TORONTO, Oct. 18, 2016 (GLOBE NEWSWIRE) -- Grenville Strategic Royalty Corp. (TSXV:GRC) (“Grenville” or the “Company”) announced today that it intends to pursue a growth strategy, reinvesting capital generated from the portfolio into the business for new investments. As part of this strategy, Grenville has decided to suspend its existing dividend until further notice and has secured two new partners that will co-invest alongside Grenville as joint venture partners on new investments.
Grenville has delivered a portfolio IRR well in excess of its cost of capital and peer group. As of June 30, 2016, the Company’s last reported quarter, Grenville’s portfolio IRR since inception was 21%. The Company’s portfolio IRR consists of returns from royalty payment income, interest income and contract buyouts. In light of these returns, the Board believes that shareholder value is maximized by reinvesting free cash flows to continue compounding capital at these rates. The board will review a return to the dividend model as cash flow permits.
As part of its growth strategy, Grenville has entered into two separate joint venture agreements. Investments by the joint ventures will be incremental to Grenville’s investment, thereby providing additional scale to the business model and enabling Grenville to participate in a greater number of opportunities. This syndication of risk will allow Grenville to build a more diversified portfolio and generate more stable returns with non-dilutive capital. Collectively, Grenville will provide capital for 50 percent of each investment while the new partners will provide 100 percent of the joint venture capital in exchange for the right to use Grenville’s intellectual property and royalty-based investment strategy, and the right to invest 25 percent in each new royalty investment made by Grenville. The new joint venture partners have expressed interest in investing a higher percentage should Grenville request additional investment.
Foregrowth Joint Venture
Foregrowth Holdco Inc, (“Foregrowth”) a wholly-owned subsidiary of Gravitas Ilium Corporation (“GIC”), and Grenville have formed a joint venture, Foregrowth-Grenville Investments Inc. (“FGI”), that will have the right to co-invest in each new royalty investment made by Grenville. Foregrowth through a limited partnership that Foregrowth is the General Partner of (“Foregrowth LP”) expects to raise capital to be advanced to the joint venture while Grenville will manage the joint venture and be compensated through a management fee. Excess returns after costs and loan payments will be shared on an 85/15 basis between Foregrowth and Grenville. Foregrowth LP expects to advance 100 percent of the joint venture’s share of capital for initial investments. As the inaugural product for the Foregrowth platform, Grenville will be attending the launch ceremony with the China Entrepreneurs Club in Niagara this week.
Darwin Joint Venture
Darwin Strategic Royalty Corporation (“Darwin”) is a private investment company owned by Louis Desmarais and Brad Romoff, well-known Montreal-based venture capitalists. Grenville has agreed to license its intellectual property and royalty-based investment strategy to Darwin for the purposes of purchasing royalty streams in the province of Quebec and throughout North America, as well as co-investing alongside Grenville in new investment opportunities. Grenville will hold a seat on Darwin’s Investment Committee and Grenville will receive 6 percent of all royalty income generated by Darwin.
“We are delighted to be able to announce closing of these two joint venture relationships. Our new partners represent sources of capital and capital markets expertise that will contribute scale to our unique royalty-based financing model for small and medium sized enterprises (“SMEs”),” said Steve Parry, Chief Executive Officer of Grenville. “We believe this joint venture ecosystem will be a powerful force in the royalty market for SMEs in North America, providing Grenville and the partners with an enhanced ability to rapidly diversify portfolios with fewer dollars. Based on our experience to date, we believe this is a key to optimizing portfolio return with stable cash flows.”
“The returns that the model has provided made a compelling case to reinvest in growth rather than continue to return capital in light of the challenging capital markets environment we face. The decision to suspend the dividend, while difficult, places us in the best position to generate long-term value for shareholders, specifically with the opportunity to increase our investment velocity with the support of our new partners,” continued Mr. Parry.
Grenville’s unique capital offering continues to fill an expansive niche in North American SME, growth-capital markets. Grenville’s investment strategy targets a range of $1 million to $2 million per new investment. Based on experience since inception, investment returns are optimized within this size range relative to larger or smaller investments. The joint ventures with Foregrowth and Darwin enable Grenville to scale its portfolio across a broader number of investment opportunities while still providing sufficient growth capital to help investees achieve their growth objectives.
New investments will generally be focused on technology and industrial-tech opportunities with higher-growth fundamentals. Existing portfolio investments with similar fundamentals have outperformed the other invested sectors to date. Opportunities that match this profile provide Grenville an opportunity to actively support these investments to achieve the next stage of their growth through new capital and by working with investee management teams.
“The overall portfolio returns achieved to date validate our business model. Our primary focus moving forward is to actively redeploy cash flows and contract buyout proceeds into new investments alongside our partners at pricing levels consistent with those to date, to deliver long-term shareholder value,” said Mr. Parry.
About Grenville
Based in Toronto, Grenville is a publicly-traded royalty company that makes investments in established businesses with revenues of up to $50 million dollars. Grenville generates revenues from royalty payments and buyouts from contracts. The non-dilutive royalty financing structure offered by Grenville competes directly with traditional equity to meet the long-term financing needs of companies on more attractive commercial terms.
