8-K
Aaon, Inc. (AAON)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 18, 2021
AAON, INC.
(Exact name of Registrant as Specified in Charter)
| Nevada | 0-18953 | 87-0448736 | ||
|---|---|---|---|---|
| (State or Other Jurisdiction | (Commission File Number: ) | (IRS Employer Identification No.) | ||
| of Incorporation) | ||||
| 2425 South Yukon Ave., | Tulsa, | Oklahoma | 74107 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant's telephone number, including area code): (918) 583-2266
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock | AAON | NASDAQ |
Item 1.01 Entry into a Material Definitive Agreement.
BasX Acquisition
On November 18, 2021, AAON, Inc. (the “Company”) entered into a membership interest purchase agreement (the “Purchase Agreement”) with D-velopment, LLC, JVK Holdings, LLC, Randa K. Brooks, Matthew J. Tobolski in his capacity as trustee of the Tobolski Family Trust, Dave Benson, John N. Kucera and Matt Tobolski (collectively, the “Seller Parties”), pursuant to which the Company agreed to purchase (the “BasX Acquisition”), all of the issued and outstanding equity ownership interests of BasX, LLC, an Oregon limited liability company doing business as BasX Solutions (“BasX”), for a purchase price of (i) $100 million payable in cash at the closing of the transaction (subject to customary closing purchase price adjustments), and (ii) up to $80 million in the aggregate of contingent consideration payable in shares of the Company’s common stock, par value $0.004 per share (the “Shares”), with the number of Shares calculated based on the five-day volume-weighted average closing price of the Company’s common stock immediately prior to the signing date of the transaction. The potential future issuance of the Shares is contingent upon BasX meeting certain post-closing earn-out milestones during each of 2021, 2022 and 2023. Under the Purchase Agreement, the Company agreed to enter into a real estate purchase agreement with BasX Properties, LLC, an affiliate of BasX, to acquire the principal real property and improvements utilized by BasX for an additional $22 million (the “Real Estate Acquisition”), subject to customary closing conditions and adjustments. The Company expects to fund the cash portion of the purchase price and related transaction costs, with respect to each of the BasX Acquisition and the Real Estate Acquisition, from cash on hand and borrowings under its senior credit facility.
The Purchase Agreement contains customary representations and warranties, covenants, termination rights and indemnification provisions for a transaction of this size and nature, and also provides the parties with specified rights and obligations and allocates risk among them in a customary manner. The Company anticipates the BasX Acquisition to close prior to December 31, 2021, subject to customary closing conditions, and anticipates the Real Estate Acquisition to close prior to March 31, 2022. There can be no assurance that all of the conditions to closing the BasX Acquisition and the Real Estate Acquisition will be satisfied. Pursuant to the Purchase Agreement, in the event the BasX Acquisition does not close for any reason, the Company will not close the Real Estate Acquisition. The foregoing is a brief description of the Purchase Agreement and does not purport to be a complete description or comprehensive summary.
The Purchase Agreement contains representations, warranties, covenants and other provisions that were made only for purposes of the Purchase Agreement and as of specific dates and were solely for the benefit of the parties thereto. The Purchase Agreement is a contractual document that establishes and governs the legal relations among the parties and is not intended to be a source of factual, business or operational information about the Company, BasX or Seller Parties or the membership interests (and related assets) to be acquired from the Seller Parties. The representations and warranties made by the Company and Seller Parties in the Purchase Agreement may be (i) qualified by disclosure schedules containing information that modifies, qualifies or creates exceptions to such representations and warranties and (ii) subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Accordingly, investors and security holders should not rely on such representations and warranties as characterizations of the actual state of facts or circumstances.
Item 3.02 Unregistered Sales of Equity Securities.
The disclosure set forth in Item 1.01 is incorporated into this Item 3.02 by reference. The Company intends to issue the Shares, when and to the extent earned, in reliance on the exemption from registration requirements under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Section 4(a)(2) thereof and rules and regulations promulgated thereunder. The Company will rely upon representations, warranties, certifications and agreements of the Seller Parties and certain others in support of the satisfaction of the conditions contained in Section 4(a)(2) of the Securities Act and rules and regulations promulgated thereunder.
Item 7.01 Regulation FD Disclosure.
