TIDMEVRA

RNS Number : 0643C

EverArc Holdings Limited

16 June 2021

EverArc Holdings to Acquire 100% of Perimeter Solutions

16 June 2021 - EverArc Holdings Limited (LSE: EVRA / EVWA) ("EverArc") is pleased to announce that it has entered into a definitive agreement with SK Invictus Holdings S.à.r.l. ("SK"), an affiliate of funds advised by SK Capital Partners, to acquire 100% of SK Invictus Intermediate S.à.r.l., the ultimate parent company of Perimeter Solutions ("Perimeter Solutions" or the "Company"), a leading global manufacturer of high-quality firefighting products and lubricant additives, in a transaction valued at approximately $2 billion, consisting of cash and preferred shares, subject to customary closing conditions (the "Transaction").

Upon closing of the Transaction, it is intended that W. Nicholas Howley and William Thorndike, Jr., the Co-Chairmen of EverArc, will serve as Co-Chairmen of the combined business. The Company's current management team, led by Edward Goldberg, will continue to lead Perimeter Solutions post-closing of the Transaction.

Transaction Overview

The purchase consideration payable in connection with the Transaction is expected to be funded from a combination of: (i) EverArc's existing cash balances raised at the time of its launch in December 2019 and in a follow-on equity placing in January 2020 of approximately $400 million; (ii) additional proceeds of $1.15 billion which EverArc has raised from an equity issuance to a limited group of institutional shareholders, including The WindAcre Partnership, Tiger Global, Tiger Eye Capital, Meritage Fund LLC, Select Equity Group, L.P., Eminence Capital, LP, Berkshire Partners / Stockbridge, Matrix Capital Management, Janus Henderson Investors, and Aligned Investors (A Principal Global Investors Boutique), which is conditional upon the closing of the Transaction (the "Private Placement"); (iii) committed loan facilities in an aggregate amount of $600 million; and (iv) the issuance of $100 million of preferred equity to SK.

The Boards of Directors of EverArc and the Company have each approved the proposed Transaction. Closing of the Transaction, which is expected to take place in Q4 2021, is subject to customary conditions.

Upon closing, EverArc will undertake a reorganisation pursuant to which it and the Company will become the wholly owned subsidiaries of a newly formed Luxembourg company, Perimeter Solutions S.A.. Prior to closing of the Transaction, Perimeter Solutions S.A. will file a registration statement with the SEC and apply for listing of its ordinary shares and warrants on a U.S.-based stock exchange. It is anticipated that in connection with the closing of the Transaction, EverArc will request the cancellation of the listing of its ordinary shares and warrants on the Official List of the Financial Conduct Authority ("FCA") and trading on the London Stock Exchange.

The Transaction will, at closing, constitute a reverse takeover requiring compliance with the relevant provisions of the Listing Rules of the FCA. Under Listing Rule 5.6, EverArc is required to provide certain information regarding the Company to ensure that there is sufficient information available to the public with regard to the Transaction in order to avoid suspension of listing of EverArc's ordinary shares and warrants. As the Company is not listed on any stock exchange and is not subject to any public disclosure regime, the information referred to in LR 5.6.15G is set out in the Annex to this announcement.

The Valence Group of Piper Sandler and Morgan Stanley & Co. LLC acted as financial advisors to EverArc and Greenberg Traurig LLP acted as English and US legal advisor and Maples and Calder acted as BVI and Luxembourg legal advisor to EverArc in relation to the Transaction. Kirkland & Ellis acted as legal advisor to SK Capital Partners. Morgan Stanley & Co. International plc and UBS Investment Bank acted as placement agents to EverArc in relation to the Private Placement. The placement agents to Everarc were represented in relation to the Private Placement by Herbert Smith Freehills as to English and US law.

About EverArc Holdings Limited

EverArc Holdings Limited (LSE: EVRA / EVWA) is a publicly-listed acquisition company that was formed in November 2019 to undertake an acquisition of a target company or business.

About Perimeter Solutions

Perimeter Solutions is a leading global manufacturer of high-quality firefighting products and lubricant additives. The Fire Safety business includes formulation and manufacturing of fire management products along with services and pre-treatment solutions for managing wildland, military, industrial and municipal fires. The Oil Additives business produces high quality phosphorous pentasulfide ("P2S5") utilised in the preparation of zinc dialkyldithiophosphate ("ZDDP") based lubricant additives, providing critical anti-wear solutions for end customers. Across both businesses, Perimeter Solutions provides world class technology, proprietary formulations, leading innovation, high levels of service and supply chain expertise. Further information about Perimeter Solutions is set out in the Annex to this announcement.

