Deveron Corp. (TSX-V: FARM) (“
Deveron” or the
“
Company”), a leading agriculture data company in
North America, is pleased to announce that the Company has entered
into a definitive agreement (the “
Purchase
Agreement”) dated May 2, 2022 with certain vendor
shareholders to acquire a 67% equity interest in A&L Canada
Laboratories East, Inc. (“
A&L”), with an
option to purchase the remaining 33% following the three-year
anniversary of closing. Total consideration payable to the vendor
shareholders includes $42.8 million in cash and $7.5 million in the
Company’s common shares (the “
Acquisition”). The
$7.5 million in the Company’s common shares will be distributed to
a company controlled by Greg Patterson, one of the vendor
shareholders who, upon closing of the Acquisition, is expected to
continue as President, CEO and director of A&L and be appointed
to Deveron’s Board of Directors (subject to regulatory approval).
A&L is the one of the largest soil and
tissue laboratories in Canada. Founded by Greg Patterson, and based
in London, Ontario, A&L operates a 54,500 square foot
laboratory with significant growth capacity and 106 employees,
including a large R&D group that has produced patented, crop
specific yield and disease solutions. A&L processes over
435,000 soil samples per year. Deveron and A&L have cooperated
in Canadian soil testing and analysis since 2019 and jointly own
and operate Wood’s End Laboratory in the United States. During the
12 month period ended December 31, 2021, A&L had unaudited
revenue of $26.7 million and EBITDA of $11.6 million.1 As at
December 31, 2021, A&L had total unaudited assets of
$19,835,475 and total unaudited liabilities of $6,747,983.
“This acquisition is transformational for
Deveron. Combining Deveron and A&L establishes one of the only
fully vertically integrated agriculture data companies in the
market. This also aligns with our vision to be North America’s
leader in lab and agronomist services,” stated David MacMillan,
Deveron’s President, and CEO. “I’m thrilled to welcome A&L to
the Deveron family. Greg Patterson, A&L’s Founder, President
and CEO, will continue to lead A&L and will join Deveron’s
Board of Directors to accelerate and guide the successful merger.
Over the last few years, we have built Deveron from the ground up,
creating digital, data-driven solutions to help our clients lower
costs and improve crop yields. A&L’s complementary services and
its successful track record provides the consolidated entity with a
strong customer base into which to expand our product offering. The
new consolidated company’s financial position will enable
investments in organic growth, Research & Development, and
capital to invest in new market opportunities.”
“A&L was founded under the principle that
farmers want the best information so that they can make the best
decisions on their farms,” stated A&L’s Founder, President and
CEO, Greg Patterson. “Over the last 35 years, we have built an
advice and analytical recommendation company that focuses on good
agricultural practices, backed by unbiased data, that promotes
sustainable and ecological farming. Combining our long-track record
of success in Canada and our three-year partnership with Deveron
into a more formal business combination will only continue to bring
more value to our customers, while also opening the door to
distributing our product offerings through Deveron’s growing US
customer base. Soil testing was an avant-garde idea when A&L
first opened its doors. We built world class recommendations for
our customers through deep research and field data, which we
believe will continue to accelerate as A&L and Deveron leverage
their respective expertise to deliver the best information in the
industry.”
Transaction Highlights
- Addition of 20,000 customers to
Deveron's customer base across key Canadian agriculture markets and
over 435,000 annual soil samples.
- Enterprise value of approximately
$73 million represents an estimated pre-synergies multiple of
approximately 6.3x A&L’s 2021 EBITDA.
- Deveron to initially acquire 67% of
A&L for $42.8 million in cash and $7.5 million in Deveron
common shares.
- Deveron will have an option to
purchase the remaining shares of A&L following the three-year
anniversary of closing, and is subject to an obligation to purchase
a portion of the remaining shares on the five year anniversary of
closing.
- A&L’s Founder, President and
CEO, Greg Patterson, to continue to lead A&L as President and
CEO with a 20% residual equity stake in A&L, and, on closing,
is expected to join Deveron’s Board of Directors (subject to
regulatory approval).
- Closing of the Acquisition is
subject to customary conditions for transactions of this nature,
including the receipt of necessary third-party consents and
regulatory approvals. Deveron currently expects the completion of
the Acquisition to occur in Q2/2022.
