Canadian COM DEV To Spin Off exactEarth Stake, Sell Company To Honeywell

Canadian company COM DEV International(CDV.TO) announced that Honeywell(HON) will purchase the company for C$455 million ($345 million USD). Concurrent with the purchase, COM DEV will spin off its stake in exactEarth to shareholders. exactEarth will become an independent, publicly traded company.

(i) Honeywell will acquire the equipment business of COM DEV by way of an acquisition of all of the outstanding common shares of COM DEV for cash consideration of up to $5.25 per common share, representing an enterprise value of approximately $455 million , and (ii) the exactEarth Ltd. data services business will be spun out as a publicly traded company with COM DEV’s shareholders receiving their pro rata interest in COM DEV’s 73% ownership in exactEarth Ltd. (collectively, the “Transaction”).  (All figures in this news release are stated in Canadian dollars.)

COM DEV shareholders will receive an initial cash payment of $5.125 per COM DEV common share and 0.1977 of an exactEarth common share. Each shareholder will be eligible to receive a second payment approximately two weeks following the closing date of up to $0.125 per COM DEV common share, as described below. Assuming that exactEarth is valued at an enterprise value of $125 million (see the exactEarth Spinout information below), the exactEarth consideration would be valued at approximately $1.29 per COM DEV common share.  Based on this assumption, the total Transaction consideration has a value of up to $6.54 per COM DEV common share and represents a 46% premium over COM DEV’s closing share price of $4.49 on October 6, 2015 , the day prior to confirmation by the Company that it was engaged in discussions regarding a potential change of control transaction involving the Company.  The total consideration represents a 61% premium over the 20-day volume weighted average price of COM DEV shares on March 9, 2015 , the date on which COM DEV provided a strategic update with respect to exactEarth and a refresh of its strategic plan.

Terry Reidel , Chair of COM DEV’s Board of Directors, stated:  “Following an extensive review of strategic options for COM DEV, the Board of Directors unanimously agrees that this transaction represents the alternative that maximizes current and future value for our shareholders.  We are pleased to give our shareholders an opportunity to realize immediate benefits from the strategic growth plan our team has developed.  This transaction enables shareholders to receive a premium for their shares while maintaining an ownership stake in our rapidly growing data services business, exactEarth.”

A capital reorganization of exactEarth will be completed prior to the closing of the arrangement transaction, as more particularly described under “exactEarth Spinout Transaction.”  On completion of the arrangement, the former shareholders of COM DEV will hold approximately 73% of exactEarth, and Hisdesat Servicios Estrategicos S.A. will hold 27% of the basic issued and outstanding common shares of exactEarth (or approximately 70.9% and 26.2%, respectively, on a fully-diluted basis).

exactEarth Spinout Transaction

Immediately prior to the completion of the exactEarth Spinout Transaction and completion of the Transaction, the following transactions will be completed:


COM DEV will make payments to its partner in exactEarth, Hisdesat, in the aggregate amount of approximately $9.7 million for partial consideration of the termination of the existing shareholders agreement with Hisdesat.


Hisdesat will purchase approximately $1.9 million of debt owed by exactEarth to COM DEV.


COM DEV and Hisdesat will convert the entire remaining shareholder debt they are owed by exactEarth, totaling $47 million, into equity at an implied enterprise value of $125 million.


COM DEV and Hisdesat will subscribe for additional equity for aggregate proceeds to exactEarth of $20 million, with COM DEV’s portion of such equity subscription being $14.6 million, such that COM DEV’s equity interest remains 73%.


The debt conversion and capital injection are intended to strengthen exactEarth’s balance sheet and provide it with liquidity and resources to seek public listing for its common shares and to continue to fund its growth strategy as a standalone company.


Certain members of exactEarth management will subscribe for up to 100,000 shares of exactEarth at a price of $6.50 per share.


The management incentive plans as will be more fully described in the COM DEV circular (with such plans expected to be substantially as documented in conjunction with exactEarth’s proposed July 2015 initial public offering).


Prior to the distribution of exactEarth shares by COM DEV, exactEarth will amend its articles such that there will be a single class of common shares outstanding.

Following the above series of pre-closing steps, exactEarth is expected to have 21,538,109 basic shares outstanding.  COM DEV shareholders will own 15,722,819 or approximately 73%, while Hisdesat will own 5,815,289 or approximately 27%, consistent with the current ownership split of the two existing shareholders.

Subject to regulatory approval, the initial Board of Directors of exactEarth is expected to consist of Miguel Angel Panduro Panadero , Miguel Angel Garcia Primo , Peter Mabson , Maria Izurieta and three other individuals to be named shortly who will be independent of exactEarth, including one who is expected to act as chair of the board.

The following information is provided to update and supplement some of the existing disclosure relating to exactEarth, for the convenience of investors.

  • Total invested capital of $103 million .
  • Revenue of $23.6 million , EBITDA of $4.1 million and adjusted EBITDA of $6.4 million for the twelve months ended July 31, 2015 .
  • Revenue of $19.1 million in the nine months ended July 31, 2015 , representing growth of 68% over the nine months ended August 1, 2014 .
  • EBITDA of $3.6 million in the nine months ended July 31, 2015 , compared to EBITDA of $1.2 million in the nine months ended August 1, 2014 .
  • Adjusted EBITDA of $5.7 million in the nine months ended July 31, 2015 , compared to Adjusted EBITDA of $1.1 million in the nine months ended August 1, 2014 .
  • Unrealized subscription revenue of $18.5 million as at July 31, 2015 .
  • Management of exactEarth has reaffirmed its target annual operating model for the long term which sets out: overall revenue growth of 30%; Adjusted EBITDA of 35%; gross profit of 60%; product development expense of 7.5%; selling, marketing and general and administrative expenses consisting of 17.5% of overall revenue.

Additional detailed information on exactEarth is available in exactEarth’s Fiscal 2015 Third Quarter Financial Statements (Unaudited) and Management’s Discussion and Analysis to be made available today on COM DEV’s company profile at Full details regarding exactEarth’s business will be contained within the COM DEV management information circular.

The company expects to complete the transactions during the first quarter of 2016.

Disclosure: The author holds no shares in any stock mentioned