CALGARY, ALBERTA--(Marketwire - May 6, 2011) -
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Alaris Royalty Corp. ("Alaris" or the "Company") (TSX:AD) is pleased to announce that the Company has agreed to a $65 million cash offer for a portion of its financial interest in LifeMark Health Limited Partnership ("LifeMark Health") and all of its interest in MEDIchair Ltd. ("MEDIchair") (collectively the "LifeMark Group") (the "Transaction"). Alaris will continue to receive an annual preferred distribution (the "Distribution") from LifeMark Health of $6.75 million, representing approximately 50% of the pre-Transaction expected 2011 distribution to Alaris from the LifeMark Group. The post-Transaction Distribution has a guaranteed increase of 4% per year thereafter. With a total original cost of $74 million in the LifeMark Group, the Transaction creates a significant gain for Alaris while maintaining LifeMark Health as the Company's largest private company partner.
The LifeMark Group will become a subsidiary of Centric Health Corporation ("Centric") (TSX: CHH), who will acquire all of the issued and outstanding residual units of LifeMark Health and all of the intellectual property of Life Mark Health and MEDIchair, pursuant to the Transaction. Centric is one of Canada's premier healthcare companies, with current operations in medical assessments, disability and rehabilitation management, physiotherapy and hospital services and wellness and prevention. Under the terms of the Transaction, Centric will guarantee the ongoing Distribution made by LifeMark Health to Alaris and will have the option to purchase Alaris' remaining interest in LifeMark Health for $65.5 million on the second anniversary of the closing of the Transaction (the "Purchase Option").
"We are extremely pleased with the outcome of this Transaction for Alaris shareholders as well as for the management and owners of LifeMark Health. We are also very pleased to be partnering with a burgeoning healthcare company in Centric, led by their seasoned management team," said Steve King, President and Chief Executive Officer of Alaris.
"Alaris has been a tremendous partner for us over the last six years. Their unique model of non-control private equity has allowed us to more than triple the size of our company while increasing our economic interest every year", said Craig Gattinger, CEO LifeMark.
Benefits to Alaris Following the Transaction:
- Significant gain realized on investment
The Transaction attributes a $130.5 million value to all of Alaris' current interest in the LifeMark Group, including its retained interest in LifeMark Health. This valuation is $56.5 million higher than the Company's original cost of $74 million. Since partnering with the LifeMark Group six years ago, Alaris has also received cumulative monthly cash distributions in excess of $58 million from the LifeMark Group. Therefore, upon closing of the Transaction, Alaris will have received a total of $123 million in cash on $74 million of invested capital during the life of the relationship with the LifeMark Group and will also have a remaining financial interest in LifeMark Health valued at $65.5 million.
- Potential for a significant increase to distributable cash per share
Going forward, the completion of the Transaction should allow Alaris to increase its distributable cash per share by funding new, or existing private company partners with the proceeds from the Transaction. The proceeds are being received at approximately 10 times Alaris' pre-Transaction Distribution from the LifeMark Group. For this reason, Alaris expects a meaningful increase in its distributable cash per share once the $65 million of proceeds (the "Proceeds") are fully contributed to new or existing partnerships (assuming the Company can use the Proceeds for new private company partnerships at or near its historical average yield of 16.7%).
- Rebalancing Alaris' revenue will increase diversification
The revenue from the LifeMark Group currently represents approximately 60% of Alaris' total budgeted pre-Transaction revenue for 2011. The Transaction allows Alaris to rebalance and improve the diversification of its revenue stream. In accordance with its business plan, Alaris intends to contribute the Proceeds to new, and existing private company partnerships. Assuming the Proceeds are utilized in full, and at the historical averages mentioned above, LifeMark Health's Distribution would represent approximately 25% of Alaris' total monthly revenue stream at that time.
