- Enhanced transit bus product offering: The addition of NABI’s low floor (LFW) and bus rapid transit (BRT) product platforms complements New Flyer’s Xcelsior and MiDi product platforms enhancing the company’s ability to provide customers with the best bus for their application or environment. In addition, NABI offers buses incorporating stainless steel frames for customers who have a specific requirement for this feature. There is little overlap in customers for whom the two companies are currently building buses.
- Expanded parts business with improved offering and customer support: The addition of NABI’s aftermarket parts segment represents a significant step for New Flyer’s aftermarket parts business. New Flyer intends to synchronize the parts databases and cross-reference lists of New Flyer, Orion and NABI, which management anticipates will permit the company to source parts more efficiently and offer expanded supply chain solutions to customers.
- Synergy opportunities: New Flyer has identified opportunities for cost synergies such as in the areas of purchasing and strategic sourcing, plus general and administrative expensesthat are expected to improve competiveness.
- Collaboration and sharing of technology and best practices: The combined entity will employ over 3,000 people who share a like-minded commitment to excellence in heavy-duty transit buses and product support with over 40,000 buses currently in operation in Canada and the U.S.
The transaction, including related expenses, is being funded using approximately $65 million in proceeds from the issuance of the second and final tranche of the previously announced strategic equity investment in New Flyer by Marcopolo S.A. An additional $20 million is being drawn from the company’s renewed senior secured credit facility. On a pro forma basis, New Flyer’s Total Leverage Ratio (total indebtedness to Adjusted EBITDA, as defined in the credit agreement) would decrease to approximately 2.2x as at March 31, 2013. Furthermore, the transaction is expected to be immediately accretive to New Flyer’s earnings per share and cash flow per share.
In April of 2013, NABI entered into a settlement agreement with a customer which provides for an aggregate payment obligation of $9.25 million over three years, of which $6.25 million remains to be paid by NABI. In addition, NABI is required to contribute an additional aggregate amount of at least $5 million over the next five years in the form of parts and services rebates (or cash in lieu thereof). NABI’s obligations under the settlement agreement will remain in place following the acquisition.
As noted above, the second and final tranche of Marcopolo S.A.’s strategic equity investment in New Flyer is being completed concurrently with the acquisition. New Flyer is issuing an additional 6,162,304 common shares to Marcopolo S.A. at a price of $10.50 per share for gross proceeds of approximately $65 million. Marcopolo S.A. will hold approximately 19.99 percent of the company’s issued and outstanding common shares.
Also concurrent with the acquisition of NABI, the company completed the amendment an extension of its senior secured credit facility to April 24, 2017 while increasing the total amount of the facilities to $257 million, an increase of $45 million. The borrowing limit of the revolving facility has been increased to $115 million from $90 million to support working capital fluctuations. The borrowing limit of the term facility has been increased to $142 million from $122 million. In addition, certain financial covenants and definitions have been adjusted to reflect the acquisition of NABI. The credit agreement also maintains an accordion feature of $75 million for future investment or acquisition opportunities.
BMO Capital Markets is acting as exclusive financial advisor to New Flyer in connection with the acquisition of NABI. Torys LLP is acting as primary legal counsel to New Flyer in connection with the transaction. The Bank of Nova Scotia and Bank of Montreal acted as co-lead arrangers and joint-bookrunners on the senior credit facility extension.