Clearwater Seafoods completes purchase of Macduff Shellfish Group

/NOT FOR DISTRIBUTION TO UNITED STATES OR FOR DISSEMINATION IN THE UNITED STATES/

HALIFAX, Oct. 30, 2015 /CNW/ - (TSX: CLR): Clearwater Seafoods ("Clearwater") is pleased to announce that the company has completed the purchase of 100% of the shares of Macduff Shellfish Group Limited ("Macduff") in accordance with the share purchase agreement announced on October 9, 2015. 

Ian Smith, CEO of Clearwater Seafoods said, "The acquisition of Macduff brings together two of the world's leading and fastest growing vertically integrated wild shellfish harvesters. They have a talented local management team, excellent resource assets and a strong presence in the EU, the world's largest and most valuable seafood market. Clearwater will add vessel management and sustainable harvesting practices, innovative processing technologies, a broader global sales, marketing and distribution footprint as well as a clear mandate to invest for future growth. Our companies have been building a working relationship for more than three years and we are confident Macduff represents a highly attractive investment with a strong strategic fit for Clearwater."  

Financial Highlights

In June 2015 Macduff acquired an additional 4 scallop trawlers and licenses (bringing their fleet to 14 mid-shore scallop harvesting vessels) along with additional preferred procurement access in complementary shellfish species (i.e. whelk). This recent investment along with additional organic growth are projected to help Macduff grow adjusted EBITDA another 25% to £11.5 million in fiscal 2016. In addition, Clearwater has identified further opportunities to invest that will enhance volume, revenue, margins and adjusted EBITDA in 2016 and subsequent years.

Taking into account the purchase price of £94.4 million (which excludes seasonal working capital debt) and the pro-forma 2016 adjusted EBITDA of £11.5 million, management estimates the effective acquisition multiple on the transaction is approximately 8.2 times adjusted EBITDA. The transaction is expected to be accretive to adjusted EBITDA in 2016 by up to CAD $0.38 per share and adjusted earnings by up to CAD $0.17 per share.

Financing of the Transaction

Macduff was acquired for cash consideration and an unsecured deferred consideration obligation of £27 million (the "Deferred Consideration") with a contingent consideration component that will be a minimum of £3.8 million.

Clearwater financed the cash portion of the acquisition from existing loan facilities including:

• CAD $75 million increase in its' Term Loan B facility
• CAD $25 million increase in its' Revolving Loan Facility
• CAD $51 million borrowing on its' existing Revolving Loan Facility and cash on hand

The Deferred Consideration applies to 33.75% of the shares acquired by Clearwater (the "Earn Out Shares"). The deferred consideration will be paid over the next five or six years.   In each year the holders of the Earn Out Shares can elect to be paid up to 20% of the total respective Earn Out Shares.  Clearwater will have the right to exercise the payout of 20% of the total Earn Out Shares annually commencing two years after the date of closing and annually thereafter. 

The amount of each Deferred Consideration payment will be as follows:

The greater of:

(i)	£5.4 million; OR
(ii)	6.75% of the equity value of the business calculated as 7.5x the last twelve months adjusted EBITDA less the outstanding debt of Macduff.

Leverage is expected to increase with pro-forma leverage of approximately 5.3x at closing decreasing to below 4.5x by December 31, 2015 and below 4.0x by December 31, 2016 when Clearwater and Macduff see the full realization of recent investments and organic growth.  As a result, management expects to operate above its leverage target of 3.0x with the intention of returning to this goal over the course of two to three years.

NON IFRS MEASURES

This news release makes reference to several non-IFRS measures to supplement the analysis of Clearwater's results.  These measures are provided to enhance the reader's understanding of our current financial performance.  They are included to provide investors and management with an alternative method for assessing our operating results in a manner that is focused on the performance of our ongoing operations and to provide a consistent basis for comparison between periods.  These non-IFRS measures are not recognized measures under IFRS, and therefore they are unlikely to be comparable to similar measures presented by other companies. 

