Expected to be 15% accretive
to earnings per share on a pro forma basis
Acquisition further enhances HDI's presence in the home
builder distribution customer channel
LANGLEY, BC, Jan. 31, 2022 /CNW/ - Hardwoods Distribution Inc.
("HDI" or the "Company") (TSX: HDI)
today announced that one of its wholly owned
subsidiaries has entered into an agreement to
acquire substantially all of the assets and assume certain working
capital liabilities of Mid-Am Building Supply,
Inc. ("Mid-Am") for a total price of US$270 million (the "Acquisition"). At
closing of the Acquisition, the Company will enter into leases of
the facilities through which Mid-Am operates. The
Acquisition will be financed by an
expansion of HDI's existing credit facility.
Founded in 1967, Mid-Am is a leading wholesale distributor of
building products to customers in the U.S. Midwest. Mid-Am focuses
on home builder distribution yards ("Pro Dealers"),
providing customers with an extensive portfolio of products and
services including doors, millwork, and other diversified building
materials.
"We are very pleased to welcome Mid-Am's capabilities to HDI,
which we believe are complementary to our current operations,"
commented Rob Brown, HDI's President
and CEO. "This Acquisition is a natural geographic extension from
our current locations, providing access to customers and markets in
the U.S. Midwest that we do not reach today. Mid-Am comes
with an experienced team, established customer relationships and a
portfolio of specialty and associated products that complement our
existing product mix."
The Acquisition is an important strategic addition to HDI's
capabilities in the Pro Dealer and home center customer channel.
The Pro Dealer / home center customer channel represents a
substantial addressable market opportunity for HDI to capitalize on
its deep expertise in architectural building products. The
Acquisition of Mid-Am, combined with the HDI's purchase of Novo
Building Products ("Novo") in August
2021, has repositioned HDI to meaningfully participate in
this customer channel.
"With today's announced addition of Mid-Am, plus the previous
acquisition of Novo, we have achieved additional diversification
for our business," commented Mr. Brown. "Combined, we have acquired
pro forma annual sales of US$950
million in the Pro Dealer and home center customer channels
in the last six months. Looking ahead, approximately 60% of our
sales mix will be focused on industrial customers, and 40% on Pro
Dealer / home center. This customer channel diversity, combined
with our national footprint and balanced product portfolio,
positions HDI as a one-stop-solution for its customers."
HDI believes that the Novo and Mid-Am acquisitions are well
timed with respect to the Company's outlook for end markets. HDI
expects favorable multi-year demand for its products from the new
residential and repair and remodel markets, supported by low
existing home inventories, favorable demographics, historically low
interest rates, rising home equity levels and an aging US housing
stock.
The building products distribution market is large in size and
scope, but remains fragmented. The Company maintains a pipeline of
M&A targets and intends to remain active with respect to
additional acquisition opportunities. Mid-Am represents HDI's
eleventh acquisition in the last five years, on a pro forma basis
adding over US$1.4 billion in annual revenues
during this time period.
Mid-Am Acquisition Highlights
- Accretive acquisition terms, and further synergies
expected. The Acquisition is expected to be 15%
accretive to earnings per share before accounting for any
synergies.
Management has identified potential synergies
in the areas of supply chain, tax and
logistics that are anticipated as sources for
further upside.
- Strategic growth in the scale and breadth of HDI's
operations. Mid-Am brings new local presence in the Midwest
to HDI's existing network of 83 distribution centers. It serves
over 800 customers from six sales and distribution facilities
located in four U.S. states including Missouri (two), Kansas (two), Illinois, and Iowa. Mid-Am generated annual revenues of over
US$270 million in 2021.
- Leadership team with proven track record in operations,
fabrication, and sales. Mid-Am has a team of over 350
employees, with tenure in its customer-facing roles averaging 15
years. Mid-Am's leadership has significant industry experience and
will continue to lead the Mid-Am business
as part of HDI, ensuring business continuity
while further adding to the
Company's skillset.
Completion of the Acquisition is subject to a number of
conditions customary for a transaction of this nature. The
Acquisition is expected to close in February
2022.
Credit Facility
HDI has received a commitment from its existing lender Bank of
America, N.A. (the "Lender") for an increase in the size of
its existing senior secured credit facility (the "Expanded
Credit Facility") from its current size of US$525 million to a new aggregate facility amount
of up to US$900 million. The Expanded
Credit Facility is expected to include (i) a revolving credit
facility of up to US$500 million which can be drawn upon in
U.S. dollars and Canadian dollars, and (ii) a term loan of up to
US$400 million.
The Expanded Credit Facility is expected to bear interest at a
rate equal to (a) Term SOFR plus (i) the applicable spread
adjustment for the relevant tenor and (ii) up to 2.25% or (b) the
base rate of interest charged by the Lender under the Expanded
Credit Facility from time to time ("Base Rate"). The Term
SOFR and Base Rate margins for the Expanded Credit Facility
are expected to be subject to performance pricing
adjustments, from time to time, based on
the Company's then applicable leverage
ratio.
