KKR & Co. (KKR) Acquires mdf commerce

mdf commerce inc. today announced it has entered into an arrangement agreement (the “Arrangement Agreement”) to be acquired by funds managed by KKR (NYSE: KKR), a leading global investment firm, in an all-cash transaction (the “Transaction”). Upon completion of the Transaction, mdf commerce will become a privately held company.

The Company’s platforms and services empower businesses around the world, supporting them in generating billions of dollars in transactions on an annual basis. mdf commerce’s North American eProcurement platform serves over 6,500 government agencies and more than 650,000 suppliers across Canada and the United States and provides a strong foundation to build a leading government software platform.

“After a comprehensive strategic review process, we are pleased to have reached an agreement with KKR that provides immediate liquidity and certainty of value at an attractive premium to our shareholders,” said Pierre Chadi, Chairman of mdf commerce’s board of directors (the “Board”).

“We are excited to strategically partner with KKR to accelerate our expansion and scale our industry-leading platform even further. We look forward to leveraging their relationships, resources, and expertise as we execute on our strategy and explore new projects and opportunities that will improve mdf commerce’s service offering and continue growing market share,” stated Luc Filiatreault, President and Chief Executive Officer, mdf commerce. “KKR has a long history of successfully investing in market-leading software businesses globally. I am confident that KKR is the ideal partner for mdf commerce and can contribute to the Company’s continued success.”

“KKR is closely aligned with management’s vision to accelerate technology innovation across the broader mdf commerce platforms,” said John Park, Partner at KKR. “We look forward to the enormous opportunity ahead for the mdf commerce eProcurement platform as governments increasingly embrace digital solutions. We have been impressed with the business that Luc and team have built in Montreal and are delighted to welcome one of the leading technology companies in Quebec to the KKR family.”

Following the closing of the Transaction, KKR will support mdf commerce in creating an equity ownership program to provide all employees the opportunity to participate in the benefits of ownership of the Company. This strategy is based on the belief that employee engagement is a key driver in building stronger companies. Since 2011, KKR portfolio companies have awarded billions of dollars of total equity value to over 60,000 non-management employees across more than 40 companies.

KKR is making its investment in mdf commerce through its Ascendant Strategy, which invests in middle market businesses in North America as part of KKR’s Americas Private Equity platform.

Transaction Highlights

• Attractive premium for shareholders: Consideration of C$5.80 per issued and outstanding common share of the Company (the “Common Shares”), payable entirely in cash (the “Consideration”), represents a premium of approximately 58% to the closing price of the Common Shares on the Toronto Stock Exchange (the “TSX”) on March 8, 2024 of C$3.68 per Common Share, a premium of approximately 59% to the 20-day volume-weighted average share price on the TSX for the period ending on March 8, 2024 of C$3.65 per Common Share, and a 30% premium to the 52-week high price on the TSX of C$4.45 per Common Share achieved on December 8, 2023;
• Certainty of value and immediate liquidity: The shareholders of mdf commerce (the “Shareholders”) will receive a price of C$5.80 per Common Share, payable entirely in cash, which provides certainty of value and immediate liquidity;
• Unanimous mdf commerce Board recommendation: The Board unanimously recommends that Shareholders vote in favour of the Transaction;
• Alignment with major shareholders:
  • KKR is closely aligned with mdf commerce’s management in a shared vision for the future of the Company and will leverage the expertise of the existing management team led by Luc Filiatreault, President and Chief Executive Officer, to continue to support mdf commerce’s growth strategy and to build a global leader headquartered in Québec; and
  • Long Path Partners and each of the directors and executive officers of the Company (collectively, the “Supporting Shareholders”), who currently collectively own approximately 12.4% of the outstanding Common Shares, have entered into support and voting agreements pursuant to which they have agreed to vote their Common Shares in favour of the Transaction.
• Value supported by two fairness opinions: Scotiabank and Desjardins Capital Markets (“Desjardins”) each provided a fairness opinion stating that, as at March 10, 2024, subject to the assumptions, limitations and qualifications set out in their respective opinions, the Consideration to be received by the Shareholders pursuant to the Transaction is fair, from a financial point of view, to the Shareholders.

mdf commerce Board Recommendation

The Transaction is the result of an extensive formal sale process conducted by the Board, pursuant to which several proposals from interested parties were considered. The Board has evaluated the Arrangement Agreement with the Company’s management and legal and financial advisors and has unanimously determined that the Transaction is in the best interests of the Company and is fair to the Shareholders. The Board also unanimously recommends that the Shareholders vote in favour of the Transaction at the special meeting of Shareholders to be called to approve the Transaction (the “Meeting”). The Transaction is expected to close in the second quarter of calendar 2024, subject to the receipt of the required approvals from the Company’s shareholders and certain regulatory approvals, as well as the satisfaction of other customary closing conditions.

The Supporting Shareholders, who currently collectively own approximately 12.4% of the outstanding Common Shares, have entered into support and voting agreements pursuant to which they have agreed to vote their Common Shares in favour of the Transaction, subject to certain conditions.

Fairness Opinions

In connection with their review and consideration of the Transaction, the Board engaged Scotiabank as its financial advisor and Desjardins as its independent financial advisor to provide an independent fairness opinion. Both Scotiabank and Desjardins provided a verbal opinion to the Board that, as at March 10, 2024, subject to the assumptions, limitations and qualifications set out in their respective opinions, the Consideration to be received by the Shareholders pursuant to the Transaction is fair, from a financial point of view, to such Shareholders.

Both fairness opinions will be included in the management information circular to be mailed to the Shareholders in connection with the Meeting and to be filed by the Company under its profile on SEDAR+ at www.sedarplus.ca and to be made available on the Company’s website at www.mdfcommerce.com.

Additional Transaction Details

The Transaction will be implemented by way of statutory plan of arrangement under the Canada Business Corporations Act and is subject to approval by certain regulatory bodies and court approval, after considering the procedural and substantive fairness of the Transaction. The Transaction is not subject to any financing condition and KKR is providing an equity-back stop for all the Consideration payable pursuant to the Transaction.

The Transaction is subject to certain approvals at the Meeting, including the approvals by at least two-thirds of the votes cast by Shareholders voting in person or by proxy.

The Arrangement Agreement contains customary non-solicitation covenants on the part of the Company, subject to customary “fiduciary out” provisions, as well as “right to match” provisions in favor of KKR. A termination fee of approximately C$7.7 million would be payable by the Company to KKR in certain circumstances, including in the context of a superior proposal supported by the Company.

Upon closing of the Transaction, KKR intends to cause the Common Shares to be delisted from the TSX, and to cause the Company to submit an application to cease to be a reporting issuer under applicable Canadian securities laws.

Additional details regarding the terms and conditions of the Transaction, the rationale for the recommendations made by the Board, the fairness opinions, the applicable voting requirements for the Transaction, and how Shareholders can participate in and vote at the Meeting, will be set out in mdf commerce’s management information circular to be prepared and made available to Shareholders in connection with the Meeting on SEDAR+ at www.sedarplus.ca and on the Company’s website at www.mdfcommerce.com. Copies of the Arrangement Agreement, the voting and support agreements, the management information circular and proxy materials in respect of the Meeting will be filed by the Company under its profile on SEDAR+ at www.sedarplus.ca.

Advisors

Scotiabank is acting as exclusive financial advisor to the Company and Desjardins is providing an independent fairness opinion to the Board of Directors. McCarthy Tétrault LLP and Foley & Lardner LLP are acting as legal advisors to the Company. Stikeman Elliott LLP and Dechert LLP are acting as legal advisors to KKR.

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