
Transaction that may be different from those of Shareholders
generally; (k) the focus of management’s time and attention on the
Transaction may detract from other aspects of the Corporation’s
business; (l) the tax treatment of the Transaction may be subject
to uncertainties; (m) general economic conditions; (n) the market
price of the Shares may be materially adversely affected if the
Transaction is not completed or its completion is materially
delayed; and (o) failure to realize the expected benefits of the
Transaction.
Failure to obtain any necessary regulatory approvals or the
required Shareholder and court approvals, or failure of the parties
to otherwise satisfy the conditions to the completion of the
Transaction may result in the Transaction not being completed on
the proposed terms, or at all. If the Transaction is not completed,
and the Corporation continues as a publicly-traded entity, there
are risks that the announcement of the Transaction and the
dedication of substantial resources of the Corporation to the
completion of the Transaction could have an impact on its business
and strategic relationships (including with future and prospective
employees, customers, suppliers and partners), operating results
and activities in general, and could have a material adverse effect
on its current and future operations, financial condition and
prospects. Furthermore, pursuant to the terms of the Arrangement
Agreement, the Corporation may, in certain circumstances, be
required to pay a fee to the Purchaser, the result of which could
have an adverse effect on its financial position. The Corporation
cautions that the foregoing list of factors is not exhaustive.
Additional information about the risk factors to which the
Corporation is exposed to is provided in the Annual Information
Form dated September 27, 2023, which is available on SEDAR+
(www.sedarplus.ca).
The forward-looking statements set forth herein reflect the
Corporation’s expectations as of the date hereof, and are subject
to change after this date. The Corporation may, from time to time,
make oral forward-looking statements. The Corporation advises that
the above paragraphs and the risk factors described herein should
be read for a description of certain factors that could cause the
actual results of the Corporation to differ materially from those
in the oral forward-looking statements. Unless required to do so
pursuant to applicable securities legislation, H2O Innovation
assumes no obligation to update or revise forward-looking
statements contained in this press release or in other
communications as a result of new information, future events, and
other changes.
Source: H2O Innovation Inc. www.h2oinnovation.com
This press release shall not constitute an offer to purchase or
a solicitation of an offer to sell any securities, or a
solicitation of a proxy of any securityholder of any person in any
jurisdiction. Any offers or solicitations will be made in
accordance with the requirements under applicable law. Shareholders
are advised to review any documents that may be filed with
securities regulatory authorities and any subsequent announcements
because they will contain important information regarding the
Transaction and the terms and conditions thereof. The circulation
of this press release and the Transaction may be subject to a
specific regulation or restrictions in some countries.
Consequently, persons in possession of this press release must
familiarize themselves and comply with any restrictions that may
apply to them.
____________________________________ 1 The Bank of Canada Euro
to CAD daily exchange rate as of September 29, 2023 was €1 =
C$1.4304. 2 The closing price of the Shares on the Euronext Growth
Paris on October 2, 2023 was €1.70.
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version on businesswire.com: https://www.businesswire.com/news/home/20231003830062/en/
Marc Blanchet +1 418-688-0170
marc.blanchet@h2oinnovation.com
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