Duke Royalty enters financing agreement with Creo-Tech

Alternative capital provider Duke Royalty has entered into an CAD 8.3m (£4.8m) royalty financing agreement with Creō-Tech Industrial Group, it announced on Monday.

The AIM-traded firm described Creō-Tech as a Canadian holding company, set up to acquire businesses that provide engineering, procurement and construction (EPC) services in commercial and industrial settings.

In connection with the financing, Creō-Tech had acquired two businesses, Axial and Silhouette Enclosures.

Axial is a provider of industrial automation and engineering services based in Calgary, Alberta, and Silhouette specialises in the design and fabrication of custom industrial enclosures, based in Abbotsford, British Columbia.

Duke said it had agreed a total funding commitment of up to CAD 20m to support Creō-Tech's buy-and-build strategy to acquire profitable EPC businesses across Canada

The initial drawdown of CAD 8.3m would facilitate the acquisitions of Silhouette and Axial, both of which had “longstanding” operations and “predictable” revenue streams, Duke said.

It reported an initial cash yield of 13.2% per annum via monthly payments, which would begin immediately, with the total deal consisting of 30 years of secured financing, with distributions to be adjusted annually to reflect Creō-Tech's consolidated revenue growth, on typical Duke terms.

As part of the financing, Duke would take an initial 18.75% equity stake in Creō-Tech.

“Since our successful fundraise in April, Duke Royalty has entered into three new partnerships, building on the record normalised cash revenue that we recently reported for the first quarter of our current financial year,” said chief executive officer Neil Johnson.

“This partnership is also Duke's first significant deal in North America, diversifying our geographic presence, as well as our revenue base.

“Duke's investment in Creō-Tech is consistent with our investment strategy in that it supports a buy-and-build model focused on the acquisition of long standing, profitable companies in an attractive and fragmented market with potential for additional follow-on investments.”

Johnson said Duke was backing a “strong” management team in Creō-Tech.

“With significant industry experience they will look to identify and acquire profitable, private businesses, whilst driving growth and profitability across the group by realising synergies and pooling back-end functions.”

At 1353 BST, shares in Duke Royalty were up 2.38% at 43p.