GDNP Good Natured Products Inc

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VANCOUVER, BC, Dec. 1, 2020 /CNW/ - good natured Products Inc. (the "Company" or "good natured®") (TSX-V: GDNP), today announced that on December 1, 2020, through a wholly owned subsidiary, it has entered into a definitive agreement (the "Definitive Agreement") to acquire IPF Holdings Inc. dba Integrated Packaging Films ("IPF"), a leading rollstock sheet extruder with over 20 years' experience, for consideration of approximately $16.7 million (the "Acquisition"). The Acquisition wil be satisfied by payment of $12.5 million in cash, the issuance of $833,467 in common shares of the Company ("Common Shares") at a deemed price of $0.47 per Common Share, and the issuance of a $3.3 million vendor take-back note, subject to customary working capital adjustments. All dollar figures in this release are in Canadian dollars unless noted otherwise.

Founded in 1997 by the Mechar family, IPF is located in Ayr, Ontario and is a manufacturer of high quality, rigid plastic sheets used to create a variety of products, including thermoformed packaging. IPF's customers serve a diverse set of end markets, including electronics, retail, industrial, food and medical packaging. IPF currently serves nearly 100 customers from a dedicated 32,000 square foot leased facility on 2.9 acres of land. Customers are primarily located in the northeast and midwest United States and Eastern Canada.

"Building on our 50% revenue growth year to date through September 30, 2020, this transaction marks another significant milestone in the Company's growth trajectory. The Acquisition diversifies and strengthens our industrial business group with the addition of nearly 100 customers, as well as entry into the medical and electronic industrial rollstock segment, and contributes approximately $17.0 million in annual sales," said Paul Antoniadis, CEO of good natured®. "The Acquisition of IPF strategically complements our recent acquisition of Shepherd Thermoforming and Packaging in May 2020 and represents good natured®'s ability to deliver on our acquisition strategy that underpins our organic growth business model."

Paul added: "We're delighted to welcome the Mechar family and the entire IPF team to the good natured® team!  We share a common vision to be leaders in the development and adoption of sustainable, planet-friendly packaging solutions in North America, so the combination of our collective expertise, people and manufacturing capability further positions the Company to execute against this ambition."

"We are very excited to partner with good natured® and continue the legacy of our business that was started in 1997," said Bill Mechar, President and Founder of IPF. Co-owner Mark Faber, former CEO of CM Packaging Group, Inc. added: "Joining together with good natured® is a strong strategic fit and will accelerate IPF's ability to meet the growing demand for plant-based products and broadens the product offering to our existing thermoforming customers."

Key Highlights of the Acquisition:

• IPF generated trailing twelve-month ("TTM") revenue ending September 2020 of approximately $17.0 million
• Adds just under 100 business-to-business customers, growing the Company's business to business segment to a total of approximately 500 customers
• IPF's geographic sales mix is approximately 65% US and 35% Canadian
• Adds between $10 and $12 million (unaudited) of total assets to the Company's balance sheet
• TTM EBITDA of approximately $3.7 million[1]
• Highly strategic and synergistic acquisition that is expected to be immediately accretive to shareholders on an adjusted EBITDA basis
• Expected to provide synergies of approximately $1.0 to $2.0 million in EBITDA in 2021
• Enables further vertical integration at the Company's thermoforming facility where finished packaging gross margins are expected to increase by 30% to 35% by incorporating roll stock extruded at the IPF facility
• All pre-existing indebtedness of IPF will be paid out as a deduction of purchase price proceeds
• $1.25 million in target net working capital required at closing
• good natured® will begin recognizing revenue from IPF commencing December 1, 2020

Key Strategic Highlights:

• Adds the medical and electronic market segments to current industrial business group
• Establishes a full integrated custom packaging supply chain to service eastern Canada and the northeastern United States
• Complements and builds on the Company's existing outsourced supply chain partnerships
• Grows customer count to approximately 500 recurring business-to-business customers, further opening up cross-selling opportunities
• Strengthens industrial business group innovation and new product development pipeline
• IPF's facility includes 22 million pounds of production capacity on an annual basis, which is being upgraded to a total annual production capacity of 25 million pounds with an anticipated completion date of Q1 2021. The IPF facility is currently operating at approximately 75% capacity

