North American Construction Group Ltd. (“
NACG” or
the “
Company”) (TSX:NOA) today announced that it
has entered into a definitive purchase and sale agreement to
acquire (the “
Transaction”) MacKellar Group
(“
MacKellar”) for an estimated $395 million (the
“
Consideration”). MacKellar Group, with its heavy
construction equipment fleet, is an Australia-based provider of
heavy earthworks solutions to the mining and civil sectors, with a
strong reputation derived from decades of reliable performance. The
Transaction will significantly expand NACG’s capability and allow
the Company to serve a highly valuable and diversified base of
customers globally.
The Transaction emerged through continued dialogue with
MacKellar over the past two years, following NACG’s entry into
Australia through the acquisition of DGI Trading Pty Limited in
2021. The acquisition of MacKellar is highly complementary to, and
a natural strategic fit with, NACG given shared cultural alignment,
focus on safety and operational similarities. MacKellar will
continue to operate and execute on its growth strategy, while
delivering on its commitment of service to all its customers and
partners.
“NACG has built a strong relationship with MacKellar over the
past two-plus years. Given the operational and cultural
similarities that our companies share, this acquisition is a rare
and attractive opportunity,” said Joe Lambert, Chief Executive
Officer of NACG. “Over the years, we have worked extremely hard to
be part of the solution to help lower the operating costs of our
customers through safe, efficient operation and maintenance of our
equipment fleet. We are excited about partnering with MacKellar to
serve our expanded customer base with the same innovations at a
time when commodity producers are striving to maximize production
and efficiency. I want to welcome the MacKellar team to the NACG
family. We are extremely proud to be sharing in what we believe
will be a bright future together.”
“Joining NACG offers a significant opportunity for both
companies to share best practices and execute on our growth
strategy. Our shared culture, highly skilled maintenance and
operations teams, and now global operations will position us as a
leader in heavy equipment fleet, allowing us to better serve
customers across Australia,” said Duncan MacKellar, Chairman of
MacKellar Group.
Strategic Highlights
- Combined Business with
Significant Global Reach and Diversified Customer Base:
MacKellar provides the opportunity to expand the Company’s
geographic and operational presence in Australia, while adding a
high-quality investment-grade customer base. The Transaction
provides diversification with no single end market contributing
more than approximately a third of adjusted EBIT.
- Shared Core Values and
Culture: MacKellar shares NACG’s values and is committed
to hands-on management, continuous drive to be the low-cost
provider, a focus on building strong partnerships with customers,
and maintaining operating and safety excellence.
- Turnkey Operations with
Highly Valuable Asset Base: MacKellar Group adds
approximately 450 mobile heavy equipment assets; 1,000 employees,
including over 375 maintenance personnel; and 15 operating projects
across a variety of service offerings including contract mining,
civil earthworks, dry and maintained equipment rentals and
component rebuilds. Its asset base is comprised of a
well-maintained fleet operating at effective utilization
levels.
- Prudent Approach to the
Transaction Minimizes Execution Risk: Continuous dialogue
and in-person operational field reviews by both parties has allowed
for the Company to ensure there is a strong cultural fit and
alignment between the two organizations. This alignment is also
reflected in the transaction structure with a significant portion
of the consideration being deferred.
- Robust Growth Prospects
with Strong Backlog: Operations in Western Australia and
Queensland serve as a growth pillar given the large and diverse
resource markets combined with a mining friendly jurisdiction. The
combined company is expected to have over $4.0 billion in
contractual backlog by December 31, 2023 which will be the
foundation to drive significant growth.
“The transaction represents a major milestone for NACG and adds
significant scale to our business. Both NACG and MacKellar are
leaders with strong reputation, culture and commitment to safety.
This partnership will accelerate our combined growth and allow us
to better serve our customers on a global scale,” said Martin
Ferron, Chairman of the Board of NACG.
Financial Highlights of the Transaction
- The total estimated consideration
of $395 million: i) represents less than 2.75x of expected EBITDA
in 2024, ii) is estimated to be less than the book value of
MacKellar’s assets and iii) is expected to be over 50% accretive
based on incremental earnings per share.
- The Transaction is fully funded by
bank secured & vendor provided debt financing.
