TORONTO, Dec. 14,
2023 /CNW/ - Bridgemarq Real Estate Services Inc.
("Bridgemarq" or the "Company") (TSX: BRE) today
announced it has entered into a definitive agreement with an
affiliate of Brookfield Business Partners ("Brookfield") to complete a transaction
that is intended to position the Company for future growth (the
"Transaction").
The Transaction involves the acquisition by Residential Income
Fund L.P. (the "Partnership"), a wholly-owned subsidiary of
the Company, of the following:
- A significant portfolio of high-quality residential real estate
brokerages operating across Canada
("Brokerages"), including 25 Royal LePage and Johnston &
Daniel brokerages, 3 Via Capitale brokerages and Proprio Direct
Inc. ("Proprio Direct"), one of the leading and fastest
growing virtual brokerages based in Québec; and
- Bridgemarq Real Estate Services Manager Limited (the
"Manager"), resulting in the internalization of the
Company's existing management services arrangements, including the
retention of the employees of the Manager that have been
responsible for managing Bridgemarq and the Brokerages for the past
two decades, and the termination of management fee payments to
Brookfield.
A special committee (the "Special Committee") of
Bridgemarq's Board of Directors (the "Board"), comprised
solely of independent directors, was appointed to review, consider,
negotiate, evaluate and recommend the approval of the terms and
conditions of the Transaction. The Special Committee retained an
independent financial advisor and independent legal counsel to
assist in the discharge of its mandate.
Pursuant to the definitive agreement for the Transaction (the
"Definitive Agreement"), the Partnership will issue
approximately 2.9 million Class B limited partnership units
(the "Exchangeable Units"), subject to certain customary
purchase price adjustments, to (1) acquire all of the issued and
outstanding shares of the Brokerages and the Manager, and (2)
settle certain management fees and distributions owing by the
Partnership to Brookfield totaling
approximately $6.6 million, at a
discount to face value by converting the amount owing to
Exchangeable Units at a premium above the current share price. The
Exchangeable Units are exchangeable on a one-for-one basis into an
equivalent number of restricted voting shares of the Company (the
"Restricted Voting Shares").
At a 5-day VWAP of $11.74 as of
December 13, the total consideration
for the Transaction is valued at approximately $34 million. As a result of the Transaction,
Brookfield's ownership interest in
the Company is expected to increase from approximately 28.4% to
approximately 41.7%.
In addition to simplifying the organizational structure of the
Company, the Transaction will reduce the Company's financial
leverage by increasing earnings and fully settling the outstanding
deferred payments owed to Brookfield.
"We are pleased to announce the internalization of management
and acquisition of several best-in-class brokerages, including one
of the largest real estate brokerages in the country, operating in
three provinces under our flagship Royal LePage brand. We are
also acquiring the innovative Proprio Direct business, which
operates an industry-leading high-efficiency brokerage model from
one location servicing the entire province of Québec. The
Special Committee believes the Transaction is in the best interests
of the Company and is fair from a financial point of view," said
Colum Bastable, Independent Director
and Special Committee Chair.
"The broadening of our business to include direct brokerage
operations enables us to capture more revenues and adds new
capabilities with which to expand our market share across
Canada. We are also excited
by the addition of the established Proprio Direct brand to our
portfolio of industry-leading real estate brands, which will
improve our ability to provide diverse, innovative brokerage
solutions for REALTORS®1," Spencer Enright, Chairman of
the Board and CEO of the Manager added. "We expect the
Transaction to deliver value for all shareholders over the long
term as we add additional growth levers to capitalize on our market
leading brands. In addition, the settlement of the deferred
payments owed to Brookfield
meaningfully deleverages the business."
"These are exciting developments for our business which will
build on our 100 years' experience in the Canadian real estate
industry," said Phil Soper, President and CEO of Bridgemarq. "Our
iconic leading brands, strong nationwide networks of
REALTORS® and franchises, proprietary technology
solutions and commitment to providing reliable and attractive
shareholder distributions remain intact and will benefit greatly
from the internalization of our experienced management team and the
addition of new brokerage operating capabilities."