The financial covenants under the Expanded Credit Facility are
expected to include, among others: (i)
a consolidated interest
coverage ratio (a ratio of adjusted EBITDA
to total interest
expense, determined on a consolidated basis of
the Company, with the specific definitions to be agreed upon) and
(ii) a consolidated leverage ratio (a ratio of total funded
debt to adjusted EBITDA, determined on a consolidated basis of
the Company, with the specific
definitions to be agreed upon).
The commitment and advance of the loan facilities are
subject to usual conditions including, among others, execution
of documents satisfactory to the Lender, completion of the related
transactions on
terms satisfactory to the Lender,
no material adverse
change in the business of the Company
and its subsidiaries or the sellers of Mid-Am having
occurred, delivery of certain interim financial statements, pro
forma financial statements and a pro forma compliance
certificate confirming compliance with financial covenants
and borrowing base on a pro forma basis, receipt of all
necessary consents for the Acquisition and completion
of the Lender's due diligence.
Conference Call Details
HDI will hold an investor call on Tuesday, February 1, 2022 at 8:00
am Eastern time to discuss the Acquisition. Participants
should dial 1-888-204-4368 or (647)-794-4605 (GTA) at least five
minutes before the call begins. A replay will be available
through February 15, 2022 by calling toll free
1-888-203-1112 or (647)-436-0148 (GTA), followed by passcode
2525443.
About HDI
HDI is one of North America's
largest suppliers of specialty building products to industrial
manufacturers, Pro Dealers, and home centers servicing the new
residential, repair and remodel, and commercial construction
end-markets. The Company currently operates a network in
North America of 83 distribution
and sales facilities in the United
States and Canada. HDI's
common shares are listed on the TSX under the symbol HDI.
Forward-Looking Statements
Certain statements in this news release may constitute
"forward-looking information" or "financial outlook" within
the meaning of applicable securities laws that involve known and
unknown risks, uncertainties and other factors that may cause
actual results, performance or achievements or industry results to
be materially different from any future results, performance
or achievements or industry results expressed or implied
by such forward-looking information and financial outlook.
Forward-looking information and financial outlook are
identified by the use of terms and phrases such as "anticipate",
"believe", "could", "estimate",
"expect", "intend", "may", "plan", "predict", "project", "will", "would",
and similar terms and phrases,
including references to assumptions. Such information may
involve, but is not limited to, comments with respect
to strategies, expectations, planned operations or future
actions. Forward-looking information in this news release
includes, without limitation, statements with respect to: the
anticipated closing of the Acquisition, the terms thereof and
the timing therefor; the Acquisition of Mid-Am, combined with HDI's
purchase of Novo, is expected to reposition HDI to meaningfully
participate in the Pro Dealer / home center customer channel.
; approximately 55% of our sales mix will be now focused on
industrial customers, and 45% on Pro Dealer / home center; HDI
believes the Novo and Mid-Am acquisitions are well timed with
respect to the Company's outlook for end markets; HDI expects
favorable multi-year demand for its products from new residential
and repair and remodel markets, supported by low existing home
inventories, demographics, historically low interest rates, and an
aging US housing stock; the Company intends to remain active with
respect to additional acquisition opportunities; .; Mid-Am's
expected annual revenues; Mid-Am's leadership will continue to lead
the Mid-Am business as part of HDI, ensuring
business continuity while further adding to the
Company's skillset; the expected accretion
to cash flows and earnings
resulting from the Acquisition; management has identified potential
synergies that are expected to provide further upside to
the accretion; ; and, the anticipated entering into of
the
Expanded Credit Facility and the terms thereof
and timing therefor. Actual events
or results may differ materially.
The forecasts and projections that make up the
forward-looking information and financial outlook in this news
release are based on assumptions which include, but are not limited
to: the completion of the Acquisition; no undisclosed
liabilities associated with the Acquisition; no material adverse
changes occur in respect of the acquired
assets before the completion of the Acquisition; the
Company completes the Expanded Credit Facility in accordance with
the terms currently contemplated; the
financial impact of the Acquisition is as currently expected by
management; the
Company and Mid-Am do not lose any key personnel; there are no decreases in the supply of, demand for, or market
values of products that harm the Company or Mid-Am's
business; the Company
does not incur material losses related to
credit provided to its customers; the Company is able to sustain
its level of sales and earnings margins; the Company is able
to grow its business long term and to manage its growth; the
Company is able to integrate acquired
businesses, including Mid-Am;
there is no new competition in the markets
in which the Company operates that lead to reduced sales
and profitability; the Company can comply with
existing regulations and will not become subject to more
stringent regulations; no material product liability
claims; importation of products manufactured with hardwood lumber or sheet
goods does not increase and replace products
manufactured in North America; the
Company's management information systems upon which it is
dependent are not impaired; the Company is not adversely impacted
by disruptive technologies; an outbreak
or escalation of a contagious disease does not adversely affect
the Company's business; and, the Company's
insurance is sufficient to cover losses that may
occur as a result of its operations.
