09/07/2012 12:51 EDT | Updated 11/07/2012 05:12 EST

Garda founder and British equity firm bids to take security company private

MONTREAL - Garda World Security Corp. plans to take a break from its 14-year run as a public company after agreeing to be taken over by a British private equity firm that would allow the cash logistics and security to prowl for new acquisitions.

The Montreal-based company said a consortium formed by founder, chairman and CEO Stephan Cretier and a subsidiary of funds advised by global private equity firm Apax Partners is offering $12 per share in cash.

The deal is worth $1.1 billion, including the assumption of $625 million of net debt. About $300 million will be spent to buy out shareholders while more than 25 per cent stake in the company owned by Cretier and senior management will be rolled over to the new entity.

"My objective as an entrepreneur is to build this business to one of the top three or four in the world and we think that being private is probably the best thing that can happen to us today," he told a news conference Friday.

The security industry is consolidating and players have to either "look at the menu or you are the menu."

He said it's extremely difficult in today's markets for a small-cap company to grow while feeling the constant pressure from investors to deleverage.

Despite strengthened results, there are days when few company shares are traded and investors aren't even willing to meet, Cretier said, highlighting the challenges of raising capital to fund acquisitions.

The offer for Garda's 32 million shares represents a 30-per-cent premium over the closing price of the company's Class A shares (TSX:GW) on Thursday and a 45-per-cent premium to their 90-day weight average.

Cretier responded to an analyst's challenge on an earlier conference call about why the company is giving up the hope of returning its share price to the level of about $20 reached before the 2008 financial crisis.

"What we were living in 2007 and 2008, I think we need to forget about that," he said, noting Garda's share last reached $12 four years ago.

"For the share price to go up we need to deleverage and what we're saying today is that's not going to happen," he added, pointing to a third quarter in a row of growing indebtedness.

Garda's debt surged several years ago to fuel its aggressive expansion plans, particularly with the 2007 acquisition of U.S. cash logistics business ATI fro $395 million plus debt.

The proposed transaction isn't linked with any planned acquisition and Cretier declined to shed much light on how the two sides got together.

"We've been pitched in the past by equity sponsors and maybe the timing was nice...I think they were looking to enter this industry and in their view they found the right partner to do it."

Cretier said the decision to privatize was personally difficult and he added that he expects Garda will return to the public markets sometime in the future once market conditions improve.

"People who know me understand that it's only a goodbye."

The privatization transaction was unanimously approved by Garda's board, with Cretier abstaining, following the recommendation of a special committee of independent directors. The board recommends shareholders support the transaction at a special meeting expected to be held in October.

UBS Securities Canada and Desjardins Capital Markets each provided opinions that the transaction is fair from a financial point of view to shareholders other than Cretier. Desjardins also concluded that Garda's fair market value was between $10.75 and $12.25 per share.

Garda's shares were halted on the TSX pending the announcement, and soared almost 30 per cent when trading resumed — closing up $2.74 to $11.94.

The deal requires the support of at least two-thirds of shareholder vote and by more than half of votes cast by Garda's minority shareholders.

Meanwhile, the company announced Friday that it earned $4.9 million, or 15 cents per share in the second quarter. That compared to $3.8 million or 12 cents per share in the prior year.

Revenues for the period ended July 31 increased 13.7 per cent to $337 million, from $297 million.

Cash logistics revenue increased 12.7 per cent, U.S. operations were up 13.9 per cent, security revenues increased 14.5 per cent, Canadian security excluding airport operations grew 1.01 per cent and emerging markets were up 81.8 per cent.

"The positive results we have achieved are an indication of the magnitude of the opportunities we can and must seize now," Cretier added.