____________________________________
|
1 The trademarks
REALTOR®, REALTORS® and the
REALTOR® logo are controlled by The Canadian Real Estate
Association (CREA) and identify real estate professionals who are
members of CREA
|
BENEFITS OF THE
TRANSACTION
The Transaction provides a number of meaningful benefits to
shareholders, including the following:
- Compelling Pro Forma Financial Metrics. The Transaction
is expected to meaningfully enhance the scale of Bridgemarq and
deleverage the business. Given the expected liquidity of the pro
forma entity, the Company anticipates maintaining existing levels
of cash dividends per share, subject to the discretion of the
Board.
- Expanded Growth Opportunities. With the acquisition of
the Brokerages, including the innovative Proprio Direct virtual
brokerage model operating only in Québec, Bridgemarq adds the
capability to capture future growth across a broader spectrum of
the real estate industry through both organic growth and future
acquisition opportunities.
- Simplified Organizational Structure. The Transaction
will result in a more traditional and simplified organizational
model, allowing for increased efficiency of operations and focused,
dedicated management as well as eliminating external management
fees.
- Stronger Alignment of Interests. The simplified
organizational structure creates a stronger alignment of interests
among management, the Board, and shareholders. By combining owned
brokerages with the Royal LePage and Via Capitale franchise
networks, it also empowers the management team to respond to market
dynamics more efficiently through its enhanced service
offerings.
- Strengthened Franchise Network. With the expansion of
business lines to include direct brokerage operations, Bridgemarq
is expected to be in a better position to grow its industry-leading
national network of REALTORS® and brokers in addition to
diversifying its revenue streams.
ORGANIZATIONAL UPDATE
If consummated, upon closing of the Transaction, the Company
intends to effect several key changes to the Board and management
team that are anticipated to further increase the operational
effectiveness of the business while maintaining continuity of
operations:
- Lorraine Bell, who has been a
valuable member of the Board since 2003, will succeed Spencer
Enright as the independent chair of the Board.
- Spencer Enright, who for the past decade has been the Chief
Executive Officer of the Manager, responsible for overall
leadership and oversight over operations of the Brokerages, will
become Chief Executive Officer of Bridgemarq and continue as a
director on the Board.
- Phil Soper will continue his role in managing all agent and
franchise relationships as the President of Bridgemarq.
BOARD AND SPECIAL COMMITTEE
RECOMMENDATION
The Board, acting on the unanimous recommendation of the Special
Committee, has unanimously approved the Transaction and recommends
that holders of Restricted Voting Shares vote in favour of the
Transaction at the special meeting of shareholders to be called to
approve the Transaction (the "Shareholder Meeting"). In
making its recommendation, the Board considered a number of
factors, including among others, the Special Committee's receipt of
a fairness opinion from Blair Franklin Capital Partners Inc.
("Blair Franklin"), which
concluded that in Blair Franklin's
opinion, and based upon and subject to the assumptions,
limitations, and qualifications set forth therein, the issuance of
the Exchangeable Units to Brookfield pursuant to the Transaction is
fair, from a financial point of view, to the Company.
TRANSACTION APPROVALS
The Transaction constitutes a "related party transaction" for
purposes of Multilateral Instrument 61-101 – Protection of
Minority Security Holders in Special Transactions ("MI
61-101"), however the Company expects to receive exemptive
relief from the minority approval and formal valuation requirements
of MI 61-101 in accordance with sections 5.5(a) and 5.7(a),
respectively, by virtue of the fact that the value of the
Transaction is less than 25.0% of the Company's market
capitalization.
Under applicable Toronto Stock Exchange ("TSX") rules,
the Transaction will be subject to approval by Bridgemarq's
shareholders, as the number of Exchangeable Units to be issued to
Brookfield, an insider of the
Company, exceeds 10.0% of the total number of outstanding
Restricted Voting Shares. In accordance with the TSX rules,
Brookfield and its associates and
affiliates (representing approximately 28.4% of the Restricted
Voting Shares of Bridgemarq on a fully-diluted basis) will be
excluded for the purposes of such shareholder approval. Senior
officers and directors of the Company (representing approximately
0.7% of the Restricted Voting Shares on a fully-diluted
basis) have entered into voting and support agreements
pursuant to which they have agreed to, among other things, vote
their Restricted Voting Shares in favour of the Transaction.
