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Duke agrees new royalty finance for Lynx Equity

Duke agrees new royalty finance for Lynx Equity – Duke Royalty Limited has entered into its second royalty financing agreement with Lynx Equity (U.K.) Limited (“Lynx UK”), the UK-based subsidiary of Lynx Equity Limited (“Lynx”). Duke has committed GBP 7.0 million, with an initial tranche of GBP 4.5 million to be drawn down immediately, with the additional GBP 2.5 million being drawn down at the completion by Lynx UK of an imminent acquisition, which is expected to be completed in the coming weeks.

The financing represents the beginning of the relationship with Lynx as a Royalty Partner, as Duke has become Lynx’s preferred European capital provider, with the potential to provide a further GBP 8 million of funding equating to GBP 15 million over time.

Lynx Equity

Lynx is a Toronto-based private firm that seeks to acquire, own and operate mature, old-economy businesses in a diverse range of industries.  Over its 10-year history, Lynx has made over 40 acquisitions and grown revenue to over C$300 million per annum for its financial year ended 31 July 2017.  Lynx has been recognized as one of Canada’s Fastest-Growing Companies three years in a row in the PROFIT 500, the definitive ranking published by Canadian Business magazine based on five-year revenue growth.

Led by Brad Nathan, founder and President, Lynx’s team of senior managers have a track record of success in acquiring owner-operated businesses with long-standing profitability where the owners are looking to retire after a transition period.  Lynx’s business model is to own 100% of the acquired companies, but ensures management retention via part-deferred compensation to the owners.  Lynx believes their buy and hold philosophy gives them an advantage when approaching companies for sale, since owners know they are becoming part of a large and profitable company with the intention to preserve the legacy of the owners.

Lynx’s business model has a proven acquisition formula and a strict set of company characteristics which has resulted in excellent growth and profitability with operations in Canada, the United States, and the United Kingdom.  From its base in London, Lynx UK intends to grow operations throughout Western Europe.

About the Financing

As part of the Financing, Duke has become Lynx’s preferred European capital provider with the potential to invest up to GBP 15 million in total. Duke is looking to provide Lynx with the capital it requires to allow it to roll out its proven and successful North American acquisition strategy across Europe, with the stated potential Investment Pool to be deployed as further profitable acquisitions meet Duke’s royalty investment criteria and subject to Duke’s due diligence and Lynx UK maintaining a royalty coverage ratio above 2.0x post-acquisition.

Under the terms of the Financing, Duke will initially provide Lynx UK with GBP 4.5 million which will establish Duke as the senior capital provider to Lynx UK and provides the capital necessary for past and future obligations with respect to the acquisition cost of its existing UK businesses, Label Express (founded in 1984) and Signalhome (founded in 1998).

The Financing will entitle Duke to monthly distributions beginning in November 2017 which total GBP 540,000 per annum, based on the initial drawdown of GBP 4.5 million.  The distributions will be adjusted annually with the first adjustment occurring in August 2018, based on the percentage change in Lynx UK’s gross revenues for the fiscal year to July 2017 compared to the prior year. The annual adjustment in the distributions will be subject to a collar.

Duke and Lynx are currently undergoing due diligence in regard to the acquisition of a third company in Europe which is under exclusive Letter of Intent with Lynx UK and is expected to close in the coming weeks. Duke has committed GBP 2.5 million to Lynx UK for this deal pending completion.  This would increase the annual distributions to GBP 840,000 starting the following month.

We were immediately drawn to the structure that Duke presented which will allow us to aggressively expand our European portfolio. This permanent capital is a perfect fit for our buy and hold strategy. Most importantly, the Duke team is made up of fantastic individuals and we look forward to a long and successful relationship with them,” commented Brad Nathan, President of Lynx Equity.

Lynx is an excellent partner for Duke; they are successful operators, their businesses meet our investment criteria and their international operations make them a substantial and profitable partner.” said Neil Johnson, CEO of Duke. “Being a Canadian company, Lynx was familiar with the advantages of royalty finance and from the first meeting we felt our businesses were very complementary.  We are pleased to assist Brad and his team on their expansion in Europe.”

DUKE : Duke agrees new royalty finance for Lynx Equity

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