On November 18, 2021, the Company issued a press release and posted to its website a corporate presentation (the “BasX Presentation”). The press release and BasX Presentation are attached hereto as Exhibit 99.1 and Exhibit 99.2, respectively, and are incorporated into this Item 7.01 by reference. The BasX Presentation is available on the Company’s website, www.aaon.com.
All statements in the press release and BasX Presentation, other than historical financial information, may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “should”, “will”, and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Investors and readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligation to update publicly any forward-looking statements contained in the BasX Presentation, whether as a result of new information, future events or otherwise. Important factors that could cause results to differ materially from those in the forward-looking statements include, but are not necessarily limited to (1) the timing and extent of changes in raw material and component prices, (2) the effects of fluctuations in the commercial/industrial new construction market, (3) the timing and extent of changes in interest rates, as well as other competitive factors during the year, and (4) general economic, market or business conditions.
In accordance with General Instruction B.2 of Form 8-K, the information in this Item 7.01 of this Current Report on Form 8-K and the exhibits attached hereto are deemed to be “furnished” and shall not be deemed "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall such information and exhibits be deemed incorporated by reference in any filing.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
| Exhibit Number | Description |
|---|---|
| 99.1 | Press release dated November 18, 2021 announcing BasX acquisition. |
| 99.2 | BasX Presentation dated November 18, 2021 |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| AAON, INC. | |||
|---|---|---|---|
| Date: | November 18, 2021 | By: | /s/ Luke A. Bomer |
| Luke A. Bomer, Secretary |
Document
Exhibit 99.1
AAON Announces Acquisition of BasX Solutions
TULSA, OK, November 18, 2021 – AAON, Inc. (NASDAQ: AAON) (“AAON” or the “Company”), a leader in innovation and production of premium quality, highly energy efficient HVAC products for nonresidential buildings, today announced it has entered into a membership interest purchase agreement to acquire 100% of the equity interests of BasX, LLC, dba BasX Solutions (“BasX”), a leader in the manufacturing of high efficiency data center cooling solutions, cleanroom systems, custom HVAC systems and modular solutions. The transaction terms require an upfront payment of $100 million, subject to customary adjustments. Additional payments valued at up to $80 million are subject to earn-out milestones that extend through 2023. As a condition to closing, AAON will also sign a real estate purchase agreement with BasX Properties, LLC, an affiliate of BasX, to acquire the real property and improvements utilized by BasX for an additional $22 million, subject to customary closing conditions and adjustments. AAON plans to fund the transactions through a combination of cash, borrowings under its revolving credit facility and equity.
BasX specializes in the design, engineering and manufacturing of custom, energy efficient cooling solutions for the rapidly growing hyperscale data center market. BasX also designs and manufactures custom solutions for cleanroom environments for the bio-pharmaceutical, semiconductor, medical and agriculture markets, as well as custom, energy efficient air handlers and modular solutions for a vast array of markets. Headquartered in Redmond, Oregon, BasX operates a manufacturing footprint of 200,000 square feet. In 2021, BasX is expected to realize revenue of approximately $70 million.
Strategic Rationale
There are several factors that led AAON to believing this was a compelling acquisition:
1.BasX brings the Company exposure to attractive end-markets into which AAON had minimal exposure.
2.The products that BasX manufactures are highly engineered, customized products, fully complimenting AAON’s existing business model.
3.There are high barriers to entry. The sophistication of the equipment, the high cost of failure if the equipment fails and the strong customer relationships with a concentrated group of blue chip companies all act as a moat to this business.
4.The acquisition is accretive to organic growth. BASX has experienced a five-year sales CAGR of 45% and has a robust backlog that supports future growth.
5.AAON anticipates revenue and cost synergies to result from the acquisition. The AAON brand and the financial support will help BasX penetrate their markets at an accelerated rate. AAON also foresees cross selling opportunities related to having manufacturing locations in different geographies of the U.S. and R&D related synergies. Cost synergies are related to procurement of materials and components, productivity improvements associated with the sharing of best practices and vertical integration opportunities.
6.AAON anticipates the acquisition will be accretive to earnings immediately, excluding upfront acquisition-related costs and ongoing purchase accounting amortization expenses.
7.Lastly, AAON gains a premier leadership team that has a multi-decade track record of success in the industry. Conditional to the deal, BasX’s management team will remain intact for at least three years following the close of the acquisition.
