Wajax Acquisition of Tundra Process Solutions
\\ Forward-Looking Information This presentation contains certain forward-looking statements and forward-looking information, as defined in applicable securities laws (collectively, “forward-looking statements”). These forward-looking statements relate to future events or the Corporation’s future performance. All statements other than statements of historical fact are forward-looking statements. Often, but not always, forward looking statements can be identified by the use of words such as “plans”, “anticipates”, “intends”, “predicts”, “expects”, “is expected”, “scheduled”, “believes”, “estimates”, “projects” or “forecasts”, or variations of, or the negatives of, such words and phrases or state that certain actions, events or results “may”, “could”, “would”, “should”, “might” or “will” be taken, occur or be achieved. Forward looking statements involve known and unknown risks, uncertainties and other factors beyond the Corporation’s ability to predict or control which may cause actual results, performance and achievements to differ materially from those anticipated or implied in such forward-looking statements. There can be no assurance that any forward-looking statement will materialize. Accordingly, readers should not place undue reliance on forward-looking statements. The forward-looking statements in this presentation are made as of the date of this presentation, reflect management’s current beliefs and are based on information currently available to management. Although management believes that the expectations represented in such forward-looking statements are reasonable, there is no assurance that such expectations will prove to be correct. Specifically, this news release includes forward looking statements regarding, among other things, the anticipated benefits of the Tundra acquisition, including our expectation that the acquisition of Tundra will provide meaningful growth in Wajax’s ERS and industrial parts categories; our belief that macro tailwinds support the potential for a return to pre-COVID-19 activity levels; our expectation that the Tundra acquisition will be immediately accretive to Wajax shareholders in an anticipated range of $0.10 - $0.15 for the 2021 financial year; the completion, funding and timing of the Tundra acquisition and the timing and anticipated receipt of the required stock exchange approval and approval under the Competition Act (Canada); our expectation that the Corporation will continue to use cash flow from operations to contribute to debt reduction and maintain its current quarterly dividend; our ability to support our current dividend level throughout the business cycle; our expectation that the combined cashflow of Wajax and Tundra will enable deleveraging, support our dividend and fund investment for future growth; and our goal of becoming Canada’s leading industrial products and services provider, distinguished through our core capabilities. These statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to, our ability to receive, in a timely manner, the required stock exchange approval and approval under the Competition Act (Canada); the ability of Wajax and Tundra to satisfy, in a timely manner, the other conditions precedent to the closing of the acquisition; our ability to manage through the economic downtown related to the COVID-19 pandemic; the supply and demand for, and the level and volatility of prices for, oil, natural gas and other commodities; financial market conditions, including interest rates; our ability to execute our updated Strategic Plan, including our ability to develop our core capabilities, execute on our organic growth priorities, complete and effectively integrate acquisitions, such as Tundra, and to successfully implement new information technology platforms, systems and software; the future financial performance of the Corporation; our costs; market competition; our ability to attract and retain skilled staff; our ability to procure quality products and inventory; and our ongoing relations with suppliers, employees and customers. The foregoing list of assumptions is not exhaustive. Factors that may cause actual results to vary materially include, but are not limited to, the ultimate impact of the COVID-19 virus and the duration of the coronavirus pandemic; the duration of travel, business and other restrictions imposed by governments and public authorities in response to COVID-19, as well as other measures that may be taken by such authorities; actions taken by our customers in relation to the COVID-19 pandemic, including slowing, reducing or halting operations; a continued or prolonged deterioration in general business and economic conditions (including as a result of the COVID-19 