Creates Canada's Leading Enterprise Class Network, Data, Voice and Cloud Services Provider
TORONTO, ONTARIO--( Mar 19, 2015) - TeraGo Inc. ("TeraGo" or the "Company") (TGO.TO) (www.terago.ca), a national provider of complete end-to-end data solutions, today announced that a definitive share purchase agreement has been entered into, under which TeraGo Networks Inc. ("TeraGo Networks"), a wholly-owned subsidiary of TeraGo will acquire 100% of the issued and outstanding shares of RackForce Networks Inc. ("RackForce") for aggregate cash consideration of $31.0 million and $2.0 million of common shares of TeraGo (the "Acquisition").
The fully funded cash consideration of $31.0 million establishes TeraGo as a leading provider of enterprise class network, data, voice and cloud services
Acquisition increases scale and reach of TeraGo's data center and cloud services business
Addition of infrastructure built to a Tier 3 standard, including RackForce's GigaCenter in Kelowna, B.C., which increases TeraGo's data center footprint from 40,000 to 58,000 square feet of raised floor space and available power from 6MW to approximately 13MW
Over 60% of revenues generated by cloud and managed services
TeraGo will finance the transaction with cash available under the Company's amended credit facilities, which will increase from $50.0 million to $85.0 million at the time of closing of the Acquisition
Closing of the Acquisition is expected to occur on or about March 27, 2015 and will be subject to satisfaction of customary closing conditions
RackForce is the largest Canadian enterprise cloud service provider, providing its services nationally and globally. In operation since 2001, RackForce serves multiple high value enterprise customers across a variety of verticals, including K-12, advanced education, and, federal and provincial governments. RackForce's top 25 customers generate average monthly revenue (ARPU) of over $17,000.
"The RackForce acquisition provides TeraGo with a growth platform in the attractive cloud services industry and helps further position TeraGo as a leading national end-to-end data solution company," says Stewart Lyons, President and Chief Executive Officer of TeraGo. "RackForce will complement our business and transforms TeraGo into Canada's premier enterprise class network, data, voice and cloud services provider."
"TeraGo is an ideal match for RackForce and this acquisition is an excellent development for our employees and our customers," says Tim Dufour, President and Chief Executive Officer of RackForce. "With TeraGo, we have gained a partner who is focused on delivering end-to-end IT solutions to meet the expanding technology needs of SMBs and enterprises, while sharing our commitment for exceptional customer service."
"We recognize the value, expertise and experience RackForce exhibits as a proven cloud partner for enterprise clients running mission-critical applications," Mr. Lyons added. "We warmly welcome RackForce professionals and we are excited to enter into a new phase of our business at TeraGo."
The Acquisition is expected to close on or about March 27, 2015. The aggregate purchase price of $33.0 million represents a multiple of approximately 9.9x adjusted EBITDA annualized for the three months ended December 31, 2014. The Acquisition will be financed with cash to be made available under the Company's credit facilities.
TeraGo has entered into an amendment agreement to its credit facilities whereby effective on the closing date of the Acquisition and subject to the satisfaction of certain conditions precedent set out in the amendment agreement, an additional lender, being The Toronto-Dominion Bank will become a party to the credit agreement along with existing lenders, National Bank of Canada and Royal Bank of Canada. The total credit facilities will increase from $50.0 million to an aggregate amount of $85.0 million, consisting of a $10.0 million revolving operating credit facility, a $50.0 million non-revolving term credit facility and a $25.0 million non-revolving acquisitions and capital expenditure facility. The covenants of the Company under the Credit Agreement will remain substantially unchanged. The maturity date on which the credit facilities will be terminated will be extended to June 30, 2018 from June 6, 2017.
"Increasing and extending our credit facilities ensures TeraGo retains the financial flexibility to continue to pursue the multiple opportunities within our pipeline," said Joe Prodan, Chief Financial Officer of TeraGo.