“Upon closing this acquisition, we will continue to advance our long-term strategy of focusing on innovative, semi-custom and custom, energy efficient HVAC solutions for nonresidential applications” commented Gary Fields, AAON’s President and Chief Executive Officer. “BasX will provide AAON with an immediate presence in the high-growth data center and cleanroom markets, both of which the Company has historically had minimal exposure. The growth and profitability fundamentals of these new markets are very compelling for AAON. We also believe there are material revenue and cost synergies that will result from the combined entity. Moreover, BasX is led by a management team that has decades of experience in developing products that have shaped today’s industry, an attribute that is fully complementary to AAON’s strategy. Overall, we believe the strategic and financial benefits resulting from this acquisition are compelling for our Company and all of our stakeholders. We look forward to welcoming the BasX team to the AAON family and are excited about the opportunities ahead.”
Matt Tobolski, PhD, President and Co-Founder of BasX stated, “Since our inception, the BasX team has focused on delivering value added solutions by engineering and building industry leading custom products that meet the most stringent demands in the data center, cleanroom and commercial markets. The creativity, collaboration, and execution of projects by our team will be strengthened as we enter this new chapter with AAON. BasX and AAON are extremely well aligned from company cultures, engineering expertise, manufacturing efficiency and the steadfast commitment to delivering on promises to our customers.” Dave Benson, BasX CEO and Co-Founder added, “as BasX joins the AAON family, we are confident that the incremental add in product offerings and market segments will result in fantastic value to our collective customers and shareholders.”
Solid Financial Contributions
BasX has delivered compounded annual revenue growth of 45% over the past five years and is expected to achieve adjusted EBITDA margins in the mid-to-high-teens in 2021. Cost and revenue synergies expected over the next several years will help further expand margins. The full amount of the additional transactional payments that are subject to several earn-out milestones are based on EBITDA more than doubling from 2021 to 2023. Excluding upfront acquisition-related expenses and non-cash purchase accounting amortization costs, the Company anticipates the acquisition will be accretive to earnings.
Financing and Closing
The upfront payment of $100 million will be funded mostly with cash on hand, with the rest from borrowings under the Company’s revolving credit facility. Earn-out payments based on certain milestones will be paid in equity. The acquisition is expected to close by year-end, subject to customary closing conditions and approvals, and the real estate acquisition is expected to close by the end of the first quarter of 2022.
Financial Advisors
J.P. Morgan Securities, LLC acted as exclusive advisor to AAON.
Wells Fargo Securities, LLC acted as exclusive advisor to BasX.
Conference Call and Webcast
AAON will host a conference call and webcast tomorrow, November 19, 2021 at 9:00 a.m. ET to discuss the transaction. The live conference call is available by dialing (646) 402-9168 (code: 1302435). The webcast and accompanying slide presentation will be available at https://onecast.thinkpragmatic.com/ses/JFkp0YIojLjb6xj2VV0tCg~~. The slide presentation is also accessible at https://www.aaon.com/Investors.
A link to the recording of the webcast will be available at https://onecast.thinkpragmatic.com/ses/JFkp0YIojLjb6xj2VV0tCg~~ or https://www.aaon.com/Investors.
About AAON
AAON, Inc. is engaged in the engineering, manufacturing, marketing and sale of air conditioning and heating equipment consisting of standard, semi-custom and custom rooftop units, chillers, packaged outdoor mechanical rooms, air handling units, makeup air units, energy recovery units, condensing units, geothermal/water-source heat pumps, coils and controls. Since the founding of AAON in 1988, AAON has maintained a commitment to design, develop, manufacture and deliver heating and cooling products to perform beyond all expectations and demonstrate the value of AAON to our customers. For more information, please visit www.AAON.com.
Forward-Looking Statements
This press release includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as “expects”, “anticipates”, “intends”, “plans”, “believes”, “seeks”, “estimates”, “should”, “will”, and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We undertake no obligations to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Important factors that could cause results to differ materially from those in the forward-looking statements include (1) the timing and extent of changes in raw material and component prices, (2) the effects of fluctuations in the commercial/industrial new construction market, (3) the timing and extent of changes in interest rates, as well as other competitive factors during the year, and (4) general economic, market or business conditions.
