Spark Shareholders to Receive Consideration of $0.825 Per Share in Cash
Spark Also Provides Business Update
OAKVILLE, ONTARIO – October 13, 2023 — Spark Power Group Inc. (TSX: SPG), parent company of Spark Power Corp. (“Spark Power” or the “Company“), today announced that Spark Power has entered into an arrangement agreement (the “Arrangement Agreement“) with Generator-Spark Canada Buyer Inc. (the “Purchaser“), an affiliate of American Pacific Group, LP (“APG“), pursuant to which the Purchaser will acquire all of the issued and outstanding common shares of Spark Power (the “Shares” and each, a “Share“) for a price of $0.825 per Share (the “Consideration“) in an all-cash transaction valued at approximately $140 million (including assumed debt) (the “Transaction“).
The Consideration represents a 68% premium to the closing price of the Shares on the Toronto Stock Exchange (“TSX“) on October 13, 2023, being the last trading day prior to the announcement of the Transaction, and an 83% premium to the 30‐day volume weighted average trading price per Share on the TSX for the period ending October 12, 2023.
The Transaction will be implemented by way of a statutory plan of arrangement under section 182 of the Business Corporations Act (Ontario) (the “Plan of Arrangement“). Completion of the Transaction is subject to customary conditions, including, among others, court approval, and the approval of at least two‐thirds of the votes cast by the shareholders of the Company (the “Shareholders“) in person or by proxy at the special meeting of the Shareholders (the “Meeting“) to be called to approve the Transaction.
The board of directors of the Company (the “Board“), having received a unanimous recommendation from a special committee comprised solely of independent directors of the Company (the “Special Committee“), has unanimously determined that the Transaction is in the best interests of Spark Power and is fair to the Shareholders and unanimously recommends that Shareholders vote in favour of the Transaction. In making their respective determinations, the Board and the Special Committee considered, among other factors, the oral fairness opinion of MPA Morrison Park Advisors Inc. (“MPA“) to the effect that, as of October 13, 2023, subject to the assumptions, limitations and qualifications contained therein, the Consideration to be received by the Shareholders pursuant to the Transaction is fair, from a financial point of view, to the Shareholders. A copy of the fairness opinion of MPA will be included in the management information circular (the “Information Circular“) to be filed and mailed to the Shareholders in connection with the Meeting.
Joseph Quarin, Chair of the Special Committee, said “With the assistance of our independent financial and legal advisors, we have conducted a thorough assessment of APG’s proposal and alternatives available to the Company to maximize shareholder value. Following this comprehensive evaluation and extensive negotiations with APG, we are pleased to have reached an agreement with respect to a transaction that provides immediate and fair value to the Company’s shareholders.”
“We are pleased to have a new capital partner and look forward to working with APG to bring this transaction to a close for the benefit of Spark Power’s shareholders,” added Richard Jackson, Chief Executive Officer of Spark Power.
In connection with the Transaction, the co-founders of the Company, Jason Sparaga, Andrew Clark and Eric Waxman, and the other directors and executive officers of the Company, who together hold approximately 43.2% of the issued and outstanding Shares (on a non-diluted basis), have entered into voting support agreements (the “Voting Support Agreements“) with the Purchaser, pursuant to which they have agreed to, among other things, vote all of their Shares (including any Shares issued upon the exercise of any securities convertible, exercisable or exchangeable into Shares) in favour of the Transaction.
“Andrew, Eric and I have enjoyed this journey and are very proud of the Company that has been built. We are appreciative of all the employees, customers, vendors, lenders, shareholders, board members and other stakeholders who have helped to build it along the way. With this in mind, at this time we believe that the Transaction is best for the Company and have agreed to support it,” said Jason Sparaga, Director and Co-Founder of Spark Power.
The Arrangement Agreement provides for customary deal protection provisions, including non-solicitation covenants of Spark Power, “fiduciary out” provisions in favour of Spark Power which allow Spark Power to consider and accept an unsolicited superior proposal in certain circumstances, subject to “right-to-match superior proposals” provisions in favour of the Purchaser. In addition, the Arrangement Agreement provides for a termination fee of $2.7 million payable by Spark Power if the Company accepts a superior proposal and in certain other specified circumstances. Each of Spark Power and the Purchaser have made customary representations and warranties and covenants in the Arrangement Agreement, including covenants regarding the conduct of the Company’s business prior to the closing of the Transaction.
Certain affiliates of APG have provided Spark Power with an equity commitment letter pursuant to which APG has committed to, among other things, provide the funds necessary to pay the Consideration and other payments required to be made pursuant to the Arrangement Agreement.
Subject to the satisfaction of all conditions to closing set out in the Arrangement Agreement, it is anticipated that the Transaction will be completed in December 2023. Upon closing of the Transaction, it is expected that the Shares will be delisted from the TSX and that the Company will cease to be a reporting issuer under applicable Canadian securities laws.