About Gravitas Ilium Corporation
Gravitas Ilium Corporation ( www.gicpartners.com ) is a financial services holding company jointly owned by Ilium Capital Corp. and Gravitas and, both headquartered in Toronto.
About Gravitas Financial Inc.
Gravitas Financial Inc. (“GFI”) is a financial services, research and analytics holding company providing, through its various subsidiaries, capital market services to individual, private and public company clients. GFI conducts its operations from its head office in Toronto, Canada. GFI intends to utilize the public company platform and enhanced access to capital to grow its existing business and to provide new and enhanced products to its clients.
Forward-Looking Information and Statements
This press release contains certain “forward-looking information” within the meaning of applicable Canadian securities legislation and may also contain statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking information and forward-looking statements are not representative of historical facts or information or current condition, but instead represent only the Company’s beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of the Company’s control. Generally, such forward-looking information or forward-looking statements can be identified by the use of forward-looking terminology such as “plans,” “expects” or “does not expect,” “is expected,” “budget,” “scheduled,” “estimates,” “forecasts,” “intends,” “anticipates” or “does not anticipate,” or “believes,” or variations of such words and phrases or may contain statements that certain actions, events or results “may,” “could,” “would,” “might” or “will be taken,” “will continue,” “will occur” or “will be achieved”. The forward-looking information contained herein may include, but is not limited to, information with respect to: prospective financial performance, including the performance of the joint ventures referenced herein; including the Company’s opinion regarding the current and future performance of its portfolio, expenses and operations; anticipated cash needs and need for additional financing; anticipated funding sources; future growth plans; royalty acquisition targets and proposed or completed royalty transactions; estimated operating costs; estimated market drivers and demand; business prospects and strategy; anticipated trends and challenges in the Company’s business and the markets in which it operates; the Company’s ability to pay dividends in the future and the timing and amount of those dividends; and the Company’s financial position. By identifying such information and statements in this manner, the Company is alerting the reader that such information and statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such information and statements.
An investment in securities of the Company is speculative and subject to a number of risks including, without limitation, risks relating to: the need for additional financing; the relative speculative and illiquid nature of an investment in the Company; the volatility of the Company’s share price; the Company’s limited operating history; the Company's ability to generate sufficient revenues; the Company's ability to manage future growth; the limited diversification in the Company's existing investments; the Company's ability to negotiate additional royalty purchases from new investee companies; the Company's dependence on the operations, assets and financial health of its investee companies; the Company’s ability to successfully manage its joint venture relationships; the Company's limited ability to exercise control or direction over investee companies; potential defaults by investee companies and the unsecured nature of the Company's investments; the Company's ability to enforce on any default by an investee company; competition with other investment entities; tax matters, including the potential impact of the Foreign Account Tax Compliance Act on the Company; the potential impact of the Company being classified as a Passive Foreign Investment Company ("PFIC"); the Company's ability to pay dividends in the future and the timing and amount of those dividends; reliance on key personnel, particularly the Company's founders; dilution of shareholders’ interest through future financings; and general economic and political conditions; as well as the risks discussed under the heading "Risk Factors" on pages 16 to 22 of the Annual Information Form of the Company dated February 11, 2015 and the risks discussed herein. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in the forward-looking information and forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended.
In connection with the forward-looking information and forward-looking statements contained in this press release, the Company has made certain assumptions. Assumptions about the performance of the Canadian and U.S. economies over the next 24 months and how that will affect the Company's business and its ability to identify and close new opportunities with new investees are material factors that the Company considered when setting its strategic priorities and objectives, and its outlook for its business.
Key assumptions include, but are not limited to: assumptions that the Canadian and U.S. economies relevant to the Company’s investment focus will remain relatively stable over the next 12 to 24 months; that interest rates will not increase dramatically over the next 12 to 24 months; that the Company's existing investees will continue to make royalty payments to the Company as and when required; that the businesses of the Company's investees will not experience material negative results; that the Company will continue to grow its portfolio in a manner similar to what has already been established; that tax rates and tax laws will not change significantly in Canada and the U.S.; that more small to medium private and public companies will continue to require access to alternative sources of capital; that the Company will have the ability to raise required equity and/or debt financing on acceptable terms; and that the Company will have sufficient free cash flow to pay dividends. The Company has also assumed that access to the capital markets will remain relatively stable, that the capital markets will perform with normal levels of volatility and that the Canadian dollar will not have a high amount of volatility relative to the U.S. dollar. In determining expectations for economic growth, the Company primarily considers historical economic data provided by the Canadian and U.S. governments and their agencies. Although the Company believes that the assumptions and factors used in preparing, and the expectations contained in, the forward-looking information and statements are reasonable, undue reliance should not be placed on such information and statements, and no assurance or guarantee can be given that such forward-looking information and statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information and statements.
The forward-looking information and forward-looking statements contained in this PRESS RELEASE are made as of the date of this PRESS RELEASE, and the Company does not undertake to update any forward-looking information and/or forward-looking statements that are contained or referenced herein, except in accordance with applicable securities laws. All subsequent written and oral forward-looking information and statements attributable to the Company or persons acting on its behalf is expressly qualified in its entirety by this notice.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
For further information, please contact: Grenville Strategic Royalty Corp. Steven Parry Chief Executive Officer Tel: (416) 777-0383