The Transaction includes of an upfront payment of A$75 million
which will be funded by the upsized revolving Credit Facility
described below. In addition, liquidity from the Credit Facility
and assumed equipment financing of MacKellar is estimated to
provide $200 million of the total consideration. The remainder of
the Consideration is addressed through an earn-out and deferred
payment mechanism payable to the vendors over four years, with the
earn-out constituting approximately 70% of this amount.
2023 Outlook and 2024 Incremental
Impacts
Based on consistent equipment utilization and the contractual
backlog in place, management has provided ranges of certain
financial measures for 2023 and expected incremental impacts of the
MacKellar Group to the year ended December 31, 2024. Upon close of
the Transaction, management intends to provide a 2024 Outlook
including guidance typically provided with regards to capital
allocation.
|
Full Year Ended
2022(1) |
Combined 2023
Outlook(2) |
Incremental 2024
Impacts(3) |
Combined revenue |
$1.05 billion |
$1.15 to 1.25 billion |
$450 to $500 million |
Adjusted
EBITDA(4) |
$245 million |
$275 to $305 million |
$130 to $160 million |
Adjusted
EPS(4) |
$2.41 per share |
$2.60 to $2.80 per share |
$1.10 to $1.40 per share |
Sustaining
capital(4) |
$113 million |
$140 to $160 million |
$65 to $85 million |
Free cash
flow(4) |
$70 million |
$100 to $120 million |
$55 to $75 million |
Net debt
leverage(4)(5) |
June 30, 2023 –
1.4x on a TTM basisDecember 31, 2023 –
targeting 1.8x on a pro-forma TTM basisDecember 31,
2024 – less than 1.5x excluding potential
conversion of debentures |
Contractual
backlog(4) |
Excluding the Transaction, contractual backlog estimated to exceed
$2.0 billion by year-endIncluding MacKellar contracts, contractual
backlog estimated to exceed $4.0 billion by year-end |
(1) This historical information
does not include
MacKellar(2) On
a combined basis assuming the completion of the acquisition of
MacKellar in Q4 2023. See “Forward-Looking
Information”(3)
Expected incremental contribution of MacKellar for the year ending
December 31, 2024. See “Forward-Looking
Information”(4)
See “Non-GAAP Financial
Information”(5)
TTM refers to trailing twelve months
Underwritten Financing
The Company currently has in place a $300
million revolving credit facility with a syndicate of financial
institutions, and which permits the incurrence of an additional
$175 million of secured equipment financing with third parties.
Concurrent with the announcement of the Transaction, the Company
has entered into a commitment letter for an underwritten financing
from National Bank of Canada, as sole lead arranger and sole
bookrunner to amend and restate the current facility to a senior
revolving credit facility (the “Credit Facility”) in the maximum
amount of $450 million. The amended and upsized Credit Facility
will permit the incurrence of an additional $300 million of secured
equipment financing from third parties.
Conditions to the
Acquisition
The Transaction is not subject to any financing
conditions and is expected to close in the fourth quarter of 2023
subject to obtaining contractual consents and the satisfaction of
other customary closing conditions.
Advisors
National Bank Financial is acting as exclusive
financial advisor to NACG on the Transaction. Fasken Martineau
DuMoulin LLP is acting as a legal advisor, and Corrs Chambers
Westgarth is acting as local Australian counsel, to NACG.
Conference Call and Webcast
Management will hold a conference call and webcast to discuss
the Transaction on Thursday, July 27, 2023, at 6:00 am
Mountain Time (8:00 am Eastern Time).
The call can be accessed by dialing: Toll free:
1-888-886-7786Conference ID: 47287641
A replay will be available through September 1, 2023, by
dialing: Toll Free: 1-877-674-7070 Conference ID: 47287641Playback
Passcode: 287641
The live presentation and webcast can be accessed
at:https://viavid.webcasts.com/starthere.jsp?ei=1624616&tp_key=5ac36a78e5
A replay will be available until September 1, 2023, using the
link provided. A copy of the investor presentation is also
available on the NACG website at www.nacg.ca.