In addition to shareholder approval, the completion of the
Transaction is subject to, among other things, applicable
regulatory approvals, including TSX approval, and the satisfaction
or waiver of certain other closing conditions customary in
transactions of this nature. Subject to the satisfaction of such
conditions, the Transaction is expected to close by April 2024.
A copy of the fairness opinion, and the factors considered by
the Special Committee as well as other relevant background
information with respect to the Transaction will be included in an
information circular (the "Circular") that will be filed
with applicable regulatory authorities and mailed to shareholders
in accordance with applicable securities laws in advance of the
Shareholder Meeting. Bridgemarq expects to mail the
Circular in March 2024, and to hold
the Shareholder Meeting in April 2024. The Circular will
be made available on SEDAR+ (www.sedarplus.ca) under the Company's
issuer profile.
ADVISORS
Blair Franklin is acting as
independent financial advisor and Stikeman Elliott LLP is acting as
independent legal counsel to the Special Committee in connection
with the Transaction. Goodmans LLP is advising Brookfield on the Transaction.
ABOUT BRIDGEMARQ REAL ESTATE
SERVICES
Bridgemarq is a leading provider of services to residential real
estate brokers and a network of approximately 21,000
REALTORS®. We operate in Canada under the Royal LePage, Via Capitale
and Johnston & Daniel brands. For more information, go to
bridgemarq.com.
CONFERENCE CALL
The Company will host a conference call on Monday,
December 18, 2023, at 10 a.m.
Eastern Daylight Time to discuss the Transaction.
To access the call by telephone, please dial 1-888-664-6383 or
416-764-8650.
To access the call online, please visit
https://app.webinar.net/ov52aAQaRBq.
Please connect approximately ten minutes prior to the beginning
of the call to ensure participation.
A recording of the conference call will be available in the
Investor Centre section of the Company's website by Wednesday,
December 20, 2023, where you can also find a copy
of the management presentation discussed on the call (the
"Presentation").
PRO FORMA FINANCIAL
INFORMATION
The Transaction is expected to improve the Company's leverage
profile and contribute to higher EBITDA.
($CAD
millions)
|
2022
Actual
|
2022 Pro
Forma
|
Sept. 2023 –
LTM Actual
|
Sept. 2023 –
LTM Pro
Forma
|
|
Debt: EBITDA
Ratio
|
2.4
|
1.9
|
2.6
|
2.3
|
|
EBITDA : Interest
Ratio
|
9.3
|
12.6
|
8.5
|
9.6
|
|
EBITDA
|
27.7
|
35.4
|
25.6
|
28.8
|
The pro forma financial information referred to in this press
release, which gives effect to the Transaction as if it had closed
on January 1, 2022 and October 1, 2022, respectively, was prepared
utilizing accounting policies that are consistent with those
disclosed in the audited consolidated financial statements of the
Company for the year ended December 31,
2022 and the unaudited condensed consolidated financial
statements of the Company as at and for the three and nine months
ended September 30, 2023.
The pro forma financial information has been derived from, and
should be read in conjunction with: (i) the
audited consolidated financial statements of the Company for the
year ended December 31, 2022, and
(ii) the unaudited condensed consolidated
financial statements of the Company as at and for the three and
nine months ended September 30, 2023,
each of which is available on SEDAR+ (www.sedarplus.ca) under the
Company's issuer profile, as well as (iii) the
audited combined consolidated financial statements of the Manager
and Proprio Direct for the year ended December 31, 2022, and (iv) the unaudited interim
condensed combined consolidated financial statements of the Manager
and Proprio Direct for the three and nine months ended September 30, 2023, each of which will be
included in the Circular and will be available on SEDAR+
(www.sedarplus.ca) under the Company's issuer profile. Certain
adjustments and assumptions were made when preparing the pro forma
financial information to give effect to the Transaction. The
information upon which such adjustments and assumptions were made
was preliminary and adjustments and assumptions of this nature are
difficult to make with complete accuracy. Additionally, the pro
forma financial information may not reflect, among other things,
all of the costs that are expected to be incurred by the Company in
connection with the Transaction. The Company has not independently
verified the financial statements of the Manager and Proprio Direct
that were used to prepare certain of the pro forma financial
information included in this press release and such pro forma
financial information is not intended to be indicative of the
financial condition, results of operations or cash flows that would
actually have occurred, or which are expected in future periods,
had the Transaction occurred on the dates indicated. The pro forma
financial information contained in this press release is included
for informational purposes only, as of their respective dates, and
undue reliance should not be placed on such pro forma financial
information. See
"Forward- Looking Statements".
