Panel Builder System Integrator

Clearford Water Systems

December 11, 2017

Clearford Water Systems Inc. has announced the acquisition of Koester Canada Inc., an Ontario-based subsidiary of Koester Associates, Inc., a water and wastewater solutions and equipment supplier servicing the States of New York and New Jersey.

Koester Canada’s two divisions, the Koester Canada Design-Build and Koester Team Aquatic Operations Group, will be renamed Clearford-Koester Canada and Clearford Waterworks, respectively, while continuing to provide high quality management of water supply and wastewater treatment systems for small communities along with the manufacturing and supply of packaged treatment solutions, including containerized membrane plants for advanced water treatment. Clearford expects to expand the Waterworks division by acquiring other operating businesses, acting as a consolidator in this specialized segment of the North American water infrastructure sector.

As previously announced on June 22, 2017, and July 28, 2017, Clearford is implementing a new business plan, which includes the pursuit of strategic acquisitions supportive of the Company’s growth in the decentralized water and wastewater treatment sector. The business model provides Clearford with the unique opportunity to become a utility-like operating company with the resources & capabilities to deliver water and wastewater solutions at a lower life-cycle cost to municipal clients and private developers alike through enabling proprietary technologies and processes. As indicated in the May 2017 Frost & Sullivan report, the global decentralized/containerized water and wastewater treatment systems market is expected to grow from US$3.99 billion in 2016 to US$6.08 billion in 2023, reflecting a compound annual growth rate of 6.2%.

“This is the natural progression of the Company’s unified water management business model”, said Kevin Loiselle, President & CEO of Clearford. “The acquisition completes Clearford’s unique product and service offering, and positions the Company for growth with sector-leading efficiency and reliability. By integrating Clearford’s product range and service offering with Koester Canada’s design-build and operating divisions, Clearford is now in control of its core value chain, enabling the rapid delivery of water solutions, with a competitive advantage to propel the Company for growth in the North American market and beyond.”

President of Koester Canada, Richard Nie, commented: “We are very excited with the path forward and the opportunity to leverage our packaged treatment solutions within the Clearford One® wastewater system. The pre-treatment approach afforded by Clearford’s system further enhances the footprint and technological efficiencies of our modular smart membrane plant, making it rapidly deployable to communities of any size.”

Koester Canada has $3 million in revenue for its last fiscal year, representing 6% year-over-year revenue growth on an unaudited basis. During the 9-month period ended September 30, 2017, and prior to closing the transaction, Koester Canada recorded $3.4 million in revenue, with earnings before interest, taxes, depreciation and amortisation of $750,000 on an unaudited basis. Koester Canada revenues include recurring monthly revenue for operating & maintenance contracts attributable to the Team Aquatic Operations Group. Team Aquatic currently operates over 50 privately owned communal water systems in Ontario, with a significant number of multi-year contracts representing approximately $5 million in backlog for existing service contracts. The Koester Canada Design-Build group has approximately $1 million in unbilled backlog at the date of the acquisition. The total revenues generated by Clearford’s operating subsidiaries, including (i) the newly acquired Clearford-Koester Canada (Design-Build), (ii) the newly acquired Clearford Waterworks (Team Aquatic Operations Group), and (iii) UV Pure, with its recently launched new generation purification product range (Hallett), is forecasted to exceed $10 million in FY 2018.

Clearford will acquire Koester Canada in a share-for-share exchange transaction. The Company will issue 14,485,338 new treasury shares for 16,296,000 of the issued and outstanding shares of Koester Canada, representing 100% of the issued and outstanding shares of Koester Canada. Prior to the exchange, Koester Canada was acquired by an acquisition vehicle formed and capitalized by long-term debt, bearing interest at 9.75%, which was assumed by Koester Canada, as the surviving entity post-amalgamation with the acquisition vehicle. The acquisition vehicle paid $5.4 million and issued 8,146,000 shares from treasury to existing Koester Canada shareholders, with the remaining 8,150,000 shares held by the principals of the acquisition vehicle. A setup fee of 7.5% was charged on the transaction. As part of the transaction, the surviving entity of Koester Canada assumed the debt of the acquisition vehicle and provided a General Security Agreement over all of its assets, excluding existing permitted encumbrances. All parties to the transaction are dealing at arm’s length. The transaction has closed with all documents signed and held in escrow, pending final approval of the transaction by the TSX Venture Exchange as a Reviewable Transaction.


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