Dollarama to Acquire 50.1% Interest in Latin American Value Retailer Dollarcity, Establishing Second Growth Platform

• Estimated purchase price in the range of US$85M to US$95M, including an upfront payment of US$40M at closing
• Closing expected to occur in August 2019
• Transaction expected to be immediately accretive to Dollarama's earnings:
  +CA$0.02-0.03 per share for remainder of Fiscal 2020; +CA$0.05-0.07 per share in Fiscal 2021

MONTREAL, July 2, 2019 /CNW Telbec/ - Dollarama Inc. (TSX: DOL) ("Dollarama" or the "Corporation") announced today that it entered into a definitive stock purchase agreement to acquire a 50.1% interest in Latin American value retailer Dollarcity. The purchase price is based on a five times multiple of Dollarcity's EBITDA, minus net debt and subject to customary adjustments, and will be settled in cash using available free cash flows.

"With this transaction, which is expected to be immediately accretive to our earnings, Dollarama is establishing a compelling second growth platform, in complement to our Canadian growth strategy," said Neil Rossy, President and Chief Executive Officer of Dollarama. "After six years of due diligence review and on-the-ground experience in Latin America, we believe that now is the right time to exercise our option to acquire this interest, and that Dollarcity is the right vehicle to capture the growth potential we see in our chosen markets. We have full confidence in our local partners, who will continue to lead the Dollarcity business with our support."

"We are very excited to bring our relationship with Dollarama to the next level, and together strive to achieve Dollarcity's long-term growth objectives. We have leveraged Dollarama's expertise to establish a successful value retail model in El Salvador, Guatemala and Colombia, and we look forward to continuing to grow our store network in these countries in the years ahead," said Marco Baldocchi, Chief Executive Officer of Dollarcity.    

Dollarcity Growth Plan: 600 Stores by 2029

As at March 31, 2019, Dollarcity operated a total of 180 stores, with 44 in El Salvador, 54 in Guatemala and 82 in Colombia. Dollarcity's growth plan to 2029 is to reach a target of up to 600 stores within its three existing countries of operation, with the majority of store growth to be focused in Colombia.

Dollarcity's growth target for the calendar year 2019 is 40 to 50 net new stores. In the first quarter of 2019, Dollarcity had already opened 11 net new stores.

Transaction Background and Purchase Price

In February 2013, Dollarama entered into a commercial agreement to share its business expertise and provide sourcing services to Dollarcity, through a wholly-owned subsidiary, Dollarama International Inc. This agreement included the option for Dollarama to acquire a 50.1% interest in Dollarcity as of the beginning of the seventh year of the partnership. The countries covered by the agreement are Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Nicaragua, Panama and Peru.

In 2016, the agreement was amended to postpone the opening of the call option window from February 2019 to February 2020, as well as the relevant reference financial period for the purposes of the purchase price calculation, in order to provide the parties with more time to test the value retail concept in Colombia and to take into account the additional investments required to be made by Dollarcity to enter this market.

Dollarama and Dollarcity have now mutually agreed to accelerate the call option while maintaining, for the purposes of purchase price calculation, the formula agreed upon in 2013 and the reference financial period agreed upon in the 2016 amendment.

The purchase price formula is a five times multiple of Dollarcity's EBITDA for the 12-month period ending June 30, 2020, minus net debt and subject to other customary adjustments, based on audited financial statements. Dollarama will make an upfront payment of US$40 million upon transaction closing, and settle the balance in the third quarter of Dollarama's fiscal year 2021. The total purchase price is currently estimated at between US$85 million and US$95 million, based on financial projections provided by Dollarcity management.

The transaction, which is subject to customary closing conditions, is expected to close in August 2019. Dollarama will account for its investment in Dollarcity based on the equity method.

Operational Structure and Governance

Dollarcity stockholders will be comprised of Dollarama, with 50.1% ownership, and the Dollarcity founding group, with 49.9% ownership. As a result, certain strategic and operational decisions will be subject to 100% stockholder approval. These include, but are not limited to, decisions related to capital structure, nature of the business, merger and acquisition activities, executive officer appointments, approval of annual budget and business plan, and entry into new countries.

The Dollarcity Board of Directors will be composed of five directors, three Dollarama representatives and two representatives of the Dollarcity founding group.

Stockholder Options

The Dollarcity founding group has ordinary course put rights commencing in 2022, subject to transaction size thresholds, required ownership thresholds and freeze periods, among other conditions and restrictions. Event-driven put rights also exist for a sale transaction, a Dollarama change of control or a designated person event. The exercise of any put right triggers a fair market valuation to establish the applicable share price.