- Increased earnings coverage on LifeMark Distribution increases certainty of Alaris' revenue
The Company's combined distributions and royalties from the LifeMark Group were a significant portion of the EBITDA of the LifeMark Group prior to the Transaction. After completion of the Transaction, the $6.75 million Distribution to be paid to Alaris will represent a significantly smaller portion of LifeMark Health's EBITDA than previously, which will increase its earnings coverage ratio (the "Earnings Coverage Ratio") on the Distribution. The Distribution will also now be guaranteed by Centric's consolidated EBITDA.
- Increased visibility for Alaris' shareholders
The $6.75 million Distribution will contractually increase by 4% per year. As such, the Company's post-Transaction revenue stream, in respect of its ongoing interests in LifeMark Health, will increase upon every anniversary of the closing of the Transaction. The predetermined increases in the annual Distribution gives Alaris shareholders greater visibility into Alaris' financial interests, and resulting cash flow, from LifeMark Health.
Use of Proceeds
To effectively manage its capital structure in the short-term, Alaris intends to immediately pay down the outstanding balance of approximately $26.2 million on its revolving senior credit facility (the "Facility"), thus realizing an approximate savings of $1.7 million in annual interest expense. The Facility can be drawn upon at any time should Alaris require financing to fund contributions to current or new private company partners. It is Alaris' goal to contribute capital to new, or current private company partners in the most efficient and responsible manner in order to maximize the Proceeds from the Transaction. The Company's board of directors has determined to maintain the current monthly dividend rate of $0.085 per share ($1.02 annualized).
"Based on potential new partnerships, which are currently in various stages of negotiation and due diligence, as well as potential follow-on transactions with existing partners of Alaris, we feel confident in our ability to reinvest the $65 million of proceeds from the LifeMark Health Transaction in a timely manner", commented Mr. King.
Proving the Benefits of Alaris' Structure to Private Companies
As a long-term partner for private companies, Alaris works with the management teams of its partners to help them achieve their goals, both corporate and personal. Alaris is very pleased to facilitate a transaction which was desired by management of the LifeMark Group. Six years ago when Alaris supported management of LifeMark Health in the buyout of the business from its owner, Alaris' Distribution from LifeMark Health represented almost all of the economic interest of LifeMark Health. By leveraging Alaris' unique structure and growing its business from 35 clinics to over 120 during those six years, LifeMark Health's management reduced Alaris' economic interest substantially and will now crystallize a significant return for themselves and other owners of LifeMark Health.
Other Details of the Transaction
The Transaction will be completed by way of a plan of arrangement under the Business Corporations Act (Alberta). The Transaction contemplates amendments to the partnership agreement governing LifeMark Health (the "Partnership Agreement") to reflect the arrangements between Alaris, Centric and LifeMark Health. After the Transaction is completed, Alaris and Centric will be the only limited partners in LifeMark Health.
The closing of the Transaction is subject to a number of conditions, including but not limited to Centric obtaining satisfactory financing to complete the Transaction, and obtaining all applicable regulatory and court approvals, including Toronto Stock Exchange approval, as well as the approval of LifeMark Health's unitholders and Centric's shareholders. The Transaction is expected to close in the second quarter of 2011.
Pursuant to the terms of the amended Partnership Agreement, Alaris will receive a fixed annual preferred Distribution of $6.75 million in the first full year after the closing of the Transaction. The Distribution will be payable monthly and will be increased annually by 4% each year thereafter. At any time following the second anniversary date of the closing of the Transaction, Centric has a Purchase Option to purchase all of Alaris' remaining preferred units at a predetermined price of $65.5 million (subject to an annual increase of 4% on such $65.5 million commencing on the third anniversary following closing of the Transaction).
A document titled, "LifeMark Health Transaction Details" will be posted at www.alarisroyalty.com under the "Investor Briefcase" section. The purpose of the document is to support this news release by giving greater detail to some of the topics discussed above.
A conference call with Alaris management will be held today, May 6, 2011, at 11:00am MST (1:00pm EST). Participant dial-in numbers are 1-877-440-9795 or 1-416-340-8530. For instant replay, dial-in to 1-800-408-3053 or 1-905-694-9447 and use the pass code 3355416.