NON-GAAP MEASURE
This news release makes reference to EBITDA, which is a non-GAAP
financial measure and does not have any standardized meaning under
International Financial Reporting Standards and, accordingly, may
not be comparable to similar measures used by other companies.
EBITDA is defined as operating income before deducting write-off of
intangible assets, depreciation and amortization and interest
expense and is a useful supplemental measure of performance as it
provides investors an indication of the amount of cash flow
generated by the Company (or the Brokerages or the Manager) before
considering financing costs, income taxes and other investment and
working capital requirements. Please see below for a reconciliation
of EBITDA to its most directly comparable financial measure:
($CAD
millions)
|
2022
Actual
|
2022 Pro
Forma
|
Sept. 2023 –
LTM Actual
|
Sept. 2023 –
LTM Pro
Forma
|
|
Operating
Earnings
|
17.4
|
18.5
|
15.5
|
12.3
|
|
Depreciation and
Amortization
|
7.2
|
13.1
|
6.9
|
12.4
|
|
Write-Off of
Intangible Assets
|
0.1
|
0.2
|
0.2
|
0.2
|
|
Interest
Expense
|
3.0
|
3.6
|
3.0
|
3.9
|
|
EBITDA
|
27.7
|
35.4
|
25.6
|
28.8
|
|
|
|
|
|
|
|
FORWARD-LOOKING
STATEMENTS
This news release contains forward-looking information and other
"forward-looking statements", including, without limitation,
statements with respect to the Transaction, including the
anticipated benefits of the Transaction; the economic and strategic
impact of the Transaction; the expected timeline for mailing the
Circular and holding the Shareholder Meeting; the satisfaction of
the conditions to closing the Transaction and the timing thereof;
and the intended changes to the Company's Board and management
team. Words such as "continues", "appear", "until", "may",
"expect", "could", "will", "intend" and other expressions that are
predictions of or could indicate future events and trends and that
do not relate to historical matters identify forward-looking
statements.
Reliance should not be placed on forward-looking statements
because they involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or
achievements of the Company to differ materially from anticipated
future results, performance or achievement expressed or implied by
such forward-looking statements. Factors that could cause actual
results to differ materially from those indicated in the
forward-looking statements include: any resurgence of COVID-19
(including any impact of COVID-19 on the economy and the Company's
business), changes in the supply or demand of houses for sale in
Canada or in any particular region
within Canada, changes in the
selling price for houses in Canada
or any particular region within Canada, changes in the Company's cash flow,
changes in the Company's strategy with respect to and/or ability to
pay dividends, changes in the productivity of the Company's
REALTORS® or the commissions they charge their
customers, changes in government policy, laws or regulations which
could reasonably affect the housing markets in Canada or the economy in general, changes to
any products or services developed or offered by the Company,
consumer response to any changes in the housing markets in
Canada or any changes in
government policy, laws or regulations, changes in general economic
conditions (including interest rates, consumer confidence and other
general economic factors or indicators), changes in global and
regional economic growth, changes in the demand for and prices of
natural resources on local and international markets, the level of
residential real estate transactions, competition from other real
estate brokers or from discount and/or Internet-based real estate
alternatives, the closing of existing real estate brokerage
offices, other developments in the residential real estate
brokerage industry or the Company that reduce the number of
REALTORS® in the Company's network or revenue from the
Company's network, the Company's ability to maintain brand equity
through the use of trademarks, the methods used by shareholders or
analysts to evaluate the value of the Company and its publicly
traded securities, changes in tax laws or regulations and other
risks detailed in the Company's annual information form, which is
filed with securities commissions and posted on SEDAR+ at
www.sedarplus.ca. There are also risks that are inherent in the
nature of the Transaction, including the diversion of management
time caused by the Transaction, the failure to satisfy the
conditions to the completion of the Transaction, the failure to
obtain any required approvals (or to do so in a timely manner) and
the failure to realize the anticipated benefits of the Transaction.
