H2O Innovation announces that it has entered into a definitive arrangement agreement with Ember SPV I Purchaser Inc., an entity controlled by funds managed by Ember, a New York-based private equity firm, whereby the Purchaser will acquire all of the issued and outstanding common shares in the capital of H2O Innovation, other than the Shares to be rolled over by Investissement Québec (“IQ”), Caisse de dépôt et placement du Québec (“CDPQ”) and the key executives of the Corporation, for $4.251 in cash (the “Consideration”) per Share (the “Transaction”).
Key Transaction Highlights
- The shareholders of H2O Innovation will receive a price of $4.25 per share, payable entirely in cash, which represents a premium of approximately 68% to the closing price of the Shares on the Toronto Stock Exchange (the “TSX”) on October 2, 20232, a premium of approximately 66% to the 20-day volume-weighted average Share price on the TSX for the period ending on October 2, 2023, and a 26% premium to the 52-week high price on the TSX of $3.37 per Share achieved on July 4, 2023;
- H2O Innovation’s board of directors unanimously recommends that Shareholders vote in favour of the Transaction;
- Ember will leverage the expertise of the existing management team led by Frédéric Dugré, President, Chief Executive Officer and co-Founder of H2O Innovation, to continue to support H2O Innovation’s growth strategy;
- Ember is committed to continue employing the Corporation’s current key executives and maintaining H2O Innovation’s head office and substantially the same number of employees in the Province of Québec; and
- Ember is partnering with IQ and CDPQ, important Québec-based institutions and significant Shareholders of H2O& Innovation, that together with the key executives of H2O Innovation will, in the aggregate, hold an equity interest of approximately 21% in H2O Innovation post-Transaction.
The Transaction values H2O Innovation at $395 million, on a fully diluted equity basis. Ember is funding its portion of the purchase price with capital it manages on behalf of its limited partners via private equity fund capital as well as select co-investors, including funds affiliated with the Ontario Power Generation Inc. Pension Fund. Under the terms of the Arrangement Agreement, the Corporation may solicit a superior offer for a defined “go-shop” period, as further outlined below, during which Scotia Capital Inc. (“Scotiabank”), the Corporation’s financial advisor, will approach potential interested parties with a view to soliciting a higher offer, which the Purchaser is entitled to match.
Ember and H2O Innovation have put in place appropriate measures to ensure a seamless transition to the new ownership, with minimal disruption for the employees of H2O Innovation, and the Corporation’s numerous loyal customers and partners across Canada, the United States, Mexico and Europe.
“After extensive work we have concluded that this transaction is in the best interest of H2O Innovation and fair to our Shareholders. Following a comprehensive assessment and our extensive negotiations with the Purchaser, we are pleased to have reached an agreement that provides immediate and fair value to our Shareholders. In addition to the attractive premium offered to H2O Innovation’s Shareholders, Ember has agreed to key commitments for H2O Innovation and its stakeholders. Ember appreciates the significance of H2O Innovation’s Québec roots that will remain an important foundation for the Corporation as it continues its growth, and has agreed to maintain H2O Innovation’s head office in the Province of Québec,” said Lisa Henthorne, Chairwoman of the Board.
“We are very excited to partner with Ember to accelerate growth. We look forward to leveraging their relationships, resources, and expertise as we execute on our growth strategy in a manner consistent with our core values of loyalty, entrepreneurship, achievement and unity,” stated Mr. Dugré. “As a private equity firm investing in infrastructure solutions to reduce carbon intensity, increase resource efficiency, and enhance climate resilience, Ember is the ideal partner for H2O Innovation.”
“Ember looks forward to partnering with the H2O Innovation management team to continue building a leading integrated water solutions company focused on providing best-in-class technologies and services to its customers,” declared Elena Savostianova, Managing Partner of Ember. “Sustainability is core to Ember’s investment philosophy, and water and wastewater solutions are central to our sustainability thesis. While H2O Innovation has achieved significant success in delivering its services and solutions to its customers both organically and through acquisition-driven growth since its inception, we see a unique opportunity for H2O Innovation to enter a new phase of growth supported by our capital and industry expertise. We intend to take a long-term view as we support the ongoing implementation of H2O Innovation’s existing strategy, while continuing to find additional opportunities to better serve its customers.”
Guy LeBlanc, President and CEO of IQ, added: “Investissement Québec supports Ember as a partner of choice to help H2O Innovation on its growth journey. It is committed to maintaining Québec operations and leveraging H2O Innovation’s expertise to make it a consolidator and global leader in its field. This investment project is part of our mission to drive economic development.”
“As a long-time shareholder, CDPQ is pleased to continue its partnership with H2O Innovation, a growing company operating in a strategic sector of our economy,” said Kim Thomassin, Executive Vice‑President and Head of Québec at CDPQ. “With this privatization, the Corporation will be able to continue executing its acquisition plan while maintaining its infrastructure and talent in Québec.”
The process and negotiation of the Transaction were supervised by a committee of independent directors of H2O Innovation (the “Special Committee”). The Transaction has been approved unanimously by the Board (with interested and non-independent directors abstaining from voting) following the unanimous recommendation of the Special Committee. Both the Board and the Special Committee determined, after receiving financial and legal advice, that the Transaction is in the best interests of the Corporation and is fair to the Shareholders (other than the Rollover Shareholders). The Board also unanimously recommends that the Shareholders vote in favour of the Transaction at the special meeting of Shareholders to be called to approve the Transaction (the “Meeting”).
As part of the Transaction, IQ, the largest shareholder of the Corporation, has agreed to roll over all of its Shares and increase its existing equity ownership in the Corporation by acquiring approximately $20 million of additional Shares from the Purchaser for an amount per Share equal to the Consideration. Furthermore, CDPQ has agreed to roll over the majority of its Shares and the key executives of H2O Innovation have agreed to roll over a portion of their Shares for an amount per Share equal to the Consideration. Upon completion of the Transaction, Ember will be the controlling shareholder of H2O Innovation, with IQ, CDPQ and the key executives of H2O Innovation, together, holding an equity interest in the Corporation of approximately 21%.
The Rollover Shareholders and each other director and officer of the Corporation, who currently collectively hold approximately 24% of all issued and outstanding Shares, have entered into customary support and voting agreements pursuant to which they have agreed to vote all their Shares in favour of the Transaction at the Meeting, subject to certain conditions.