pandemic); volatility in the supply and demand for, and the level of prices for, oil, natural gas and other commodities; a continued or prolonged decrease in the price of oil or natural gas; fluctuations in financial market conditions, including interest rates; the level of demand for, and prices of, the products and services we offer; levels of customer confidence and spending; market acceptance of the products we offer; termination of distribution or original equipment manufacturer agreements; unanticipated operational difficulties (including failure of plant, equipment or processes to operate in accordance with specifications or expectations, cost escalation, our inability to reduce costs in response to slow-downs in market activity, unavailability of quality products or inventory, supply disruptions (including disruptions caused by the COVID-19 pandemic), job action and unanticipated events related to health, safety and environmental matters); our ability to attract and retain skilled staff and our ability to maintain our relationships with suppliers, employees and customers.The foregoing list of factors is not exhaustive. Further information concerning the risks and uncertainties associated with these forward-looking statements and the Corporation’s business may be found in our Annual Information Form for the year ended December 31, 2019 (the “AIF”), in our annual MD&A for financial risks, and in our most recent quarterly MD&A, all of which have been filed on SEDAR. The forward-looking statements contained in this presentation are expressly qualified in their entirety by this cautionary statement. The Corporation does not undertake any obligation to publicly update such forward-looking statements to reflect new information, subsequent events or otherwise unless so required by applicable securities laws. Readers are cautioned that the risks described in the AIF, and in our annual and quarterly MD&A, are not the only risks that could impact the Corporation. We cannot accurately predict the full impact that COVID-19 will have on our business, results of operations, financial condition or the demand for our products and services due to the uncertainties related to the spread of the virus. Risks and uncertainties not currently known to the Corporation, or currently deemed to be immaterial, may have a material effect on the Corporation’s business, financial condition or results of operations.
Acquisition of Tundra Process Solutions Ltd. (December 2020)
2
\\ Transaction Overview Deal Summary
• Wajax to acquire 100% of Tundra Process Solutions Ltd. (“Tundra”) for $99.1m • Tundra is a western Canadian service provider and distributor of industrial process equipment • Experienced management team and strong customer service culture aligns with Wajax
Valuation
• Tundra generated revenue and adjusted EBITDA of $192.5m and $18.4m respectively for their fiscal year ended February 28, 2020 • Implies EV/2020A EBITDA multiple of 5.4x and EV/TTM1 EBITDA multiple of 6.1x
Balance Sheet
• • • •
Financial Returns
• Expected to be immediately accretive to 2021E earnings per share and free cash flow • Estimated FY21 EPS accretion of $0.10 - $0.15 • Expecting to maintain $0.25 quarterly dividend
Estimated Close
• Transaction is expected to close in early Q1 2021 • Subject to the satisfaction of customary closing conditions, including TSX approval and approval under the Competition Act (Canada)
Transaction to be funded with cash ($74.6m) and equity (~1.357m shares) Secured $50.0m acquisition credit facility on substantially same terms as existing revolver Proforma Q4 2020 leverage ratio of ~2.8x expected to decline by Q4 2021 Expected proforma liquidity post closing of ~$175m
Acquisition supports Wajax goal of becoming Canada’s leading industrial products and services provider
Acquisition of Tundra Process Solutions Ltd. (December 2020) 1
TTM as at November 30, 2020
3
\\ Tundra Overview • Founded in 1999 in Calgary, Alberta, Tundra is a leading integrated maintenance and services provider and distributor to many of western Canada’s largest companies and industries • Tundra is a leader in comprehensive Process Solutions which addresses a gap in Wajax’s current Engineered Repair Services (“ERS”) and industrial parts offering • The company’s ability to provide a range of tailored, solutions-based support services enables Tundra to become a partner throughout the lifecycle of its customers assets • Tundra has approximately 150 dedicated technical, service and business development professionals who have developed a leading innovative culture based on safety, customer service, constant learning and giving back to the community • Tundra has driven impressive growth through ongoing expansion of its range of products and services with significant expansion potential nationally Revenue Growth (fiscal year end – Feb 28)1