Forward Looking Information
This release contains “forward-looking information” within the
meaning of applicable securities legislation which reflects the
current plans and expectations of the Company with respect to
future events and financial performance. All statements other than
statements of historical or current facts may be forward looking
information. Forward-looking information includes statements that
are predictive in nature, depend upon or refer to future events or
conditions, or include words such as ‘believes’, ‘continues’,
‘expects’, ‘projects’, ‘anticipates’, ‘plans’, ‘estimates’,
‘seeks’, ‘intends’, ‘targets’, ‘forecasts’, or negative or
grammatical versions thereof and other similar expressions, or
future or conditional verbs such as ‘may’, ‘will’, ‘should’,
‘would’ and ‘could’. Forward-looking information in this includes,
but is not limited to, statements with respect to: robust growth
prospects; the expected backlog of the combined company; the
acceleration of the combined company’s growth; the estimated
consideration; the multiple of expected 2024 EBITDA that the
consideration represents; the transaction being accretive and
expected accretion on incremental earnings per share; expected
proforma revenue and Adjusted EBITDA on a combined company basis
and the incremental impact of MacKellar on such figures; Adjusted
EPS on a combined company basis and the incremental impact of
MacKellar on such figure; sustaining capital on a combined company
basis and the incremental impact of MacKellar on such figure; free
cash flow on a combined company basis and the incremental impact of
MacKellar on such figure; estimated enterprise value; book value of
assets; leverage by end of 2023 and 2024 on a combined company
basis and the incremental impact of MacKellar on such figures;;
independent Australian operations post-closing achieving global
reach with minimal integration risk; acquiring critical scale
globally; obtaining critical mass in a resource rich and mining
friendly jurisdiction; proforma customer/project composition; no
single market contributing approximately more than a third of total
adjusted EBIT; closing of the Transaction occurring in the fourth
quarter of 2023; the anticipated timeline for realization of
synergies and full integration; minimal financing risk; executing
grown through winning large-scale mining or civil construction
projects; leveraging expertise to expand presence and diversify
exposure to other commodities. Forward-looking information is based
on management’s plans, estimates, projections, beliefs and opinions
as at the date of this release, and the assumptions related to
those plans, estimates, projections, beliefs and opinions may
change; therefore, they are presented for the purpose of assisting
the Company’s security holders in understanding management’s views
at such time regarding those future outcomes and may not be
appropriate for other purposes. Although the forward-looking
information contained in this release is based on assumptions which
the Company believes are reasonable, there can be no assurance that
actual results will be consistent with such forward-looking
information. The forward-looking information in this release relate
only to events or information as of the date on which the
statements are made and, except as specifically required by
applicable securities laws, the Company undertakes no obligation to
update or revise publicly any forward-looking information, whether
as a result of new information, future events or otherwise, after
the date on which the statements are made or to reflect the
occurrence of unanticipated events. There can be no assurance that
the forward-looking information will prove to be accurate. Actual
results could differ materially from those contemplated by the
forward-looking information include: general market performance
including capital market conditions and availability and cost of
credit; foreign currency and exchange risk; performance of the
market sectors that the Company and the MacKellar Group serve;
impact of factors such as increased pricing pressure and possible
margin compression; the regulatory and tax environment; the ability
of the Company to complete the Transaction; the ability of the
Company to execute its financing plans in connection with the
Transaction; that the conditions to closing the Transaction are not
satisfied on a timely basis or at all; unanticipated difficulties
or expenditures relating to the Transaction; the response of the
Company’s and MacKellar Group’s business partners, customers and
suppliers to the announcement of the Transaction; the impact of
competitive responses to the announcement of the Transaction; the
diversion of management time on Transaction-related issues; risks
associated with greater than anticipated tax liabilities or
expenses; the prompt and effective integration of MacKellar Group;
the ability to achieve the anticipated synergies and value
creation-contemplated by Transaction within the expected timeframe
or at all; the ability to expand into new markets and geographic
regions; that one or more customers, or other persons with which
MacKellar Group has contracted, experience insolvency or bankruptcy
with resulting delays, costs or losses; political, labour or
supplier disruptions; imposition of new duties, tariffs or other
legal barriers that impact the MacKellar Group’s markets; that
growth in markets the MacKellar Group serves is less than expected;
risks relating to legal proceedings to which the Company or the
MacKellar Group is or may become a party; and other risks detailed
from time to time in the Company’s filings with the Canadian
securities regulators. Due to the risks, uncertainties and
assumptions inherent in forward looking information, readers should
not place undue reliance on forward looking information contained
herein. For more complete information about the Company and the
material factors and assumptions underlying our forward-looking
information please read the most recent disclosure documents posted
on the Company’s website www.nacg.ca or filed with the SEC and the
CSA. You may obtain these documents by visiting EDGAR on the SEC
website at www.sec.gov or on the CSA website at www.sedar.com.