About SK Capital

SK Capital is a private investment firm with a disciplined focus on the specialty materials, chemicals and pharmaceuticals sectors. The firm seeks to build strong and growing businesses that create substantial long-term value. SK Capital aims to utilise its industry, operating and investment experience to identify opportunities to transform businesses into higher performing organisations with improved strategic positioning, growth and profitability as well as lower operating risk. SK Capital's portfolio of businesses generates revenues of approximately $11 billion annually, employs more than 16,000 people globally and operates 150 plants in 28 countries.

Enquiries:

contact@everarcholdings.com

FORWARD LOOKING STATEMENTS AND DISCLAIMERS

This announcement does not constitute or form part of any offer or invitation to purchase, otherwise acquire, issue, subscribe for, sell or otherwise dispose of any securities, nor any solicitation of any offer to purchase, otherwise acquire, issue, subscribe for, sell, or otherwise dispose of any securities.

The release, publication or distribution of this announcement in certain jurisdictions may be restricted by law and therefore persons in such jurisdictions into which this announcement is released, published or distributed should inform themselves about and observe such restrictions.

Certain statements in this announcement are forward-looking statements which are based on EverArc's expectations, intentions and projections regarding the Company's future performance, anticipated events or trends and other matters that are not historical facts, including: (i) expectations regarding the anticipated closing date of the Transaction; (ii) intentions regarding changing its jurisdiction of incorporation, filing a registration statement with the SEC and relisting on a U.S.-based exchange; (iii) expectations regarding the future operating and financial performance of the Company; (iv) expectations regarding the Company's growth prospects and the EverArc team's role in its growth and expansion plans; (v) intentions to capitalise on strategic opportunities to expand; (vi) expectations regarding the post-closing composition of the Board of Directors and management team of the Company; (vii) expectations regarding funding of the Transaction; and (viii) intentions to raise additional proceeds from an equity issuance prior to closing and expected use of such proceeds. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements, including: (i) economic and market conditions, competition, operating difficulties and other risks that may affect the Company's and/or EverArc's future performance; (ii) the occurrence of any event, change or other circumstances that could give rise to the termination of the definitive agreement entered into among the parties thereto in connection with the Transaction; (iii) the risk that securities markets will react negatively to the Transaction or other actions by EverArc, the Company and/or the combined company after completion of the Transaction; (iv) the risk that the Transaction disrupts current plans and operations as a result of the announcement and consummation of the Transaction described herein; (v) the ability to recognise the anticipated benefits of the Transaction and of the Company to take advantage of strategic opportunities; (vi) costs related to the Transaction; (vii) the limited liquidity and trading of EverArc's securities; (viii) the ability of EverArc to successfully effect a listing of Perimeter Solutions S.A.'s securities on a U.S.-based exchange in the anticipated timeframes; (ix) the Company's ability to drive growth and to sustain such growth; (x) EverArc's ability to raise additional proceeds on acceptable terms; (xi) changes in applicable laws or regulations (or the interpretation thereof); (xii) the possibility that EverArc and/or the Company may be adversely affected by other economic, business, and/or competitive factors; and (xiii) other risks and uncertainties.

Given these risks and uncertainties, prospective investors are cautioned not to place undue reliance on forward-looking statements. Forward-looking statements may, and often do, differ materially from actual results. Forward-looking statements speak only as of the date of such statements and, except as required by applicable law or regulation, neither EverArc nor the Company undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Nothing in this announcement constitutes or should be construed as constituting a profit forecast.

Financial information

The Company's financial information contained herein is derived from the Company's historical financial statements. The Company's historical financial statements have historically been prepared based on US GAAP applicable to private companies. The Company's historical financial information for the financial years ended 31 December 2019 and 2020 have been revised to comply with U.S. GAAP applicable to public companies.

Neither the content of EverArc's website nor the Company's website, nor any website accessible by hyperlinks on either of those websites is incorporated in, or forms part of, this announcement.

The persons responsible for making this announcement on behalf of EverArc are W. Nicholas Howley and William N. Thorndike, Jr., the Co-Chairmen of EverArc.