Dollarama has no remaining call options but does have the ability to postpone the exercise of the Dollarcity founding group put rights in certain situations.

Conference Call Information

A conference call is scheduled at 8:30 am (ET) to discuss today's announcement and will be followed by a question period open exclusively to financial analysts. Analysts are invited to dial-in to the conference call using the dial-in number provided below. Media and members of the public are invited to participate in the call in a listen‑only mode, using the live audio webcast, available in the Investor Relations/Events section of Dollarama's website and below:

• Webcast link: https://bell.media-server.com/mmc/p/2nxx7j6f
• Dial-in number: (514) 392-1478 or (866) 223-7781
• Webcast replay available online until July 1, 2020 by clicking HERE

A slide presentation will be displayed during the webcast and will be made available for download in the Investor Relations/Events section of Dollarama's website shortly following the conference call.

Forward-Looking Statements

Certain statements in this press release about current and future plans, expectations and intentions, results, levels of activity, performance, goals or achievements or any other future events or developments constitute forward-looking statements. The words "may", "will", "would", "should", "could", "expects", "plans", "intends", "trends", "indications", "anticipates", "believes", "estimates", "predicts", "likely" or "potential" or the negative or other variations of these words or other comparable words or phrases, are intended to identify forward-looking statements. Forward-looking statements include, without limitation, statements relating to the following: (i) the financial performance of Dollarcity, (ii) the accretive impact of the Dollarcity transaction on the Corporation's earnings, (iii) the estimated purchase price to be paid by the Corporation for a 50.1% interest in Dollarcity, (iv) the operational integration of Dollarcity, (v) the count and geographic distribution of Dollarcity's new store openings, and (vi) growth opportunities derived from the Dollarcity transaction.

Forward-looking statements are based on information currently available to us and on estimates and assumptions made by us regarding, among other things, general economic conditions and the competitive environment within the retail industry in Canada and in Latin America, in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we believe are appropriate and reasonable in the circumstances, but there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause actual results, level of activity, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements, including factors similar to those discussed in greater detail in the "Risks and Uncertainties" section of the Corporation's management's discussion and analysis and in the "Risk Factors" section of the Corporation's annual information form for the Corporation's fiscal year ended February 3, 2019, both available on SEDAR at www.sedar.com, including the following: future increases in operating costs, future increases in merchandise costs, inability to sustain assortment and replenishment of merchandise, increase in the cost or a disruption in the flow of imported goods, failure to maintain brand image and reputation, disruption of distribution infrastructure, inventory shrinkage, inability to increase warehouse and distribution centre capacity in a timely manner, market acceptance of private brands, failure to protect trademarks and other proprietary rights, foreign exchange rate fluctuations, interest rate risk associated with variable rate indebtedness, competition in the retail industry, general economic conditions, departure of senior executives, failure to attract and retain quality employees, disruption in information technology systems, inability to protect systems against cyber attacks, unsuccessful execution of the growth strategy, natural disasters, climate change and geopolitical events, unexpected costs associated with current insurance programs, product liability claims and product recalls, litigation, regulatory and environmental compliance.

These factors are not intended to represent a complete list of the factors that could affect the Corporation or Dollarcity; however, they should be considered carefully. The purpose of the forward-looking statements is to provide the reader with a description of management's expectations regarding the Corporation's and Dollarcity's financial performance and to assist the reader in understanding certain key elements of the Corporation's and Dollarcity's current objectives, strategic priorities, expectations and plans and may not be appropriate for other purposes. Readers should not place undue reliance on forward-looking statements made herein. Furthermore, unless otherwise stated, the forward-looking statements contained in this press release are made as at the date of those statements and we have no intention and undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

The financial outlook for Dollarcity's calendar year 2019 and the financial outlook for the Corporation's fiscal years ending February 2, 2020 and January 31, 2021 referred to in this press release are forward‑looking statements and are based on financial projections provided by Dollarcity's management and are subject to the risks and uncertainties identified above. The purpose of such financial outlook is to provide an estimated purchase price range for the Dollarcity transaction and an estimate of the accretive impact of the Dollarcity transaction on the Corporation's earnings, and may not be appropriate for other purposes.

All of the forward-looking statements contained in this press release are expressly qualified by this cautionary statement.

About Dollarama

Dollarama is a recognized Canadian value retailer offering a broad assortment of consumable products, general merchandise and seasonal items both in-store and online. Our 1,236 locations across Canada provide customers with compelling value in convenient locations, including metropolitan areas, mid-sized cities and small towns. Select consumable and general merchandise products are also available by the full case only through our online store at www.dollarama.com. Our quality merchandise is sold at select, fixed price points up to $4.00.

 

SOURCE Dollarama Inc.