A Calgary-based provider of railway products has renegotiated a deal to acquire an American rail equipment supplier for $7 million US.
Global Railway Industries Ltd. (TSX-GBI) has signed a letter of intent to acquire G&B Specialties Inc., which makes track-switching products and is located in Berwick, Penn.
Global has also entered into a three-year management contract with G&B valued at about $2.5 million.
The transaction is expected to close next month.
Last year, Global agreed to buy G&B for $11 million in cash, plus an additional $1 million under an ‘earn-out’ provision that is contingent on G&B’s future incremental revenue.
The agreement required G&B to guarantee $3 million of working capital and for the company to be completely debt-free at the time the deal was to close.
But Global cancelled the deal in May, saying the results from the due diligence process were not in line with expectations, and the price originally offered couldn’t be supported.
Global president Mike Kohut says other factors have made this new agreement more economical than the one last year, including the stronger Canadian dollar and Global’s reduced cost of capital.
The company says it will pay for the company by issuing up to $4.5 million of its common shares, plus $2.5 million of senior debt.
It has hired a syndicate of agents led by Sprott Securities Inc., including Lightyear Capital Inc., to raise the equity component, and says it has received a commitment from a major Canadian bank to finance the senior debt component.
Global is pursuing an acquisition strategy of industry manufacturers that produce and sell railways the equipment they need to run and maintain their operations efficiently.