Management believes that in addition to sales, earnings and cash provided by operating activities, non-IFRS measures are useful terms from which to determine Clearwater's ability to generate cash for investment in working capital, capital expenditures, debt service, income tax and dividends.

These non-IFRS measures can include gross margin, adjusted EBITDA, free cash flow, leverage, adjusted earnings and return on assets. Refer to non-IFRS measures, definitions and reconciliations in the Management Discussion and Analysis ("MD&A") for further information.

Adjusted EBITDA is defined as EBITDA excluding items such as severance charges, gains or losses on property, plant and equipment, gains or losses on quota sales, refinancing and reorganization costs.  In addition recurring accounting gains and losses on foreign exchange (other than realized gains and losses on forward exchange contracts), have been excluded from the calculation of adjusted EBITDA.  Unrealized gains and losses on forward exchange contracts relate to economic hedging on future operational transactions and by adjusting for them, the results more closely reflect the economic effect of the hedging relationships in the period to which they relate.  In addition adjustments to stock based compensation have been excluded from adjusted EBITDA as they do not relate to the operations of the business.

Leverage is defined as adjusted EBITDA less minority share of adjusted EBITDA divided by debt (less Clearwater's share of cash).

Free cash flow is defined as cash flows from operating activities, less capital expenditures (net of any borrowings of debt designated to fund such expenditures), scheduled payments on long term debt and distributions to non-controlling interests.  Items excluded from free cash flow include discretionary items such as debt refinancing and repayments, changes in the revolving loan and discretionary financing, investing activities and cash settled stock based compensation.

COMMENTARY REGARDING FORWARD-LOOKING STATEMENTS

This news release contains "forward-looking information" as defined in applicable Canadian securities legislation. All statements other than statements of historical fact, included in this release, including, without limitation, statements relating to Clearwater's acquisition of Macduff, financing of the acquisition, enhancement of Clearwater's scale of operations and accelerated growth, as well as expectations regarding sales, adjusted EBITDA, adjusted earnings and leverage, constitute forward-looking information that involve various known and unknown risks, uncertainties, and other factors outside management's control.   Forward-looking information is based on a number of factors and assumptions which have been used to develop such information but which may prove to be incorrect including, but not limited to, Clearwater's ability to successfully integrate the business of Macduff as planned, total allowable catch levels, selling prices, weather, exchange rates, fuel and other input costs.  There can be no assurance that such information will prove to be accurate and actual results and future events could differ materially from those anticipated in such forward-looking information.  Risk factors that could cause actual results to differ materially from those indicated by forward-looking information contained in this press release include risks and uncertainties related to: (i) diversion of management time and attention on the acquisition, (ii) any disruption from the acquisition affecting relationships with customers, employees or suppliers, (iii) the timing and extent of changes in interest rates, prices and demand, and (iv) general worldwide economic conditions and related uncertainties. For additional information with respect to risk factors applicable to Clearwater, reference should be made to Clearwater's continuous disclosure materials filed from time to time with securities regulators, including, but not limited to, Clearwater's Annual Information Form.

The forward-looking information contained in this release is made as of the date of this release and Clearwater does not undertake to update publicly or revise the forward-looking information contained in this release, whether as a result of new information, future events or otherwise, except as required by applicable securities laws.

No regulatory authority has approved or disapproved the adequacy or accuracy of this news release.

ABOUT CLEARWATER

Clearwater is one of North America's largest vertically integrated seafood companies and the largest holder of shellfish licenses and quotas in Canada. It is recognized globally for its superior quality, food safety, diversity of species and reliable worldwide delivery of premium wild, eco-certified seafood, including scallops, lobster, clams, coldwater shrimp, crab and groundfish.

Since its founding in 1976, Clearwater has invested in science, people and technological innovation as well as resource ownership and management to sustain and grow its seafood resource. This commitment has allowed it to remain a leader in the global seafood market and in sustainable seafood excellence.

Further information is available on Clearwater's website at www.clearwater.ca.

SOURCE Clearwater Seafoods Incorporated

Robert Wight, Chief Financial Officer, Clearwater, [phone]; Tyrone Cotie, Treasurer, Clearwater, [phone].