Revenue and Cost Synergies
Management of the Company expects to realize
numerous revenue and cost synergies, including approximately $7.0
million in annualized revenue synergies within 24 months following
the completion of the Acquisition from vertical integration
opportunities and approximately $1.0 million in annualized cost
synergies within six months following the completion of the
Acquisition resulting from reductions in software, engineering and
other sales as well as general and administrative costs. There can
be no assurance that such revenue and cost synergies will be
achieved. Management of the Company expects to monetize
approximately $20 million in product R&D, although there can be
no assurances that such R&D will be monetized. Furthermore,
Deveron expects the Acquisition to provide additional scale,
enabling the Company to vertically integrate a carbon service
platform and provide immediate growth to Deveron’s recently
acquired companies through the vertical integration.
Public Offering of Subscription
Receipts
In connection with the Acquisition, Deveron will
file a preliminary prospectus supplement in connection with a
marketed public offering (the “Offering”) of
subscription receipts (“Subscription Receipts”) to
be led by TD Securities Inc. (the “Bookrunner”)
for gross proceeds of approximately $20 million. The Offering will
be priced in the context of the market with the price and other
final terms to be determined at the time of entering into the
Underwriting Agreement (as defined below). It is expected that the
Bookrunner and a syndicate of underwriters (collectively the
“Underwriters”) will enter into a definitive
underwriting agreement (the “Underwriting
Agreement”) with the Company upon completion of marketing
of the Offering. Each Subscription Receipt represents the right to
receive one unit (“Unit”) consisting of one common
share (a “Common Share”) and one-half of one
common share purchase warrant of Deveron (each whole Common Share
purchase warrant, a “Warrant”). Each Warrant will
have an exercise price to be determined in the context of the
market and shall be exercisable for a period of 24 months from
closing of the Offering.
In connection with the Offering, the Company
will grant the Underwriters an option, exercisable for a period of
30 days from the date of the closing of the Offering, to purchase
up to an additional number of Subscription Receipts equal to 15% of
the number Subscription Receipts to be sold pursuant to the
Offering at the offering price to cover over-allotments, if any,
and for market stabilization purposes (the “Over-Allotment
Option”). If the Escrow Release Conditions (as defined
below) have been satisfied prior to the exercise of the
Over-Allotment Option, the Underwriters may elect to exercise the
Over-Allotment Option by purchasing additional Units, Common Shares
or Warrants or any combination thereof.
In consideration for their services, the
Underwriters will receive: (i) a cash commission equal to 6.0% of
the gross proceeds of the Offering (the "Underwriters'
Fee"); and (ii) such number of broker warrants (each, a
"Broker Warrant") as is equal to 6.0% of the
number of Subscription Receipts issued by the Company on the
closing date of the Offering. Each Broker Warrant shall be
exercisable, upon the satisfaction or waiver of the Escrow Release
Conditions, to acquire one Common Share at an exercise price equal
to the offering price for a period of 24 months following the
closing date of the Offering.
Closing of the Offering is subject to customary
closing conditions and approvals of applicable securities
regulatory authorities, including the TSX Venture Exchange.
The Subscription Receipts distributed pursuant
to the Offering will be offered in all provinces of Canada, except
Québec, pursuant to a prospectus supplement (the
“Prospectus Supplement”) to the short form base
shelf prospectus of Deveron dated November 30, 2021 (the
“Base Shelf Prospectus”).
The proceeds from the Offering less 50% of the
Underwriters' Fee payable on the closing date of the Offering will
be held in escrow pending satisfaction of certain escrow release
conditions, including, among other things, (i) completion of all
conditions precedent to the Acquisition, (ii) no material
amendments of the terms and conditions of the Purchase Agreement
and (iii) delivery of an escrow notice from the Company and the
Bookrunner to the subscription receipt agent (the “Escrow
Release Conditions”). Upon satisfaction of the Escrow
Release Conditions, the net proceeds will be released from escrow
to the Company and the Subscription Receipts will be exchanged on a
one-for-one basis for Units for no additional consideration or
further action on the part of the holder thereof.
If certain Termination Events (as defined in the
Prospectus Supplement) occur, the holders of the Subscription
Receipts will receive a cash payment equal to the offering price of
the Subscription Receipts plus their pro rata share of interest.
Please refer to the Prospectus Supplement for further details on
the Termination Events and payment.
Conditions to Completion of the
Acquisition
The Acquisition and the Offering have been
unanimously approved by the directors of Deveron entitled to vote
thereon, and remain subject to customary closing conditions,
including regulatory approvals (including the approval of the TSX
Venture Exchange) and financing conditions.
Subject to the foregoing, closing of the
Offering is expected to occur on or about May 12, 2022 and closing
of the Acquisition is expected to occur during the second quarter
of 2022.