Western Canada
Office Location Sales Presence
Fort St. John Grande Prairie
Fort McMurray Edmonton Red Deer Saskatoon
Vancouver
British Columbia
Calgary
Canada
The Company operates primarily from its main locations in Calgary, Edmonton, and Grande Prairie (Alberta), supported by a growing sales presence in Fort McMurray, Red Deer (Alberta), Vancouver, and Fort St. John (British Columbia)
Alberta Saskatchewan
$200 $192
Revenue ($millions)
Current Map of Operations
$150 $148
$122
$100 $93 $50
$FY18A
Acquisition of Tundra Process Solutions Ltd. (December 2020) 1
TTM as at November 30, 2020
FY19A
FY20A
TTM
4
\\ Tundra – Complete Solutions Provider • Tundra has a broad range of services and products which are vital to a customer’s facilities and operations, positioning it as a complete solutions provider • Tundra’s strength adds an important extension to Wajax’s current platform by increasing our capabilities in the critical area of process control and instrumentation Division
ERS (Value-Add Services)
Valves & Actuation
• • •
Steam audits and steam trap surveys Actuation for all valve types Build, test & repair pressure safety valves
Instrumentation & Controls
• • •
Motors & Drives
Service & Support
Building Solutions
Boilers & Water Treatment
Products & Solutions
•
Largest revenue generating division with highly technical and general-purpose products
Custom custody transfer packages Flow computer and gas detector programming In-house panel design
•
One of the largest instrumentation & controls companies in Western Canada
• • •
In-house testing and repair services In-house panel design Product training at client sites and Tundra facilities
•
Exclusive distributor of Toshiba products for over 10 years
• • •
Technical staff on call 24/7/365 Products and services for all divisions Factory trained technicians
•
Support all other business divisions and is a key contributor for Tundra’s reputation
• • •
Full project management including design, assembly and QA/QC Fenced 5-acre yard in Calgary Effective sub-trade management
•
Custom designed e-houses
• • •
Complex controls upgrades Preventative maintenance contracts Boiler re-tubes and refractory services
•
Preferred supplier for Cleaver-Brooks and Veolia
Acquisition of Tundra Process Solutions Ltd. (December 2020)
5
\\ Strategic Rationale BUSINESS TRANSFORMATION - acquisition of Tundra is consistent with Wajax’s goal of becoming Canada’s leading industrial products and services provider: • Tundra meaningfully expands Wajax’s existing ERS and related industrial parts platform • Materially strengthens Wajax in western Canada with enhanced sales opportunities with existing and new customers • Tundra’s capabilities provide excellent growth opportunities in central and eastern Canada with existing and new customers via Wajax’s existing ERS infrastructure, sales force and branch footprint
STRATEGIC GROWTH AND ENHANCED RESILIENCE - acquisition continues our consolidation of scale ERS businesses in Canada (Groupe Delom – 2018, NorthPoint Technical Services – 2020)
• $5 billion market1 provides significant multi-year growth opportunities (organic and M&A) • Increased free cash flow given enhanced margins and lower working capital requirements • More resilient to market downturns compared to heavy equipment businesses • Low services and product sales overlap and complimentary existing and prospective customer base
TOGETHER WE GET MORE DONE - low integration risk with immediate upside • Both companies share a safety first culture focusing on exceptional customer service • Tundra management continuity as Wajax shareholders aligns interests • Macro tailwinds supportive of recovery to pre-COVID activity levels
Acquisition of Tundra Process Solutions Ltd. (December 2020) 1
Wajax management estimate
6
\\ Compelling Value Proposition Expanded Solution Offering for Customers • Tundra will strengthen our process controls and instrumentation business, providing a platform for expansion and growth • Strong brands in new product categories with complementary blue chip customer base Expanded Solution Offering for Customers
Platform for Continued Growth
Platform for Continued Growth • Provides high quality, reliable products with bestin-class customer service model
• Introduces Tundra to new geographies through Wajax infrastructure Enhanced Profitability and Financial Profile
Enhanced Profitability and Financial Profile • Added scale with additional $147.8m TTM sales1
• Tundra is characterized by low capital intensity and high margins; this acquisition improves free cash flow and cash flow conversion
Acquisition of Tundra Process Solutions Ltd. (December 2020) 1
TTM as at November 30, 2020
7