Financing Details

The Company is arranging the following financing to complete the Acquisition and related integration costs:

• $7.6 million reducing term loan with a Canadian chartered bank with 6-year amortization at market rates
• US$2.5 million draw down of the BDC Capital Corp. ("BDC") acquisition line under the terms and conditions of the Company's existing BDC credit facility, as originally announced in June 2019
• $3.3 million 3-year vendor take-back note at annual interest of 3.75%, the principal of which is repayable as to 1/3 on the second anniversary of closing, with the balance paid on the third anniversary of closing
• $833,467 in Common Shares priced at $0.47 per Common Share issued to one of the sellers of IPF
• $4.0 million in gross proceeds from a bought deal private placement financing of Common Shares at a price of $0.47 per Common Shares, on the terms and conditions described below

The Acquisition is subject to customary closing conditions, including TSX Venture Exchange approval.  

Debt Financing Facilities from Canadian Chartered Bank

The Company is in discussions with a Canadian chartered bank to provide a $7.6 million reducing term loan with a 6-year amortization. The credit facility is subject to negotiating and settling the final credit documentation with the bank.

In addition to the proposed $7.6 million reducing term loan credit facility to finance the closing of the Acquisition described above, the Company expects to obtain a $3.0 million revolving operating line of credit, plus a $400,000 revolving capital term loan, and a $400,000 revolving lease line. These credit facilities will be dedicated to the IPF operations and secured by its assets. The credit facility will be available for use upon the closing of the Acquisition. The line of credit will be used to fund ongoing growth of IPF through the procurement of raw materials, inventory, and operating requirements. All the credit facilities described in this press release are subject to negotiating and settling the final credit documentation with the Canadian chartered bank.

Bought Deal Private Placement of Common Shares

The Company also announced that it has entered into an agreement with Canaccord Genuity Corp. ("Canaccord Genuity") to act as lead underwriter and sole bookrunner pursuant to which Canaccord Genuity has agreed to purchase, on a bought deal private placement basis, 8,520,000 Common Shares at an issue price of $0.47 per Common Share (the "Issue Price") to raise aggregate gross proceeds of $4,004,400 (the "Offering"). The underwriting syndicate includes Integral Wealth Securities Limited and Paradigm Capital Inc. (all underwriting syndicate members, the "Underwriters").

The closing of the Offering is expected to occur on or before the date of closing of the Acquisition (the "Closing Date").  

The Company has also agreed to: (a) pay the Underwriters a cash commission equal to 7.0% of the aggregate gross proceeds of the Offering; (b) issue that number of broker warrants (the "Broker Warrants") to the Underwriters equal to 7.0% of the aggregate number of Common Shares issued pursuant to the Offering; and (c) pay a corporate finance fee in Common Shares equal to 2.0% of the number of Common Shares issued pursuant to the Offering. Each Broker Warrant shall entitle the holder thereof to acquire one Common Share at the Issue Price for a period of 24 months from the Closing Date.

The net proceeds of the Offering are expected to be used for completion of the Acquisition.

The Common Shares will be subject to a hold period under applicable Canadian securities laws expiring on the date that is four months and a day following the Closing Date.

The closing of the Offering is subject to the completion of formal documentation, including but not limited to, the execution of an underwriting agreement with the Underwriters in connection with the Offering and receipt of regulatory approvals, including approval of the TSX Venture Exchange.

This news release does not constitute an offer to sell or a solicitation of an offer to sell any of the securities in the United States. The securities have not been and will not be registered under the United States Securities Act of 1933 (the "US Securities Act") or any states securities laws and may not be offered or sold within the United states or to US Persons (as defined in Regulation S under the US Securities Act) unless registered under the US Securities Act and applicable state securities laws or an exemption from such registration is available.

Further Details on the Acquisition

The Acquisition is an arms' length transaction. The Definitive Agreement includes an outside date for closing of December 23, 2020 (the "Outside Date"), subject to extension by mutual consent of the parties. The measurement time for calculation of working capital adjustments is locked at December 1, 2020 and the Definitive Agreement includes a locked-box mechanic from December 1, 2020 until the Closing Date. The purchase price will increase by a per diem of $9,516 per day between December 1, 2020 and the Closing Date. If the closing does not occur by the Outside Date, subject to the terms and conditions of the Definitive Agreement, the Company will be liable for a $250,000 break fee. The consideration shares issued under the Definitive Agreement will be subject to a 12-month contractual hold period.

