Allen-Vanguard reaches deal to go private
TORONTO - Allen Vanguard Inc. (TSX:VRS), a financially troubled Ottawa-based maker of bomb disposal technology has been acquired by a U.S. private equity firm in a weekend deal that also recapitalizes the company and keeps it operating, but wipes out the value held by current shareholders.
Allen-Vanguard announced Saturday it had reached a deal that will see it become a 100 per cent-owned affiliate of investment partnerships managed by Versa Capital Management Inc, a Philadelphia-based private equity investment firm.
Versa will provide both equity and debt capital to Allen-Vanguard, which has been struggling to recapitalize as it copes with a massive debt load and looming credit payments.
In the transaction, the Ottawa company's banks will also cut some of the debt they're owed and provide a new multi-year credit agreement that will give the company financial flexibility to pursue its business plan.
Financial terms of the sale were not revealed. Because of its depressed share price, the company is worth just under $11 million on the Toronto Stock Exchange, compared with more than $1 billion two years ago.
As is the case with many similar restructurings -- from Air Canada to the former Stelco -- Allen-Vanguard shareholders will get nothing from the deal and see the value of their stock go to zero.
In a news release issued Saturday announcing the Versa deal, the Ottawa company that makes roadside bomb jammers, blast suits and other extreme-hazard equipment stated "all shares, options, restricted stock, warrants and other securities in Allen-Vanguard and any related rights will be cancelled on closing of the transaction, with no consideration paid to holders."
The company said there are no plans to move its head office in Ottawa or its operations in Canada, the United States or the United Kingdom.
Allen-Vanguard products are used in more than 120 countries. It makes Electronic Counter-Measures equipment for jamming remote detonation of terrorist bombs such as improvised explosive devices, or IEDs, widely used in Afghanistan. Other company equipment such as remote robots can be used in bomb disposal or dealing with hazardous applications, while personal protective wear is made to deal with explosive and bio-chemical agents.
"This announcement marks the end of an exacting, year-long process of recapitalizing the company in order to execute our business plan going forward," Allen-Vanguard president and CEO David Luxton, said in a release.
"This process took place during a period of extremely difficult credit and equity markets, and a concurrent decline in the company's financial performance. While we received several overtures during this past year, Versa was the only party able to conclude definitive terms. Under Versa's ownership, Allen-Vanguard will continue to conduct its business in the ordinary course, with management and the new board focused on global business opportunities.
"This follows the progress that we have made over the last year to right-size the company, to expand and diversify the company's proprietary products and services, and to serve major customers around the world, who continue to rely on the company's leading and proprietary technologies."
Allen-Vanguard has been restructuring for more than a year and has been seeking new investments.
Last fall, Allen-Vanguard announced it was eliminating about 100 employees -- 15 per cent of its total workforce of 660 -- in a cost-cutting restructuring. The company estimated it would save about $6.5 million a year from the downsizing, plant consolidations and other efficiency measures.
In January, it agreed to be taken over by U.S. buyout firm Tailwind Financial Inc. (NYSE:TNF) in an all-stock deal. However, that transaction, which valued the company's stock at about C$40.1 million, failed to close as credit markets froze up.
Gregory Segall, managing partner of Versa Capital, called the refinancing and debt deal "a substantial accomplishment" for Allen-Vanguard that will allow it to prosper and grow under new ownership.
"Allen-Vanguard possesses the world's leading technologies in the counter-terrorism market and we are, ourselves, deeply committed to the provision of these mission-critical technologies," Segall said,
Last month, Allen Vanguard reported a net loss of $99.2 million or 91 cents per share for the quarter ended June 30, almost tripling year-earlier losses of $36.6 million or 34 cents per share. Allen-Vanguard said revenue surged 64 per cent during the quarter, but said top line performance fell short of expectations as U.S.-based clients deferred spending plans.
Quarterly revenue totalled $51.3 million compared to $31.2 million recorded during the corresponding quarter of 2008.
The company reported net debt of $229.7 million for the quarter.
Allen-Vanguard stock enters trading on the TSX on Monday valued at 10 cents a share, down half a cent or more than five per cent in market action Friday.