New Credit Facility
In connection with the Acquisition, the
Toronto-Dominion Bank has provided A&L with a commitment letter
pursuant to which, among other things, it has agreed to provide
A&L with: (a) a revolving credit facility in the principal
amount of up to $5 million available for working capital and
general corporate purposes including up to $1 million in letters of
credit (the “Revolving Credit Facility”); and (b)
a term loan in the principal amount of up to $24 million (the
“Term Loan” and together with the Revolving Credit
Facility, the “Credit Facilities”). A&L
expects to immediately loan the $24 million under the Term Facility
to Deveron and to ultimately use the proceeds available under the
Term Facility to partially fund the cash consideration and fees
relating to the completion of the Acquisition.
The Credit Facilities will be governed by a
credit agreement to be entered into between the lenders, A&L,
the material subsidiaries of A&L and the Toronto-Dominion Bank
as administrative agent, lead arranger and sole bookrunner (the
“Credit Agreement”). All current and future
wholly-owned material subsidiaries (direct and indirect) of A&L
shall provide an unlimited recourse guarantee of A&L’s
obligations. Additionally, each shareholder of A&L, including
the Company, shall provide a guarantee for A&L’s obligation
with recourse limited under such guarantee to a pledge of the
shares held by such shareholder in A&L. The Credit Agreement
will be secured with first priority security interest granted by
A&L, and a pledge of equity interest in the shares of A&L
pledged by the limited recourse guarantors. The Credit Facilities
will be secured against A&L.
Upon completion of the financing contemplated in
the Credit Agreement, A&L shall provide a loan in the amount of
up to $24 million to Deveron, which is to be used by Deveron to
partially fund the Acquisition.
Advisors
TD Securities Inc. is acting as financial
advisor to Deveron on the Acquisition and TD Securities Inc. is
acting as bookrunner on the Offering. Irwin Lowy LLP is acting as
legal advisor to Deveron on the Acquisition, Miller Thomson LLP is
acting as Deveron’s counsel on the Offering and the Credit
Facility, and Bennett Jones LLP is acting as Underwriters’ counsel
on the Offering.
Availability of Documents
Copies of related documents, such as the Base
Shelf Prospectus, Prospectus Supplement, Purchase Agreement and the
Underwriting Agreement will be available under the Company’s
profile on SEDAR (www.sedar.com) as part of the public filings of
Deveron.
About Deveron
Deveron is an agriculture technology company
that uses data and insights to help farmers and large agriculture
enterprises increase yields, reduce costs and improve farm
outcomes. The company employs a digital process that leverages data
collected on farms across North America to drive unbiased
interpretation of production decisions, ultimately recommending how
to optimize input use. Our team of agronomists and data scientists
build products that recommend ways to better manage fertilizer,
seed, fungicide, and other farm inputs. Additionally, we have a
national network of data technicians that are deployed to collect
various types of farm data, from soil to drone, that build a basis
of our best-in-class data layers. Our focus is the US and Canada
where 1 billion acres of farmland are actively farmed
annually.2
For more information and to join our community,
please visit www.deveron.com.
David MacMillanPresident & CEO, Deveron
Corp.dmacmillan@deveron.com
A&L Financial Statements and
Information
All A&L financial statements have been
prepared in accordance with Canadian GAAP principles applicable to
private enterprises, which are Canadian accounting standards for
private enterprises in Part II of the Chartered Professional
Accountants of Canada Handbook. The recognition, measurement and
disclosure requirements of Canadian GAAP applicable to private
enterprises differ from those of Canadian GAAP applicable to
publicly accountable enterprises, which are IFRS.
A&L’s EBITDA, as used herein, is defined by
A&L as net earnings (as per Canadian accounting standards for
private enterprises set out in Part II of the CPA Canada Handbook –
Accounting, as issued by the Accounting Standards Board in Canada)
less interest expense, depreciation and amortization, and income
taxes.
Presentation of Financial Information
The financial information of Deveron referred to
in this news release is reported in Canadian dollars and have been
prepared in accordance with IFRS. All financial information of
A&L referred to in this news release is reported in Canadian
dollars and has been derived from audited and unaudited historical
financial statements of A&L that were prepared in accordance
with Canadian accounting standards for private enterprises. The
recognition, measurement and disclosure requirements of Canadian
GAAP applicable to private enterprises differ from those of
Canadian GAAP applicable to publicly accountable enterprises, which
are IFRS.