Legal Entity Identifier (LEI): 213800HX5NY11VG7GW55

Annex

Selected Financial and Other Information of Perimeter Solutions

Description of Perimeter Solutions

Perimeter Solutions is a leading global manufacturer of high-quality firefighting products and lubricant additives. The Fire Safety business includes formulation and manufacturing of fire management products along with services and pre-treatment solutions for managing wildland, military, industrial and municipal fires. The Oil Additives business produces high quality phosphorous pentasulfide ("P2S5") utilised in the preparation of zinc dialkyldithiophosphate ("ZDDP") based lubricant additives, providing critical anti-wear solutions for end customers. Across both businesses, Perimeter Solutions provides world class technology, proprietary formulations, leading innovation, high levels of service and supply chain expertise. The business was carved out of ICL Group Ltd in 2018 and acquired by SK Capital Partners.

Perimeter Solutions operates in two business segments: Fire Safety and Oil Additives. Approximately 79% of Perimeter Solutions' revenue is generated in the United States, 10% in Europe, 5% in Australia, 2% in Canada and 5% in other jurisdictions.

Fire Safety

The Fire Safety segment represents approximately 80% of EBITDA and includes formulation and manufacturing of fire management products and mission critical services for wildland, military, industrial and municipal fires. Products include fire retardants and Class A & Class B foams to control and suppress fires. The Company has a portfolio of market-leading branded products, including Phos-Chek(R) retardants, Phos-Chek(R), Fire-Trol(R), Solberg(R) and Auxquimia(R) brand Class A and B foams.

Wildfire Retardants - Perimeter Solutions offers a comprehensive, integrated product and service offering for management of wildfires in North America, Europe, Australia and other geographies. Wildfire retardants are designed to be dropped by air or applied on the ground in front of the fire line in order to create a chemical fire break, chemically altering fuels to render them non-flammable. In addition to formulating and manufacturing retardant, Perimeter Solutions manages several aspects of its customers' retardant operations, including inventory, storage, mixing and aircraft loading.

Foams - Perimeter Solutions is also an industry leader in fluorine-free foam solutions that are setting new industry standards for sustainability. Class A (ordinary combustibles) and Class B (flammable liquids and gases) foams are used for both wildland and municipal firefighting. Class A foams are used as a water enhancer to extinguish non-oil based fires. Class B foams are used to extinguish and contain flammable liquids such as gasoline, petroleum oil and paint fires.

Prevention & Protection - Perimeter Solutions provides preventative pre-treatment solutions to mitigate fire ignitions and protect against wildfire danger. Customers include utilities, insurance companies, governments, transit/infrastructure providers and homeowners. Target applications include utility poles, critical facilities, timber resources and personal property. Perimeter Solutions' products have proven effective in protecting critical infrastructure from active wildfires, and a single application of Perimeter Solutions' prevention product can be effective for a full fire season.

Oil Additives

The Oil Additives segment represents approximately 20% of EBITDA and includes production of high quality P2S5, which is primarily used in the preparation of (ZDDP)-based lubricant additives. ZDDP-based lubricant additives are critical ingredients in engine oils, mainly providing anti-wear protection to engine components. The high-quality P2S5 market is a consolidated market in both North America (where Perimeter Solutions is the leading provider) and Europe (where Perimeter Solutions is the second largest provide). P2S5 has no commercially viable substitutes and the production, handling and transportation of P2S5 requires a high degree of technical expertise due to the reactive nature of the compound.

EverArc believes that Perimeter Solutions is well positioned in the market for the following reasons:

-- Product qualification - Extensive performance, safety and environmental testing driven by stringent regulatory and qualification requirements of the U.S. Forest Service

-- Significant service requirement - Perimeter Solutions provides a comprehensive, integrated product and service offering together with highly specialised equipment and services

-- Supply chain complexity - Perimeter Solutions' strategically located supply chain can deliver product nearly anywhere in North America within eight hours

-- Strong customer relationships - Perimeter Solutions has strong, long standing relationships with customers lasting more than 30 years and provides consistent new product introductions driven by customer demand.

Transaction highlights

The following are the key drivers for EverArc's acquisition of Perimeter Solutions:

   --      Mission-critical supplier of retardant to wildfire agencies globally 
   --      Attractive Financial Profile - 40% EBITDA margin and 2% capex as % of revenue 
   --      Long-Term Volume Growth - Long history of increasing fire severity and retardant use 
   --      Value-based Pricing - Critical product/service enables value-based pricing 

Key Operating and Performance Measures and Trend Information

There have been no significant changes in revenues or cost profile of the Company's business since 31 December 2020. The revenues and margin in the Company's Fire Safety business is affected by the severity of wildfire activity, particularly in the US, and although the long-term trend has been of increasing activity, there may be year-to-year variability based on the fire season and wildfire activity. The Oil Additives business is driven by number of global miles driven by both passenger cars and heavy-duty vehicles. Since 31 December 2020, the revenues for this segment are expected to increase as economies around the world recover and there is greater transportation activity. Based on information currently available, EverArc is not aware of any specific known trend, uncertainty, demand, commitment or event that is reasonably likely to have a material effect on EverArc's or the Company's prospects for the current financial year.