The foregoing summary is qualified in its entirety by the provisions of the respective documents. Copies of the fairness opinion of MPA and a description of the various factors considered by the Special Committee and the Board in their determination to approve the Transaction, as well as other relevant background information, will be included in the Information Circular to be sent to the Shareholders in the coming weeks in advance of the Meeting. The Meeting is expected to be held on or about December 1, 2023. Copies of the Information Circular, the Arrangement Agreement, the Plan of Arrangement, the Voting Support Agreements and certain related documents will be filed with the applicable Canadian securities regulators and will be available on SEDAR+ at www.sedarplus.ca.
The Company today also provided the following business update:
- The Company’s revenues for the first two months of the third quarter are lower than expected and lower than the same period in 2022 mainly driven by the ongoing change in mix related to a reduction of larger sized projects in the period and timing of the ongoing implementation of the Company’s new Go-To-Market plan.
- While gross margin performance continues to be a major focus for the Company, the achieved quarter-to-date margins, and expected full quarter margins are expected to come in lower than planned. This is mainly due to the reduced volumes expected in the quarter and delays in the ongoing mix shift of the business related to the Company’s Go-To-Market plan.
- The Company continues to offset volume and margin related challenges with tight controls on SG&A costs which are expected to continue to show favourable results on a comparable basis for the same period in 2022.
- In the quarter, a long-standing customer dispute dating back to 2021 was resolved through arbitration. As a result of the arbitration decision, the Company will be recording a net credit loss of approx. $4.5M against third quarter earnings.
- Given the slower ramp up in volumes and gross margin enhancements, the Company anticipates being in breach of its financial covenants for the third quarter. The Company is in discussions with its lender to obtain a waiver of this expected covenant violation.
MPA is acting as financial advisor to the Special Committee. Bennett Jones LLP is acting as legal advisor to the Special Committee. Stikeman Elliott LLP and Jones Day are acting as legal advisors to the Purchaser.
About Spark Power
Spark Power is the leading independent provider of end-to-end electrical services and operations and maintenance services to the industrial, utility, and renewable asset markets in North America. We work to earn the right to be our customers’ Trusted Partner in Power™. Our highly skilled and dedicated people, located in the communities we serve, combined with our knowledge of the power industry, technology expertise, and commitment to safety, ensures we deliver the right solutions that keep our customers’ operations up and running today and better equipped for tomorrow. Learn more at www.sparkpowercorp.com.
APG is a San Francisco Bay Area-based private equity firm with (USD) $1.2 billion of capital under management. APG and its team have experience in executing take-private transactions, in investing in Canadian companies, and in partnering with companies in the renewables and electrical power services sectors to grow by better serving their customers. For more information, please visit www.americanpacificgroup.com.
This news release may contain forward-looking statements (within the meaning of applicable securities laws) which reflect Spark Power’s current expectations regarding future events. Forward-looking statements are identified by words such as “believe”, “anticipate”, “project”, “expect”, “intend”, “plan”, “will”, “may”, “estimate” and other similar expressions. The forward-looking statements in this news release include statements regarding the proposed acquisition by the Purchaser of all of the Shares of Spark Power and the terms thereof, the anticipated date of the Meeting, the anticipated filing of materials on SEDAR+, the expected date of completion of the Transaction, the expectation that the Shares will be delisted from the TSX and that the Company will cease to be a reporting issuer under applicable Canadian securities laws, the expectation that full quarter margins will come in lower than planned, the expectation that tight controls on SG&A costs will continue to show favourable results on a comparable basis for the same period in 2022, the anticipation that the Company will breach its financial covenants for the third quarter and other statements that are not historical fact.
The forward-looking statements in this news release are based on a number of key expectations and assumptions made by Spark Power including, without limitation: the Transaction will be completed on the terms currently contemplated, the Transaction will be completed in accordance with the timing currently expected, all conditions to the completion to the Transaction will be satisfied or waived and the Arrangement Agreement will not be terminated prior to the completion of the Transaction, and assumptions and expectations related to premiums to the trading price of the Shares and returns to the Shareholders. Although the forward-looking statements contained in this news release are based on what Spark Power’s management believes to be reasonable assumptions, Spark Power cannot assure investors that actual results will be consistent with such statements.
The forward-looking statements in this news release are not guarantees of future performance and involve risks and uncertainties that are difficult to control or predict. Several factors could cause actual results to differ materially from the results discussed in the forward-looking statements. Such factors include, among others: the Transaction not being completed in accordance with the terms currently contemplated or the timing currently expected, or at all, expenses incurred by Spark Power in connection with the Transaction that must be paid by the Company in whole or in part regardless of whether or not the Transaction is completed, the conditions to the Transaction not being satisfied by Spark Power and the Purchaser, currency fluctuations, disruptions or changes in the credit or security markets, results of operations, and general developments, market and industry conditions. Additional factors are identified in Spark Power’s annual information form for the year ended December 31, 2022, which is available on SEDAR+ at www.sedarplus.ca.
Readers, therefore, should not place undue reliance on any such forward-looking statements. There can be no assurance that the Transaction will be completed or that it will be completed on the terms and conditions contemplated in this news release. The proposed transaction could be modified or terminated in accordance with its terms. Further, these forward-looking statements are made as of the date of this news release and, except as expressly required by applicable law, Spark Power assumes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
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