/NOT FOR DISTRIBUTION TO THE U.S. NEWSWIRE OR
FOR DISSEMINATION IN THE UNITED
STATES/
- EMERGE has entered into a definitive agreement to sell BattlBox
for US$7.2M, including US$6M in cash, and the assumption of US$1.2M in deferred consideration by the
Buyer
- In conjunction, EMERGE plans to utilize C$7M to pay down its senior credit facility on
closing. EMERGE now expects to reduce its credit facility to
approximately C$15M by Q3, down from
C$25M a year ago
- Interest expense savings from debt repayment expected to be
C$1M annually, slightly exceeding the
free cash flow generated from BattlBox Group in 2022
- Carnivore Club, a business originally acquired with BattlBox,
will remain an EMERGE brand, and be housed under truLOCAL, with
more impactful synergies expected
- Following the Transaction, EMERGE will retain 7 brands across 4
verticals, with an e-commerce portfolio approaching C$100M in Gross Merchandise Sales(1)
("GMS"), and a focus on 'recession-resilient', asset-light business
models with strong EBITDA to cash flow conversion
TORONTO, April 3,
2023 /CNW/ - EMERGE Commerce Ltd. (TSXV: ECOM)
("EMERGE", or the "Company"), a diversified acquirer
and operator of niche e-commerce brands, announces that Emerge US
Holdings LLC (the "EMERGE US") and Battlbox LLC (the
"BattlBox"), a direct and indirect subsidiary of the Company
respectively, have entered into a membership interest purchase
agreement (the "Agreement"), with Battlbrands Holdings, Inc.
(the "Buyer"), pursuant to which EMERGE US intends to sell
to the Buyer all of the issued and outstanding equity interests in
the capital of BattlBox (the "Transaction"). BattlBox
operates an e-commerce subscription business for survival and
outdoor gear.
Ghassan Halazon, Founder and CEO of
EMERGE commented, "The sale of BattlBox is, by all means,
a transformative event for our Company, and our most significant
step to date in our efforts to strengthen the balance sheet, a top
priority in the near-term. We plan to deploy the majority of the
transaction proceeds towards debt paydown, accelerating our
previously stated amounts and timeline. As a result, we expect
$1M in annual interest savings,
exceeding free cash flow generated from BattlBox Group in
2022."
Pursuant to the Agreement and in consideration for the
Transaction, the Buyer has agreed to pay to EMERGE US, cash
consideration of US$6,008,666 on
closing of the Transaction ("Closing"), subject to certain
distribution and debt adjustments, and the Buyer has further agreed
to assume an aggregate of US$1,161,537 in outstanding liabilities.
Following the transaction, EMERGE will no longer have any
deferred payment obligations owed to BattlBox Group
shareholders.
"While BattlBox remains a terrific brand, we factored in the
increasingly complex supply-chain dynamics in today's volatile
macro climate, necessitating large investments in inventory. Our
decision here signifies that we plan to generally favor asset-light
businesses with strong EBITDA to cash flow conversion for this next
phase, while doubling down on what we characterize as
'recession-resilient' verticals, namely pets, grocery, golf and
discounted experiences. The go-forward EMERGE portfolio,
particularly our Canadian-based businesses, also has the inherent
geographical advantage of shared resources, facilities and
audiences." continued Halazon.
EMERGE originally acquired BattlBox Group in October 2021, which included both the BattlBox
and Carnivore Club brands. Carnivore Club is not included in the
Transaction, and will remain an EMERGE brand, working closely with
truLOCAL.
"Carnivore Club has developed a reputable brand in the artisanal
meat subscription space that we view as adjacent to truLOCAL's
premium meat subscription service. Historically, Carnivore Club was
managed under BattlBox leadership. Moving forward, it will be
housed under truLOCAL, where we anticipate more impactful
synergies," added Halazon.
Following the Transaction, EMERGE will retain 7 brands across 4
main verticals (Pets, Meat/ Grocery, Golf and Experiences) in
Canada and the U.S., namely
WholesalePet, truLOCAL, Carnivore Club, UnderPar, JustGolfStuff,
WagJag and BeRightBack. EMERGE's go-forward e-commerce
portfolio is expected to approach C$100M in GMS(1) annually, and remain
profitable on an Adjusted EBITDA(1) basis.
With respect to the Company's credit facility, EMERGE now plans
to reduce the debt to C$15M by Q3,
down from C$25M a year ago, and from
the Company's previously stated target of $19M. The Company anticipates the accelerated
debt paydown to result in interest savings of $1M annually. Alongside the transaction, the
Company's lender has also agreed to relax certain financial
covenants to offer the Company additional operational flexibility.
EMERGE remains in good standing with its existing lender, which it
has worked with since November 2019.
No finder's fees are expected to be paid in connection with the
Transaction.
Subject to the satisfaction of all conditions precedent to the
completion of the Transaction, including TSXV approval, Closing is
expected to occur on or prior to April
21, 2023 or such other date as the Seller, the Target
and the Buyer may agree.
Certain current officers of BattlBox hold a controlling interest
in the capital of the Buyer. Accordingly, the Transaction may be
considered a "related party transaction" under the provisions of
Multilateral Instrument 61- 101 – Protection of Minority
Security Holders in Special Transactions
("MI 61-101") and a "reviewable transaction" with
Non-Arm's Length Parties pursuant to TSX Venture Exchange
("TSXV") policies. MI 61-101 requires the Company to
obtain a formal valuation of the Target and seek "minority
approval" of the Transaction by disinterested shareholders, unless
exemptions are available. The Company is relying on the exemption
from the requirement to obtain a formal valuation under section
5.5(b) of MI 61-101 and the exemption from obtaining minority
approval under section 5.7(e) of MI 61-101.