National Bank Financial Inc. acts as financial adviser to TeraGo in connection with the Acquisition and RackForce is advised by RBC Capital Markets.
Management Presentation and Conference Call
TeraGo will hold a conference call with the financial community today, March 19, 2015 at 9:00 a.m. EDT.
To access the conference call, please dial 647-788-4919 or 1-877-291-4570 five minutes before the start of the conference.
An archived recording of the conference call will be available until March 26, 2015. To listen to the recording, call 416-621-4642 or 1-800-585-8367 and enter passcode 10993028.
TeraGo, through its wholly owned subsidiary TeraGo Networks Inc., provides businesses across Canada with data and voice communications services, data center colocation and hosting services as well as cloud Infrastructure as a Service ("IaaS") computing and storage solutions. The national service provider owns and manages its IP network servicing approximately 4,100 business customers in 46 major markets across Canada including Toronto, Montreal, Calgary, Edmonton, Vancouver and Winnipeg, as well as data centers in the Greater Toronto Area and the Greater Vancouver Area. TeraGo Networks is a Competitive Local Exchange Carrier (CLEC) and was selected as one of Canada's Top Small and Medium Employers for 2015.
RackForce is the largest Canadian enterprise cloud service provider and serves clients both nationally and globally. Since its inception in 2001, RackForce has worked with over 12,000 customers, including small businesses, Fortune 100 companies, governments and education clients.
RackForce is a proven leader in the management of enterprise cloud services including Cloud Hosting Services (IaaS) and Application Hosting Services (SaaS) with network. RackForce's strategic relationships with technology leaders: Cisco, VMware, IBM, Kaltura, Mitel and many others gives the company early access to game changing intelligence, products and solutions to provide enterprise cloud services. RackForce's cloud services are provided from four network enabled cloud delivery centers spread across Canada allowing it to meet the strictest of data privacy requirements and all disaster recovery needs.
This press release includes certain forward-looking statements that are made as of the date hereof. Such forward-looking statements may include, but are not limited to, statements regarding the acquisition by the Company of Rackforce Networks Inc., TeraGo's growth strategy, expansion of IT services offerings, growth in the cloud services industry, leveraging on existing customer base after the acquisition. All such statements are made pursuant to the 'safe harbour' provisions of, and are intended to be forward-looking statements under, applicable Canadian securities laws. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. The forward-looking statements reflect the Company's views with respect to future events and is subject to risks, uncertainties and assumptions, including the risk that the acquisition of Rackforce may not be accretive to the Company's existing business, cross-selling of TeraGo's products and services may not succeed, revenue growth strategies may not materialize, trends in the global cloud and data center markets may not be accurately projected, the transition to a multi-product IT services company will not generate the results intended by management, the assumption that all closing conditions set forth in the share purchase agreement for the acquisition of Rackforce will be satisfied or waived by the applicable party or parties at the time of closing, the assumption that the Company will satisfy all conditions precedent at the time of closing under its amended credit facilities for the financing of the Acquisition, the assumption that recent revenue trends of Rackforce will not materially change after its acquisition by the Company, and those risks set forth in the "Risk Factors" section in our annual MD&A for the year ended December 31, 2014 available on www.sedar.com. Until all the closing conditions are satisfied or waived, there can be no assurances that the Acquisition will be completed. Statements relating to the Company's transition and transformation assume that the Company can execute on its strategy effectively and that the businesses of Rackforce and TeraGo are complementary and will result in the creation of certain synergies. Accordingly, readers should not place undue reliance on forward-looking statements as a number of factors could cause actual future results, conditions, actions or events to differ materially from the targets, expectations, estimates or intentions expressed with the forward-looking statements. Except as may be required by applicable Canadian securities laws, TeraGo does not intend, and disclaims any obligation, to update or revise any forward-looking statements whether in words, oral or written as a result of new information, future events or otherwise.
TeraGo Investor Relations