The financial information for A&L in this
news release for the 12 months ended December 31, 2021 are
unaudited and were calculated by management by adding figures for
six months ended December 31, 2021 (unaudited) to figures for year
ended June 30, 2021 (audited) and subtracting figures for six
months ended December 31, 2020 (unaudited).
Forward-Looking Statements
This news release contains “forward-looking
information” and “forward-looking statements” (collectively,
“forward-looking information”) within the meaning
of applicable securities laws. Forward-looking information may
relate to our future financial outlook and anticipated events or
results and may include information regarding our financial
position, business strategy, growth strategies, budgets,
operations, financial results, taxes, dividend policy, capital
structure, plans and objectives. Particularly, information
regarding our expectations of future results, performance,
achievements, prospects or opportunities or the markets in which we
operate is forward-looking information. In some cases,
forward-looking information can be identified by the use of
forward-looking terminology such as “plans”, “targets”, “expects”
or “does not expect”, “is expected”, “an opportunity exists”,
“budget”, “scheduled”, “estimates”, “outlook”, “forecasts”,
“projection”, “prospects”, “strategy”, “intends”, “anticipates”,
“does not anticipate”, “believes”, or variations of such words and
phrases or statements that certain actions, events or results
“may”, “could”, “would”, “might”, “will”, “will be taken”, “occur”
or “be achieved”. In addition, any statements that refer to
expectations, intentions, projections or other characterizations of
future events or circumstances contain forward-looking information.
Statements containing forward-looking information are not
historical facts but instead represent management’s expectations,
estimates and projections regarding future events or
circumstances.
This forward-looking information in this news
release includes, among other things, statements relating to:
expectations regarding the completion of the Acquisition; the
expected impact of the Acquisition on the Company’s operations,
prospects, opportunities, financial condition, cash flow and
overall strategy; completion of credit facilities; the strategic
rationale for the Acquisition; strength, complementarity and
compatibility of A&L with Deveron’s existing business and
teams; anticipated sources of financing of the purchase price of
the Acquisition; successful marketing of the Offering; the entering
into of the Underwriting Agreement and timing thereof; the closing
and terms of the Offering, the filing of the Prospectus Supplement
qualifying the distribution of the Subscription Receipts, the
listing of the Subscription Receipts and the underlying Common
Shares and Warrants; regulatory approval of the Acquisition and the
Offering; Greg Patterson’s appointment to Deveron’s board and
continued involvement with A&L following the Acquisition; the
expectations regarding industry trends, overall market growth rates
and our growth rates and growth strategies; projected milestones
and timelines, including the expected closing dates for the
Offering and the Acquisition; the ability to satisfy the escrow
release conditions of the Subscription Receipts; and the
anticipated benefits and impacts of the Offering and the
Acquisition.
This forward-looking information and other
forward-looking information are based on management’s opinions,
estimates and assumptions in light of our experience and perception
of historical trends, current conditions and expected future
developments, as well as other factors that we currently believe
are appropriate and reasonable in the circumstances. Despite a
careful process to prepare and review the forward-looking
information, there can be no assurance that the underlying
opinions, estimates and assumptions will prove to be correct.
Certain assumptions in respect of our ability to expand the
Company's network of partnerships in existing and new geographies
and verticals and our ability to expand our customer base
domestically and internationally; the viability and continuity of
our existing commercial partnerships; our ability to build market
share; our ability to develop and market additional products and to
increase sales from our existing customers through sales of our
more premium products; our ability to attract and retain key
management and personnel; our anticipated growth prospects; the
state of the agricultural industry and global economy; the expected
impact and adoption of digital tools by farmers; the impact of the
coronavirus disease (including any new strains and variants of
concern); the continued confidence in our products and services;
future foreign exchange and interest rates; the impact of
competition; changes to trends in the agricultural industry,
including verticals in the broader agricultural ecosystem or to
global economic factors; changes to laws, rules, regulations and
global standards; the satisfaction of all conditions of closing and
the successful completion of the Acquisition and within the
anticipated timeframe, including receipt of regulatory, stock
exchange and other required approvals, including without limitation
the approval of the TSX Venture Exchange, in regards to the
Offering and the Acquisition; the estimated purchase price of the
Acquisition; the receipt of required consent of third parties the
successful and timely integration of A&L in the anticipated
timeframe; the realization of the anticipated benefits, economies
of scale, operating efficiencies, costs savings and synergies of
the Acquisition in the timeframe anticipated, including impacts on
growth and accretion in various financial metrics; and the absence
of significant undisclosed costs or liabilities associated with the
Acquisition are material factors made in preparing forward-looking
information and management’s expectations.