The forward-looking information and financial outlook in this
news release is subject to risks, uncertainties and other
factors that could cause actual results to differ materially from
historical results or results anticipated by the
forward-looking information. The factors which could cause results
to differ from current expectations include, but are not
limited to: failure to close the Acquisition; the actual
impacts of the Acquisition on the Company's earnings per share
may not be in line with management's expectations; the
Acquisition may not be immediately accretive to earnings per
share; potential undisclosed liabilities associated with the
Acquisition; no control by the Company over Mid-Am
until completion of the
Acquisition; the Company may not be able
to obtain the Expanded Credit
Facility on the terms currently expected, or at all; the Expanded Credit
Facility will be subject to certain restrictive conditions that limit
the discretion of management; exchange
rate fluctuations between
the Canadian and US dollar
could affect the Company's performance; the Company's results
are dependent upon the general
state of the economy; the Company depends on key personnel, the loss of which could harm its business; decreases in the supply
of, demand for, or market
values of hardwood lumber or sheet
goods could harm the Company's
business; the Company may incur losses related to credit
provided to the Company's customers; the Company's products
may be subject to negative trade outcomes; the Company may not be
able to sustain its current level of sales or earnings
margins; the Company may be unable to grow its business long term
or to manage any growth; the Company may be unable to
integrate acquired businesses; competition in the
Company's markets may lead to reduced sales and profitability;
the Company may fail to comply with existing regulations or
become subject to more stringent regulations; product liability
claims could affect the Company's
sales, profitability and reputation; importation of products manufactured with hardwood lumber
or sheet goods may increase, and replace products manufactured in
North America; disruptive
technologies could lead to reduced revenues or a change in our
business model; the Company is dependent upon its management
information systems; the Company's insurance may be insufficient to
cover losses that may occur as a result of the Company's
operations; an outbreak or escalation of a contagious disease
may adversely affect the Company's business; and, the
Company's credit facilities affect its liquidity,
contain restrictions on the Company's ability to borrow funds,
and impose restrictions on distributions that can
be made by certain
subsidiaries of the Company. More information about
the risks and uncertainties affecting HDI's
business can be found in the "Risk Factors" section of its Annual
Information Form dated March
11, 2021 which is available under
the HDI's profile
on SEDAR at www.sedar.com.
To the extent any forward-looking information or statements
in this news release constitute a "financial outlook" within
the meaning of securities laws, such information is being provided
to demonstrate the potential benefits of the Acquisition and
management's estimate of the future financial performance of
Mid-Am, and readers are cautioned
that this information may not be appropriate for any other
purpose and that they should
not place undue reliance on such information.
Although HDI has attempted to identify factors that would
cause actual actions, events or results to differ materially
from those disclosed in the forward-looking statements or
information or financial outlook in this news release, there
may be other factors that cause actions, events or results not to
be as anticipated, estimated or intended. Also,
many of the factors are beyond the control of HDI. Accordingly, readers should not
place undue reliance on forward-looking statements or information
in this news release. The forward- looking
information is made as of the date of this news release,
and HDI
assumes no obligation to publicly update
or revise such forward-looking information to reflect new
information, subsequent or otherwise, except as may be
required by applicable securities law. The forward-looking
information contained herein is expressly qualified
in
its entirety by this cautionary statement.
Non-IFRS and Non-U.S.
GAAP Financial Measures
This news release makes reference to certain non-IFRS
financial measures, in the case of the
Company, or non-U.S. GAAP financial measures, in the case of Mid-Am. These
non-IFRS and non-U.S. GAAP financial measures
are not recognized measures under IFRS and U.S. GAAP, as
applicable, do not have a standardized meaning prescribed by
IFRS or U.S. GAAP, as applicable, and are therefore unlikely to be
comparable to similar measures
presented by other publicly traded companies,
and should not be construed as an alternative
to other financial measures determined in accordance with IFRS and
U.S. GAAP, as applicable. Rather,
these financial measures
are provided as additional information to complement
IFRS and U.S. GAAP financial measures by providing further
understanding of operations from management's perspective.
Accordingly, non-IFRS and non-U.S. GAAP financial measures
should never be considered in isolation nor as a substitute to
using net income as a measure of profitability or as an
alternative to the IFRS consolidated statements of income or other
IFRS or U.S. GAAP statements. Management presents
non-IFRS and non-U.S. GAAP financial measures,
specifically EBITDA and Adjusted EBITDA as it believes
these supplementary disclosures provide useful additional
information related
to the operating results and financial condition
of the Company and Mid-Am
and uses these
measures of financial performance and financial
condition as
a supplement to the consolidated statements of income
and statements of financial position
of the Company and Mid-Am.
The definitions of the non-IFRS and non-U.S. GAAP measures
contained in this news release are as follows: "EBITDA",
as it relates to Mid-Am, means earnings before interest, taxes,
depreciation and amortization; .
SOURCE Hardwoods Distribution Inc.