New Flyer Industries Inc. announced on June 21 the acquisition of North American Bus Industries, Inc. (NABI) from an affiliate of Cerberus Capital Management, L.P. for cash consideration of approximately $80 million, virtually all for the satisfaction of affiliate debt.
The acquisition excludes discontinued operations in Hungary and substantially all related assets and liabilities. NABI was founded in 1992, and was known prior to October 1996 as American Ikarus. The completion of the acquisition and related financing transactions is subject only to confirmation of the required wire transfers of funds which is expected later today.
With bus manufacturing operations in Anniston, Ala., a parts distribution center in Delaware, Ohio, and a service center in Jurupa Valley, Calif., NABI is an innovative manufacturer of urban transit buses for U.S. customers. NABI also operates one of the transit industry’s most sophisticated aftermarket parts organizations, sourcing parts from over 200 different suppliers and providing support for transit buses throughout North America. For the last twelve months ended March 31, NABI delivered 582 bus equivalent units (“EUs”) with bus revenue of approximately $268 million, aftermarket parts revenue of approximately $60 million, and a combined Adjusted EBITDA of approximately $20 million. NABI currently has a total backlog of 1,579 EUs of which 593 are firm and 986 are options.
New Flyer’s Chairman of the Board, the Honourable Brian Tobin, P.C. O.C. commented, “The acquisition of NABI marks an important milestone for New Flyer and is consistent with the company’s strategic plan to ensure market and technology leadership, while providing public transit operators with long-term stability and excellence in product support. We have been able to proceed with this transaction while maintaining a flexible and conservative approach to our balance sheet.”
New Flyer’s President and CEO Paul Soubry explained further, “NABI represents a compelling growth platform for us. The addition of NABI to the New Flyer family provides New Flyer with a highly complementary product line, access to new customers, a cost efficient manufacturing platform based in Alabama, and it creates a significant player in aftermarket parts. The Company plans to operate the NABI bus and NABI parts operations under the names NABI Bus, LLC and NABI Parts, LLC, respectively, within the New Flyer group of companies.”
Jim Marcotuli, NABI’s president and CEO, added “New Flyer is a world-class company and this acquisition will provide NABI with synergistic opportunities to achieve an even higher level of performance and success. The combined entity will be positioned to provide customers with an enhanced product offering and superior customer service.”
“This transaction is mutually beneficial for both New Flyer’s and NABI’s customers and will provide both companies with access to new resources and customers that will serve as catalysts for future growth,” said Dev Kapadia, a Cerberus managing director. “We are proud of the operational turnaround that occurred since we acquired NABI in 2006 under the leadership of President and CEO Jim Marcotuli, and with capital resources and extensive operating expertise from Cerberus.”
The transaction presents a number of attractive opportunities for New Flyer, including:
- 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.