Growth in the Fire Safety business is driven by global long-term growth in fire severity and an increasing wildland urban interface. These factors are driving increased levels of government spending on fire suppression, including expansion of the aerial firefighting tanker fleet, which is in turn driving significant growth in retardant use. Retardant is the active ingredient, and a critical component, in wildfire fighting, but consistently represents only approximately 2-3% of suppression costs in the US.

The key driver of volume for the U.S. Fire Safety business is the amount and location of acreage burned in the US. Over the years, this acreage burned index has been trending upwards. The fire season has also been lengthening, which can be attributed to macro factors like increased incidences of drought and people moving closer to Wildland Urban Interface. Working capital levels are driven by the seasonality caused by the fire season in the US, with working capital built up during calendar Q2 and Q3, and a subsequent working capital release in Q4.

Global Fire Statistics

United States: US acres burned have increased at 5% per year based on a rolling 5-year average since 1995.

US Fire Suppression Spend and Growth in Per-Fire Spend (1)

 
                  Fire suppression    Growth of per-fire     Growth in acres 
                    spend growth:     spending: 1987-2018    burned: 1987-2018 
                      1985-2020 
 United States 
                 -----------------  ---------------------  ------------------- 
 Federal                6.6%                 8.2%                  4.8% 
                 -----------------  ---------------------  ------------------- 
 California            10.2%                11.2%                  4.4% 
                 -----------------  ---------------------  ------------------- 
 

Canada: Researchers at the Canadian Forest Service project that wildland fire protection expenditures will continue to accelerate, particularly in western Canada.

Canada Growth in Fire Suppression Spend (2)

 
           Fire suppression spend   Growth in acres burned: 
              growth: 1970-2017            1983-2017 
 Canada             1.3%                     3.6% 
          -----------------------  ------------------------ 
 

Australia: Australia's annual federal spend on aerial firefighting has steadily increased over the past 15 years.

Europe: Longer fire seasons and more severe fire weather are projected across most regions of Europe by the European Environment Agency.

In the Oil Additives business, volume growth has been correlated to total number of miles driven and number of vehicles on the road. The number of vehicles in operation in the US has grown steadily, along with the total number of miles driven, driving the use of oil additives.

 
   Growth of annual vehicle miles        Growth in total vehicles in 
  travelled in the US: 1995-2019(3)    operation in the US: 2013-2021(4) 
                1.2%                                 1.9% 
                                     ----------------------------------- 
 

Historic Financial Information on the Company

The table below contains summary audited consolidated financial information of the Company, including profit and loss information, balance sheet information (highlighting net assets and liabilities) and relevant cash flow information, for the three years ended 31 December 2020.

 
                                    2018(5)         2019(6)         2020(6) 
                                 ($ thousands)   ($ thousands)   ($ thousands) 
                                --------------  --------------  -------------- 
 Revenue                            258,154         239,310         339,577 
                                --------------  --------------  -------------- 
 Cost of Goods Sold                 148,564         155,427         177,532 
                                --------------  --------------  -------------- 
 Gross Profit                       109,590         83,883          162,045 
                                --------------  --------------  -------------- 
 Operating Expenses                 88,450          89,660          90,569 
                                --------------  --------------  -------------- 
 Operating Income (loss)            21,140          (5,777)         71,476 
                                --------------  --------------  -------------- 
 
 Cash and Cash Equivalents          15,959           9,822          22,478 
                                --------------  --------------  -------------- 
 Total Current Assets              114 ,633         123,207         133,021 
                                --------------  --------------  -------------- 
 Total Assets                      1,035,717       1,145,480       1,138,206 
                                --------------  --------------  -------------- 
 Total Current Liabilities          32,194          47,884          32,923 
                                --------------  --------------  -------------- 
 Total Liabilities                  758,024         883,094         846,784 
                                --------------  --------------  -------------- 
 Shareholders' Equity               277,693         262,386         291,422 
                                --------------  --------------  -------------- 
 
