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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