Forward-looking information is subject to known
and unknown risks, uncertainties, assumptions and other factors
that may cause the actual results, level of activity, performance
or achievements to be materially different from those expressed or
implied by such forward-looking information, including but not
limited to the risk factors discussed or referred to in the
Company’s Management’s Discussion and Analysis dated March 30, 2022
for the year ended December 31, 2021 and under the heading “Risk
Factors” in the Base Shelf Prospectus (including in the documents
incorporated by reference therein): completion and use of net
proceeds of the Offering; failure to list the Subscription Receipts
and the underlying Common Shares and Warrants; failure to complete
the Acquisition in all material respects in accordance with the
purchase agreement; failure to obtain, in a timely manner or at
all, regulatory, stock exchange and other required approvals, or to
otherwise satisfy the conditions to the completion of, the
Acquisition; necessary borrowings, such as the aforementioned
credit facilities, may not be available to fund a portion of the
purchase price for the Acquisition; increased indebtedness after
completion of the Acquisition; failure to receive required consents
of third parties; failure to realize the anticipated benefits,
economies of scale, operating efficiencies, costs savings and
synergies of the Acquisition in the timeframe anticipated, or at
all; the materiality of post-closing adjustments; the A&L
business being adversely impacted during the pendency of the
Acquisition; potential unforeseen difficulties in integrating the
A&L business into the Company’s systems and operations;
dependence on key employees and the loss of certain key A&L
personnel; the discovery of significant undisclosed costs or
liabilities associated with the Acquisition; reliance on
information provided by A&L and the risk of inaccurate or
incomplete information, historical and/or stand-alone financial
information may not be representative of future performance, and
uncertainty as to expected financial condition and economic
performance following the completion of the Acquisition.
If any of these risks or uncertainties
materialize, or if the opinions, estimates or assumptions
underlying the forward-looking information prove incorrect, actual
results or future events might vary materially from those
anticipated in the forward-looking information. The pro forma
information set forth in this news release should not be considered
to be a prediction of what the actual financial position or other
results of operations of Deveron would have necessarily been had
the Acquisition or other recently completed or proposed
acquisitions been completed as, at, or for the periods stated.
Although we have attempted to identify important
risk factors that could cause actual results to differ materially
from those contained in forward-looking information, there may be
other risk factors not presently known to us or that we presently
believe are not material that could also cause actual results or
future events to differ materially from those expressed in such
forward-looking information. There can be no assurance that such
information will prove to be accurate, as actual results and future
events could differ materially from those anticipated in such
information. Accordingly, prospective investors should not place
undue reliance on forward-looking information, which speaks only as
of the date made. The forward-looking information contained in this
news release represents our expectations as of the date of this
news release and are subject to change after such date. However, we
disclaim any intention or obligation or undertaking to update or
revise any forward-looking information whether as a result of new
information, future events or otherwise, except as required under
applicable securities laws in Canada.
This forward-looking information is used to
assist readers in obtaining a better understanding of Deveron’s
business, current objectives, strategic priorities, expectations
and plans, including following the Acquisition, and may not be
appropriate for other purposes. Such forward-looking information
that is not historical fact, including statements based on
management’s belief and assumptions cannot be considered as
guarantees of future performance.
All of the forward-looking information contained
in this news release is expressly qualified by the foregoing
cautionary statements. The Company relies on litigation protection
for forward-looking statements.
Neither TSX Venture Exchange nor its
Regulation Services Provider (as that term is defined in policies
of the TSX Venture Exchange) accepts responsibility for the
adequacy or accuracy of this release.
The securities offered have not been,
and will not be, registered under the U.S. Securities Act of 1933
(the “U.S. Securities Act”), as amended, and may not be offered or
sold in the United States, absent registration or an applicable
exemption from registration. This press release shall not
constitute an offer to sell or the solicitation of an offer to buy
the securities. The offering or sale of the securities shall not be
made in any jurisdiction in which such offer, solicitation or sale
would be unlawful.
1 A&L figures for 12 months ended December
31, 2021 calculated by management by adding figures for six months
ended December 31, 2021 (unaudited) to figures for year ended June
30, 2021 (audited) and subtracting figures for six months ended
December 31, 2020 (unaudited).2 Based on data collected through the
United States Department of Agriculture, the National Agricultural
Statistics Service and Statistics Canada
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