Aeroplan Income Fund "Aeroplan" (TSX: AER.UN), Canada's premier loyalty marketing company, today announced that it has entered into a definitive agreement to acquire privately-held LMG for a purchase price of £350 million (Cdn$717.5 million) plus working capital adjustments of £18 million (Cdn$36.9 million) for total consideration of £368 million (Cdn$754.4 million).
The purchase price is subject to a holdback in the amount of £31.6 million (Cdn$64.8 million), the future payment of which is subject to the outcome of the company's outstanding Value Added Tax (VAT) litigation. This transaction is expected to close by the end of the year. LMG is being acquired from Sir Keith Mills (Chairman of LMG), global private equity investor Warburg Pincus and the management team.
LMG is the leading loyalty marketing and customer-driven insight and analysis company that owns and operates the Nectar loyalty program in the United Kingdom. LMG operates in three main areas: Nectar, Insight & Communications (I&C) and Loyalty International. Nectar is the UK's largest customer rewards program with 50% of UK households participating at 15 leading national retail brands. LMG I&C uses customer data to provide retailers and consumer packaged goods companies
(CPGs) with insight into consumer shopping trends to enhance trading and marketing decisions. LMG's international arm actively seeks to launch and operate loyalty programs worldwide.
"This announcement marks an important milestone in our stated acquisition strategy," said Rupert Duchesne, President and CEO of Aeroplan, in the UK today. "The acquisition of LMG gives us unparalleled breadth of retail, financial services, travel, as well as data analytics skills and experience. Through this transaction, we will assume a dominant position in one of the most important and active loyalty markets in the world whilst acquiring expertise that will help accelerate our retail expansion in Canada. What's more, Aeroplan has found the right partner to pursue successfully international expansion opportunities. LMG's management team has significant experience in global markets, having launched and operated retail-based coalition loyalty programs in the UK, Canada, Spain, the Netherlands, the Middle East and New Zealand."
For LMG, the acquisition will bring increased financial strength as a result of being part of a larger publicly traded entity, as well as additional skills and expertise in complementary business sectors. Consequently, the transaction will act as a catalyst to accelerate the execution of LMG's large-scale plans.
"We look forward to working with a leader in loyalty management who brings substantial experience in the travel and financial sectors and a long-standing history of growth," said Alex Moorhead, CEO of LMG. "Over the last 18 months, we have been strengthening our position in the UK loyalty arena, deepening our customer insight and analytics expertise and progressing international opportunities. Our combined experience will ensure a worldwide leadership position in this growing market."
The two loyalty programs, Nectar and Aeroplan, will continue to be operated separately. Members' participation in their respective program is unaffected.
As previously disclosed, Aeroplan continues to consider its plans to convert to a corporate structure, although no final decision has been made at this time.
Transaction Highlights
- Transaction price of £350 million (Cdn$717.5 million) plus working capital adjustments of £18 million (Cdn$36.9 million) for total consideration of £368 million (Cdn$754.4 million). The purchase price is subject to a holdback in the amount of £31.6 million (Cdn$64.8 million), the future payment of which is subject to the outcome of the company's outstanding Value Added Tax (VAT) litigation.
- Substantially all of the transaction price will be payable in cash at closing with certain members of LMG's management exchanging a portion of their LMG shares for Aeroplan treasury units.
- The acquisition is expected to be immediately, modestly accretive to Distributable Cash in 2008.
- Aeroplan will finance the acquisition through a combination of existing cash resources and debt.
- Closing is expected to take place prior to the end of the year.
- RBC Capital Markets acted as financial advisor to Aeroplan in this acquisition and has provided the debt financing necessary to complete the transaction.
- Rupert Duchesne will remain President and CEO of Aeroplan. Alex Moorhead and his executive team will continue the management of LMG.