Future Oriented Financial
Information
To the extent any forward-looking information in this release
constitutes “future-oriented financial information” or “financial
outlooks” within the meaning of applicable securities laws, such
information is being provided to demonstrate the Company’s internal
projections and the reader is cautioned that this information may
not be appropriate for any other purpose and the reader should not
place undue reliance on such future-oriented financial information
and financial outlooks. Future-oriented financial information and
financial outlooks, as with forward-looking information generally,
are, without limitation, based on the assumptions and subject to
the risks set out in this release. While such information has been
prepared using assumptions considered reasonable by the Company at
the time of preparation, such assumptions may not materialize as a
result of unanticipated events and that may occur subsequent to the
date of such future-oriented financial information and financial
outlooks. The Company’s actual financial position and results of
operations may differ materially from management’s current
expectations. Such information is presented for illustrative
purposes only and may not be an indication of the Company’s actual
financial position or results of operations. All future-oriented
financial information and financial outlooks in this release are
subject to the risks described above under “Forward-Looking
Information”.
Non-GAAP Financial Measures and Non-GAAP
Ratios
This release references certain non-GAAP financial measures and
non-GAAP ratios within the meaning of applicable securities laws
because management believes that they may be useful to investors in
analyzing our business performance, leverage and liquidity.
The non-GAAP financial measures contained in this release include
"EBIT”, “backlog”, “adjusted EBITDA”, “adjusted EPS”, “sustaining
capital” and “free cash flow”. The non-GAAP ratios contained in
this release include “net debt leverage”, and “EBITDA multiple”. We
believe these non-GAAP financial measures and non-GAAP ratios are
commonly used by the investment community for valuation purposes
and provide useful metrics common in our industry. These non-GAAP
measures and non-GAAP ratios do not have any standardized meaning
and therefore are unlikely to be comparable to similar measures
presented by other companies. They should not be considered in
isolation or as a substitute for measures of performance prepared
in accordance with GAAP. Each of the above referenced
historical non-GAAP financial measure reconciled to its most
directly comparable GAAP measure in the “Non-GAAP Financial
Measures” section of our Management’s Discussion and Analysis for
the year ended December 31, 2022 (the “MD&A”). “EBIT” is
defined as “earnings before the effects of interest expense, income
taxes”. “Backlog” is a measure of the amount of secured work we
have outstanding and, as such, is an indicator of a base level of
future revenue potential. We define backlog as work that has a high
certainty of being performed as evidenced by the existence of a
signed contract or work order specifying expected job scope, value
and timing. “Adjusted EBITDA" is defined as adjusted net earnings
before the effects of interest expense, income taxes, depreciation,
amortization, equity investment depreciation and amortization, and
equity earnings in affiliates and joint ventures, but including the
equity investment EBIT from our affiliates and joint ventures
accounted for using the equity method. “Adjusted EPS” is defined as
adjusted net earnings, divided by the weighted-average number of
common shares. “Sustaining capital” is defined as expenditures, net
of routine disposals, related to property, plant and equipment
which have been commissioned and are available for use operated to
maintain and support existing earnings and cash flow potential and
do not include the characteristics of growth capital. “Free cash
flow” is defined as cash from operations less cash used in
investing activities including finance lease additions but
excluding cash used for growth capital and cash used for/provided
by acquisitions. For clarity, based on this definition cash
generated by joint venture is reported as free cash flow upon
issuance of dividends or advances. “Net debt leverage” is defined
as total debt less cash and cash equivalents recorded on the
balance sheets divided by adjusted EBITDA. “EBITDA Purchase
Multiple” means total Consideration divided EBITDA.
About NACG
North American Construction Group Ltd. is a premier provider of
heavy civil construction and mining services in Canada, the U.S.
and Australia. For 70 years, NACG has provided services to the
mining, resource, and infrastructure construction markets.
About MacKellar Group
Established in 1966 based on humble family values MacKellar has
earned an enviable reputation in the industry for performance and
reliability. MacKellar specialize in heavy earthmoving equipment
solutions and has a proud history of working on both mining and
civil earthwork projects around Australia.
For further information, please contact: Jason VeenstraChief
Financial OfficerNorth American Construction Group Ltd.Email:
ir@nacg.ca
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