Acquisition Conference Call

To provide more details on the Company's acquisition of IPF and related financings, the Company is pleased to host a conference call with Paul Antoniadis, Executive Chair & CEO, and Don Holmstrom, Executive Vice President & CFO, on December 1, 2020 at 1:00 PM Eastern / 10:00 AM Pacific time.

Date: December 1, 2020
Time: 1:00 PM EST / 10:00 AM PST
Toll-Free: 1-833-900-2239 International: +1 (236) 712-2470
Conference ID: 4387567
Participants are asked to dial in 10 minutes prior to the start of the call.

A replay of the call will be available approximately two hours after its completion through to December 15, 2020. The replay will be available by dialing 1-800-585-8367 or +1 (416) 621-4642.

The good natured® corporate profile can be found at: investor.goodnaturedproducts.com

About good natured Products Inc.

good natured® is producing and distributing one of North America's widest assortments of better everyday products® made with the highest possible percentage of renewable, plant-based materials and no BPAs, phthalates or other chemicals of concern potentially harmful to human health and the environment.

With a growing assortment of over 385 products and services, good natured® creates eco-friendly home and business products, food packaging, restaurant/take-out containers, medical and industrial supplies designed to do good for the planet, good for human health and good for business by driving incremental sales, minimizing waste and reducing environmental impact, all bundled up in a fresh and approachable brand.

For more information: goodnaturedproducts.com

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibilities for the adequacy or accuracy of this release.

Non-GAAP financial measures

We have included in this press release certain non-GAAP measures that are used to evaluate the performance of IPF, including adjusted EBITDA. As non-GAAP measures generally do not have a standardized meaning, they may not be comparable to similar measures presented by other issuers. Adjusted EBITDA does not have a generally accepted industry definition.

Cautionary Statement Regarding Forward-Looking Information  

This press release contains "forward-looking statements" within the meaning of applicable securities laws. Forward-looking statements can be identified by words such as: "anticipate," "intend," "plan," "budget," "believe," "project," "estimate," "expect," "scheduled," "forecast," "strategy," "future," "likely," "may," "to be," "could,", "would," "should," "will" and similar references to future periods or the negative or comparable terminology, as well as terms usually used in the future and the conditional. Examples of forward-looking statements include, among others, the expected closing of the Acquisition, the availability of debt and equity financing for the Acquisition, statements regarding the Offering including the amount to be raised, and the projected impact of completion of the Acquisition on the Company's business, financial conditions and results.

By their nature, forward-looking statements involve known and unknown risks, uncertainties, changes in circumstances and other factors that are difficult to predict and many of which are outside of the Company's control which may cause our actual results, performance or achievements, or other future events, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on the Company's current beliefs, expectations and assumptions regarding the future of its business, future plans and strategies, projections, anticipated events and trends, general market conditions, the economy and other future conditions. The Company's actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause actual results and financial conditions to differ materially from those indicated in the forward-looking statements include, among others:

• The risk that the closing conditions for completion of the Acquisition are not satisfied, including due to lack of financing.
• Risks relating to general economic, market and business conditions.
• Unforeseen delays in the timelines for any of the transactions or events described in this press release.

The Company considers its assumptions to be reasonable based on currently available information, but cautions the reader that Its assumptions regarding future events, many of which are beyond the control of the Company, may ultimately prove to be incorrect since they are subject to risks and uncertainties that affect the Company and its businesses. When relying on the Company's forward-looking statements and information to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. The Company has assumed that the material factors referred to above will not cause such forward-looking statements and information to differ materially from actual results or events. However, there can be no assurance that such assumptions will reflect the actual outcome of such items or factors.

Other than as required under securities laws, the Company does not undertake to update this information at any particular time.

Forward-looking statements contained in this news release are based on the Company's current estimates, expectations and projections regarding, among other things, sales volume and pricing which it believes are reasonable as of the current date. The reader should not place undue importance on forward-looking statements and should not rely upon these statements as of any other date. All forward-looking statements contained in this news release are expressly qualified in their entirety by this cautionary statement.

SOURCE Good Natured Products