It is expected that the material change report for the
Transaction will not be filed 21 days or more prior to closing, as
the Company intends to close the Transaction as soon as
practicable, so as to avail itself of the proceeds of the
Transaction, and there was no material change that could be
disclosed before the execution of the Agreement.
This news release does not constitute an offer to sell or a
solicitation of an offer to sell any of securities in the United
States. The securities have not been and
will not be registered under the United States Securities
Act of 1933, as amended (the "U.S. Securities
Act") or any state securities laws and may not be
offered or sold within the United
States or to U.S. Persons unless registered under the U.S.
Securities Act and applicable state securities laws or an exemption
from such registration is available. "United States" and "U.S.
Person" are as defined in Regulation S under the U.S. Securities
Act.
(1)
|
Non-GAAP Financial
Measure. Refer to section "Non-GAAP Financial Measures" below for
additional information.
|
About EMERGE
EMERGE is a diversified acquirer and operator of profitable
niche e-commerce brands across North
America. Our subscription and marketplace e-commerce
properties provide our members with access to pet products,
meat/grocery, golf and discounted experiences, among other
categories. EMERGE was named one of Canada's Top Growing
Companies by Globe and Mail in 2022 (and 2020), and one of the
fastest growing companies in Canada by the Startup 50 in
2020.
To learn more
visit https://www.emerge-commerce.com
Follow
EMERGE:
LinkedIn | Twitter | Instagram | Facebook
Cautionary notice
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.
Non-GAAP
Measures
This press release makes reference to certain non-GAAP
measures. These non-GAAP measures are not recognized measures under
IFRS, do not have a standardized meaning prescribed by IFRS and are
therefore unlikely to be comparable to similar measures presented
by other companies. Rather, these measures are provided as
additional information to complement those IFRS measures by
providing a further understanding of results of operations from
management's perspective. Accordingly, they should not be
considered in isolation nor as a substitute for analysis of the
financial information of the Company reported under IFRS. Gross
Merchandise Sales ("GMS") and Adjusted EBITDA should not be
construed as alternatives to revenue or net income/loss determined
in accordance with IFRS. GMS and Adjusted EBITDA do not have any
standardized meaning under IFRS and therefore may not be comparable
to similar measures presented by other issuers.
GMS as defined by management is the total dollar value of
customer purchases of goods and services, excluding applicable
taxes and net of discounts and refunds. Management believes GMS
provides a useful measure for the dollar volume of e-commerce
transactions made through our platforms and an indicator for our
business performance.
Adjusted EBITDA as defined by management means earnings
before interest and financing costs, income taxes, depreciation and
amortization, transaction costs, foreign exchange gains/losses,
discontinued operations, unrealized gains/losses on contingent
consideration and share-based compensation. Management believes
that Adjusted EBITDA is a useful measure because it provides
information about the operating and financial performance of EMERGE
and its ability to generate ongoing operating cash flow to fund
future working capital needs and fund future capital expenditures
or acquisitions.
Notice regarding forward-looking
statements
This press release may contain certain forward-looking
information and statements ("forward-looking information") within
the meaning of applicable Canadian securities legislation, that are
not based on historical fact, including, without limitation,
statements related to the closing of the Transaction and the timing
thereof, the satisfaction of all conditions precedent to the
closing of the Transaction, including, without limitation, TSXV
approval in respect of the Transaction, the availability of certain
exemptions from the requirements of MI 61- 101 in respect of the
Transaction (which will be reaffirmed at closing of the
Transaction), any benefit that may be derived by the Company from
the Transaction, including, without limitation, any material
benefit to the working capital or financial position of the Company
as a result of the Transaction, as well as other statements
containing the words "believes", "anticipates", "plans", "intends",
"will", "should", "expects", "continue", "estimate", "forecasts"
and other similar expressions. Readers are cautioned to not place
undue reliance on forward-looking information. Actual results and
developments may differ materially from those contemplated by these
statements. There is no guarantee the Transaction will be completed
as contemplated or at all, and the forward-looking information
contained herein is based on the assumptions of management of the
Company as of the date hereof including, without limitation,
assumptions with respect to the financial position and working
capital of the Company, the ability of the Company to obtain TSXV
approval for the Transaction and the satisfaction of any other
conditions thereto, and the conditions of the financial markets and
the e-commerce markets generally, among others. The Company
undertakes no obligation to comment on analyses, expectations or
statements made by third-parties in respect of the Company, its
securities, or financial or operating results (as applicable).
Although the Company believes that the expectations reflected in
forward-looking information in this press release are reasonable,
such forward-looking information has been based on expectations,
factors and assumptions concerning future events which may prove to
be inaccurate and are subject to numerous risks and uncertainties,
certain of which are beyond the Company's control, including risks
related to the disposition of a operating business by the Company,
risks that the benefits derived from the Transaction may not be as
expected or that the Company may not see any benefit from the
Transaction, risks that each party to the Agreement may not satisfy
its obligations or covenants, risks that the Company may be subject
to litigation as a result of the Transaction including allegations
of misrepresentation or breach of conditions or covenants, risks
that the TSXV may not approve the Transaction, as well as the risk
factors discussed in the Company's MD&A, and most recent Annual
Information Form which are available through SEDAR at
www.sedar.com. The forward-looking information contained in this
press release are expressly qualified by this cautionary statement
and are made as of the date hereof. The Company disclaims any
intention and has no obligation or responsibility, except as
required by law, to update or revise any forward-looking
information, whether as a result of new information, future events
or otherwise.
On Behalf of the Board
Ghassan Halazon
Director, President, and CEO
SOURCE EMERGE Commerce Ltd.