The Company invests in a diversified group of private businesses ("Private Company Partners") in exchange for royalties or distributions from the Private Company Partners, with the principal objective of generating stable and predictable cash flows for dividend payments to its shareholders. Royalties or distributions to Alaris from the Private Company Partners are structured as a percentage of a "top line" financial performance measure such as gross margin, same clinic sales, gross revenues and same-store sales and rank in priority to the owners' common equity position.
The terms EBITDA, Earnings Coverage Ratio and distributable cash per share (collectively the "Non-GAAP Measures") are financial measures used in this news release that are not standard measures under Canadian generally accepted accounting principles ("GAAP"). The Company's method of calculating the Non-GAAP Measures may differ from the methods used by other issuers. Therefore, the Company's Non-GAAP Measures may not be comparable to similar measures presented by other issuers.
EBITDA refers to net earnings (loss) determined in accordance with GAAP, before depreciation and amortization, net of gain or loss on disposal of capital assets, interest expense and income tax expense. EBITDA is used by management and many investors to determine the ability of an issuer to generate cash from operations. Management believes EBITDA is a useful supplemental measure from which to determine the Company's ability to generate cash available for debt service, working capital, capital expenditures, income taxes and dividends.
Distributable cashper share ("DCPS") means Alaris' net income prepared in accordance with GAAP excluding non-cash items that include stock-based compensation expense, future income taxes, and depreciation and amortization divided by the weighted average number of Common Shares issued and outstanding in the share capital of the Company over such period.
Management of Alaris uses an annual Earnings Coverage Ratio to evaluate the ability for one of its Private Company Partners to pay its distributions to Alaris. The Earnings Coverage Ratio is defined as EBITDA divided by interest, principal repayments, maintenance capital expenditures, and distributions to Alaris.
This news release contains forward-looking statements. Statements other than statements of historical fact contained in this news release may be forward-looking statements, including, without limitation, management's expectations, intentions and beliefs concerning the closing of the Transaction, the expected Distribution, Centric's pro forma cash flow and EBITDA, the expected increase in the Company's distributable cash, the use of the Proceeds, including the Company's ability to reinvest the Proceeds in new and existing private company partnerships at historic average multiples on a timely basis, the repayment of debt, the benefits of the Transaction, Alaris' future revenue stream, the Company's expected growth, the Company's performance and business prospects and opportunities of the Company, and the Company's business strategy. Many of these statements can be identified by looking for words such as "believe", "expects", "will", "intends", "projects", "anticipates", "estimates", "continues" or similar words or the negative thereof. There can be no assurance that the plans, intentions or expectations upon which these forward looking statements are based will occur.
Statements containing forward-looking information by their nature involve numerous assumptions and significant known and unknown facts and uncertainties of both a general and a specific nature. Key assumptions include, but are not limited to assumptions that: the Transaction will be completed on the terms and conditions set out in the arrangement agreement, the Canadian and U.S. economies will continue to grow moderately in 2011; the Company will be able to identify and close new opportunities with new and existing Private Company Partners; interest rates will remain stable; more private companies will require access to alternative sources of capital; and capital markets will continue to improve. In determining the Company's expectations for economic growth, management primarily considers historical economic data provided by the Canadian and U.S. governments and their agencies. The information contained in this news release, including the information set forth under the heading "Risk Factors" in the Company's Annual Information Form dated March 25, 2011 (a complete copy of which can be found on SEDAR at www.sedar.com ) identifies additional factors that could affect the operating results and performance of the Company and may cause the actual results of the Company to differ materially from those anticipated in forward-looking statements.
Forward-looking statements are subject to risks, uncertainties and assumptions and should not be read as guarantees or assurances of future performance. Accordingly, readers are cautioned not to place undue reliance on any forward-looking information contained in this news release as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed in the forward-looking statements. Statements containing forward-looking information reflect management's current beliefs and assumptions based on information in its possession on the date of this news release. Although management believes that the expectations represented in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct.
The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this news release are made as of the date of this news release and Alaris does not undertake or assume any obligation to update or revise such statements to reflect new events or circumstances except as expressly required by applicable securities legislation.
Manager of Investor Relations and Investment Analyst