On June 13, 2016, it was announced that Hardwoods Distribution Inc. (TSX: HWD) had entered into a definitive agreement to purchase substantially all of the assets of Rugby IPD Corp. d/b/a Rugby Architectural Building Products for a price of USD 107 million and additional USD 13 million as an earn-out consideration payable over a 2-year period. It is estimated that the transaction will be completed in July, after being approved by TSX and US Antitrust and fulfilling other customary conditions.
The purchase price in Rugby acquisition agreement breaks down into USD 100 million in cash payable at closing and 0.56 million of common shares of Hardwoods with an estimated value of USD 7 million. The price is a revenue multiple of 0.42 and EBITDA multiple of 9.40. Additionally, Hardwoods will pay up to USD 13 million based on future performance targets over two years after the transaction.
Hardwood’s Board of Directors have approved an increase in Hardwood’s annual dividend of almost 14%, which will be effective in the October quarterly payment.
Rugby acquisition is not expected to make changes to the target’s staff and top management. Rugby ABP will still be led by David Hughes as President and Drew Dickinson as CEO.
Hardwood’s President and CEO, Rob Brown, emphasizes that Rugby acquisition is a great strategic fit that will make Hardwood the leading distributor in their industry in the North American market. The acquisition accomplishes at least two objectives of the buyer – expanding distribution capacities, especially in eastern U.S., and a stronger presence in the commercial market. The geographic footprints of the two companies have minimal overlaps, so the merger will result in a strong, national network.
According to Brown, both companies are growth-oriented, with similar business models, and complementary product portfolios and customer profiles. David Hughes of Rugby ABP pointed out that both companies have the “entrepreneurial spirit” in common and both are intensely committed to customers and suppliers.
With reference to the transaction, Hardwoods has entered into an agreement with a syndicate of investment dealers led by Cormark Securities Inc. As per the agreement, underwriters will purchase Hardwoods’ subscription receipts with a gross value of around CAD 50 million for resale to the public on a bought deal basis. This agreement includes the over-allotment option, allowing the underwriters to buy additional 517,350 subscription receipts, or common shares if applicable, for the purposes of stabilizing the price.
Funding USD 65 million of the transaction will be coming from a senior 5-year credit facility obtained from a US bank. The facility is worth USD 135 million and involves a revolving credit facility of USD 125 million. The credit will be secured against the assets of Hardwoods’ US subsidiaries.
Hardwoods is a leading distributor in the North American market for hardwood lumber, sheet goods and architectural millwork, supplying cabinet, moulding, millwork, furniture and specialty wood industries. Established in Vancouver, Canada, the company has been in operation since 1926 and has expanded across Canada and United States through a combination of organic and acquisitive growth.
Headquartered in Concord, New Hampshire, Rugby ABP is America’s leading full-line distributor of non-structural architectural building products serving suppliers of end-products in the residential, commercial, industrial, institutional and retail industries. The company operates a strategic network of 31 distribution facilities that serve 48 U.S. states. Key products include hardwood plywood and lumber, composite panels, countertops, laminates, doors, cabinets, mouldings, millwork and wood coatings.
About PierCap Partners:
We are a mergers and acquisitions (M&A) investment bank based in San Diego. M&A is our singular focus. Whether you are thinking of acquiring / selling a business, or taking some chips off the table, we run a well-disciplined process that secures best possible value, minimizes disruption and manages the delicate balance and spirit of collaboration. With over $2 billion in aggregate transaction value and 35+ years of combined experience, our leaders bring operational expertise, an owner’s perspective, and Wall Street solutions to you. Find out more about our focus, services and experience.