 Net Cash Provided by / (Used 
  in) Operating Activities           3,583           (305)          70,826 
                                --------------  --------------  -------------- 
 Capital Expenditures               (4,882)         (8,859)         (7,497) 
                                --------------  --------------  -------------- 
 

Key differences in accounting policies

The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). EverArc prepares its financial statements in accordance with international financial reporting standards as issued by the International Accounting Standards Board ("IFRS"). The Company's application of US GAAP includes the election to apply certain provisions of US GAAP only permitted for private companies. The substantive differences include the following:

1. Goodwill - US GAAP permits private companies to amortise goodwill. The Company elected this private company option and is amortising goodwill over a 10-year period. IFRS does not permit amortisation of goodwill. As the goodwill is being amortised, US GAAP permits entities to test goodwill for impairment when there is a triggering event. IFRS requires at least an annual impairment test.

2. Acquired intangible assets - US GAAP permits private companies to not recognise separately from goodwill certain identifiable intangible assets (customer-related intangible assets, unless they are capable of being sold or licenced independently, and noncompete agreements). These assets are included in the goodwill balance and are amortised over the 10-year period. IFRS requires those acquired intangible assets to be accounted for separately from goodwill.

3. Long-Lived Assets - property, plant and equipment and intangible assets subject to amortisation are tested for impairment when events or changes in circumstances indicate the assets may be impaired. Under US GAAP, the impairment test is a two-step test which compares the carrying value to the undiscounted future cash flows and only if the carrying value exceeds the undiscounted future cash flows is impairment determined based as the excess of the carrying value over the fair value. Under IFRS, the impairment test is a one-step test which compares the carrying value to the fair value and an impairment charge is recorded if the carrying value exceeds the fair value.

4. Leases - The Company, as a lessee, accounts for all of its leases as operating leases and has not recorded those leases on the balance sheet. Under IFRS, all leases, with the exception of those qualifying for the practical expedient to exclude low value and short-term leases, are required to be recorded on the balance sheet as a right of use asset and a lease liability with the right of use asset amortised on a straight-line basis, usually over the life of the lease, and interest recognised at a constant rate on the lease liability balance outstanding.

5. Accounts Receivable - The Company maintains an allowance for bad debts for estimated losses inherent in its accounts. IFRS requires companies to estimate the expected credit losses in the receivables, which when using the simplified approach, requires recognition of the lifetime expected credit losses.

6. Income taxes - US GAAP does not require an entity to record deferred taxes on the intercompany profit in inventory. IFRS requires deferred taxes to be recorded on the basis difference in inventory that remains within the group at the balance sheet date.

7. Income taxes - Pre-tax accounting changes from other differences (e.g. lease accounting, etc.) will need to be appropriately tax effected and included in the tax provision.

8. Disclosures - US GAAP and IFRS have differing disclosure requirements. Some of the more significant areas of disclosures required in IFRS financial statements that are not required in US GAAP financial statements are related to the significant judgments that management has made in applying the accounting policies; quantitative and qualitative disclosures related to the nature and extent of risk arising from financial instruments including credit risks, liquidity risks and market risks; disclosures related to the required annual impairment test for goodwill; and disclosure of income statement accounts by nature of expense. Additionally, as a private company, the Company is not required to include certain disclosures in US GAAP that are only required for public companies including disclosures related to segments and earnings per share.

Declarations

The Board of Directors of EverArc declares and confirms for the purposes of, and in accordance with, Listing Rules LR 5.6.15(3)G, LR 5.6.15(4)G and 5.6.18R that:

(a) the Board of Directors of EverArc considers that this announcement contains sufficient information about the Company and its business to provide a properly informed basis for assessing its financial position;

(b) EverArc has made the necessary arrangements with the vendors of the Company to enable EverArc to keep the market informed without delay of any developments concerning the Company that would be required to be released were the Company part of EverArc; and

(c) EverArc will comply with the obligation under article 17(1) of Regulation (EU) No 596/2014 as it forms part of UK law by virtue of the European Union (Withdrawal) Act 2018 on the basis that the Company already forms part of the enlarged group.

16 June 2021

(1) Source: National Interagency Fire Centre, Cal Fire

(2) Source: Canadian Interagency Forest Fire Centre

(3) Source: Federal Reserve Bank of St. Louis

(4) Source: Hedges & Company

(5) 2018 financials based on the Company's 2018 audited financials which represent the period from 12 February 2018 to 31 December 2018, being the date on which the Company was acquired by SK Capital.

(6) 2019 and 2020 financials represent the Company's PCAOB audited financials.

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