Forward-looking information is based on various material factors or
assumptions, which are based on information currently available to
management. Material factors or assumptions that were applied in
drawing conclusions or making estimates set out in the
forward-looking statements include, but are not limited to:
anticipated economic conditions, anticipated impact of government
policies, anticipated financial performance, anticipated market
conditions, anticipated benefits from the Transaction, business
prospects, the successful execution of the Company's business
strategies and recent regulatory developments, including as the
foregoing relate to COVID-19. The factors underlying current
expectations are dynamic and subject to change. Certain information
in this press release may be considered as "financial outlook"
within the meaning of applicable securities legislation. The
purpose of this financial outlook is to provide readers with
disclosure regarding the Company's reasonable expectations with
respect to the Transaction. Readers are cautioned that the
financial outlook may not be appropriate for other purposes.
Although the forward-looking statements contained in this press
release are based upon what management believes are reasonable
assumptions, the Company cannot assure readers that actual results
will be consistent with these forward-looking statements. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law.
CERTAIN EARLY WARNING REPORT
DISCLOSURES
Brookfield, together with the
persons and entities which are directly or indirectly controlled by
it, beneficially owns or exercises control or direction over
315,000 Restricted Voting Shares (representing approximately 3.3%
of the Restricted Voting Shares on a non-diluted basis and 2.5% of
the Restricted Voting Shares on a fully-diluted basis, assuming the
exchange of all outstanding Exchangeable Units) and 3,327,667
Exchangeable Units (representing approximately 26.0% of the
Restricted Voting Shares on a fully-diluted basis, assuming the
exchange of all Exchangeable Units). Such securities, in the
aggregate represent approximately 28.4% of the Restricted Voting
Shares on a fully-diluted basis, assuming the exchange of all
Exchangeable Units.
After taking into account the additional approximately 2,902,854
Exchangeable Units to be issued by the Partnership in consideration
for the Transaction (representing approximately 22.7% of the
Restricted Voting Shares on a fully-diluted basis, assuming the
exchange of all Exchangeable Units), Brookfield will, together with the persons and
entities which are directly or indirectly controlled by it,
beneficially own or exercise control or direction over, 315,000
Restricted Voting Shares (representing approximately 3.3% of the
Restricted Voting Shares on a non-diluted basis and 2.0% of the
Restricted Voting Shares on a fully-diluted basis, assuming the
exchange of all outstanding Exchangeable Units) and approximately
6,230,521 Exchangeable Units (representing approximately 39.7% of
the Restricted Voting Shares on a fully-diluted basis, assuming the
exchange of all Exchangeable Units). Such securities, in the
aggregate would represent approximately 41.7% of the Restricted
Voting Shares on a fully-diluted basis, assuming the exchange of
all Exchangeable Units.
The above calculations are based on 9,483,850 Restricted Voting
Shares and 3,327,667 Exchangeable Units being issued and
outstanding (calculated on a non-diluted basis) immediately prior
to the Transaction and 9,483,850 Restricted Voting Shares and
6,230,521 Exchangeable Units being issued and outstanding
(calculated on a non-diluted basis) following the Transaction.
Brookfield's direct and
indirect holdings of Restricted Voting Shares and Exchangeable
Units are being held for investment purposes and such holdings may
be increased or decreased as considered appropriate in light of
investment criteria, market conditions and other factors and in
accordance with the provisions of applicable securities
legislation.
This news release is being issued under the early warning
provisions of Canadian securities legislation. A copy of the Early
Warning Report to be filed by Brookfield in connection with the transactions
described above will be available on SEDAR+ (www.sedarplus.ca)
under the Company's issuer profile.
The head office of the Company is located at 39 Wynford
Drive, Suite 200, Toronto, Ontario,
Canada M3C 3K5. Brookfield's address is 181 Bay Street, Unit
100, Toronto, Ontario, M5J
2T3.
To obtain a copy of the Early Warning Report filed under
National Instrument 62-103, please contact:
Glen McMillan
Chief Financial Officer
Bridgemarq Real Estate Services
glen.mcmillan@bridgemarq.com
Tel: 416-417-3870
|
Anne-Elise Cugliari
Allegritti
Director of Investor
Relations
Bridgemarq Real Estate
Services
info@bridgemarq.com
Tel:
647-229-6626
|
SOURCE Bridgemarq Real Estate Services Inc.