\\ Diversification Benefits Revenue – transition to more significant contribution from lower working capital and less cyclical IP/ERS categories Wajax Categories (% of FY19 Revenue)
Tundra (% of FY20 Revenue)
Proforma Revenue by Category Group
IP/ERS 100% IP/ERS 34% IP/ERS 41%
Heavy Equipment 59%
Heavy Equipment 66%
Geography – adds scale and resilience to western Canada and provides new growth opportunities in central and eastern Canada Wajax Regions (% of FY19 Revenue)
Tundra (% of FY20 Revenue)
Proforma Revenue by Region
West 100% East 40%
West 40%
East 35% West 47%
Central 20%
Acquisition of Tundra Process Solutions Ltd. (December 2020)
Central 18%
8
\\ Building a Canadian ERS Leader Serving major customers in a $5 billion annual market1… Mining and Resources
Oil Sands / Oil and Gas
…with a robust suite of extensive services…
Energy and Renewables
Industrial and Manufacturing
On Site & Shop
Engineering Services
Asset Management
Turnkey Solutions
Repair & Rebuild
Emergency Breakdowns
Reliability Services
Shutdown & Commissioning
…in mission-critical application areas Bearing & Power Transmission
Hydraulics
Legacy Strengths
Acquisition of Tundra Process Solutions Ltd. (December 2020) 1
Wajax management estimate
Electro-mechanical
Process & Instrumentation
New Capabilities
9
\\ Maintaining Financial Flexibility • Wajax remains disciplined in its capital allocation priorities of reducing debt and maintaining the dividend while responsibly investing in accretive acquisition opportunities with compelling risk adjusted returns • Building IP/ERS provides more opportunities to service customers and leads to higher cash flow generation, less earnings volatility and higher valuations multiples from a SOTP perspective • Combined IP/ERS revenue growth from ~$400m in 2017 to ~$700m in 2021 • Maintaining reasonable leverage on attractive terms with expectation of material deleveraging • Addition of $50.0m acquisition credit facility preserves Wajax liquidity (~$175m post closing) with no change in financial covenants and demonstrates strong support from lenders • Proforma total and senior secured leverage ratios of 2.8x and 2.3x respectively, expected to be meaningfully lower by Q4 2021 given cash generation and continued improvements in working capital efficiency • Wajax maintains strong access to both debt and equity capital markets allowing us to execute on future growth initiatives as they arise
• Current dividend represents conservative payout ratio and is supported through all cycles as demonstrated throughout the recent pandemic
$170m acquisition capital deployed
2018
2019
Acquisition of Tundra Process Solutions Ltd. (December 2020)
2020
2021 10
\\ Driving our Strategy • The One Wajax strategy is designed to deliver on our goal of being Canada’s leading industrial products and services provider in resource, industrial and commercial markets by providing a consistently excellent experience in all our product and service categories Serving our customers’ heavy equipment needs (capital goods/product support): • We work closely with world-class manufacturing partners to continually improve market share and product support across multiple categories Construction
Forestry
Power & Marine
On-Highway
Materials Handling
Mining
Crane & Utility
Engines & Transmissions
and supporting their Maintenance, Repair and Operations (MRO) requirements: • We are continually enhancing our services to match customer requirements and we work with supplier partners to align our range of industrial parts to customer needs.
Industrial Parts
Engineered Repair Services
Wajax is uniquely positioned to meet both the capital goods and MRO needs of our customers differentiating us in the Canadian marketplace Acquisition of Tundra Process Solutions Ltd. (December 2020)
11
\\ Key Takeaways Compelling transaction aligned with Wajax acquisition strategy creating long-term shareholder value
• Continuation of the Wajax pursuit to be an ERS consolidator in a fragmented market, targeting scale acquisitions that broaden our product and service capabilities nationally • Key to meeting an expanding range of customer MRO needs, EPC requirements • Tundra brings a diverse/complementary product suite, experienced management team and deep customer relationships which will enhance the One Wajax value proposition • Opportunity meets our disciplined acquisition criteria at an attractive valuation demonstrating resilience in a challenging market
• Acquisition is immediately accretive to Wajax and maintains our financial flexibility • Combined cash flow will enable deleveraging, support dividend payment and fund investment for future growth
Acquisition of Tundra Process Solutions Ltd. (December 2020)
12
wajax.com
Acquisition of Tundra Process Solutions Ltd. (December 2020)