Contact Information
Joseph Mondillo
Director of Investor Relations
Phone: (617) 877-6346
Email: joseph.mondillo@aaon.com
basxacquisitionpresentat
Acquisition of BasX Solutions November 18, 2021
Forward-Looking / Cautionary Statements Certain statements and information set forth in this presentation, including any oral statements made regarding the contents of this presentation, contain “forward-looking statements” and “forward-looking information” within the meaning of the Private Securities Litigation Reform Act of 1995 and as defined under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934. Except for statements of historical fact, certain information contained herein constitutes forward-looking statements which include management’s assessment of future plans and operations and are based on current internal expectations, estimates, projections, assumptions and beliefs, which may prove to be incorrect. Forward- looking statements are provided to allow potential investors the opportunity of management’s beliefs and opinions in respect of the future so that they may use such beliefs and opinions as one factor in evaluating an investment. Some of the forward-looking statements may be identified by words such as “may”, “plan”, “foresee”, “will”, “should”, “could”, “anticipate,” ”believe,” “expect,” “intend,” “potential,” “continue,” and similar expressions. While the Company’s management believes that these forward-looking statements are reasonable as and when made, these statements are not guarantees of future performance and undue reliance should not be placed on them. The Company’s forward-looking statements involve significant risks and uncertainties (some of which are beyond the Company’s control) and assumptions that could cause actual future results to differ materially from the Company’s historical experience and its present expectations or projections. For additional information regarding known material factors that could cause the Company’s results to differ from its projected results, please see its filings with the SEC, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. The reader is cautioned not to place undue reliance on forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statement after they are made, whether as a result of new information, future events, or otherwise. This presentation includes financial measures that are not in accordance with generally accepted accounting principles (“GAAP”), such as EBITDA and Adjusted EPS. While management believes that such measures are useful for investors, they should not be used as replacements for financial measures that are in accordance with GAAP. 2 AAON, Inc. - November 18, 2021
Data Centers Cleanroom Systems Commercial HVAC AAON, Inc. - November 18, 20213 Company Overview PROFILE SALES MIX Headquarters: Redmond, OR Founded: 2012 Employees: ~260 2021E Sales: ~70M | 5‐year CAGR: 45% Manufacturing: 200,000 sq. ft. Description: BasX Solutions is an industry leader in designing, engineering and manufacturing high‐efficiency data center cooling solutions, cleanroom systems, custom HVAC systems and modular solutions Products: CUSTOMERS Unitary Data Center Cooling Systems Cleanroom Plenum Systems Custom Air Handling Units High Density IT Cooling Systems
AAON, Inc. - November 18, 20214 BasX Leadership DAVE BENSON BasX CEO & Co‐Founder Mr. Benson has 35 years of experience in the HVAC industry as the HVAC design engineer and operations manager at Intel, past‐ President and Founder of Cleanpak and President and Founder of Huntair. He has pioneered the development and manufacturing of many products that have shaped today’s industry standard of air‐handling technology and efficiency. MATT TOBOLSKI PHD, SE BasX President & Co‐Founder Dr. Tobolski is an innovative and driven engineer, leader and entrepreneur focused on developing value‐added products to support a broad range of industries. He is passionate about working on multi‐disciplinary teams that strive to develop efficient and forward thinking designs. Matt leads the strategic direction of BasX and is heavily involved in project development activities. “We have been familiar with BasX and their team for a while now and we are extremely impressed with what they accomplished since founding the company just nine years ago. Similar to AAON’s founder, BasX’s Co‐Founder Dave Benson has been a visionary in our industry. And Matt Tobolski, BasX’s other Co‐Founder, is an extremely talented leader and engineer that has been integral in BasX’s success. We view this acquisition more like a partnership than a takeover. As such, through this deal, we feel AAON is gaining premier leadership talent.” ‐ Gary Fields, AAON President and CEO
AAON, Inc. - November 18, 20215 Summary Transaction Terms Financial Benefits of the Transaction Potential Synergies Transaction Terms Financing Timing Upfront payment of $100M Additional $80M payments are subject to earn‐out milestones that extend out through 2023 Acquisition of real estate property utilized by BasX expected by end of Q1 2022 for $22M Excluding upfront acquisition‐related expenses and non‐cash purchase accounting amortization costs, the Company anticipates the acquisition will be accretive to earnings The full value of the earn‐outs reflect EBITDA more than doubling by 2023 Anticipate the combined entity will result in material cost savings over the following three years Revenue synergies related to scale, cross‐selling opportunities and geographic footprint Upfront payment of $100M financed with a combination of cash and borrowings on credit facility Earn‐outs will be paid with AAON stock Expected closing on equity acquisition by year‐end Subject to customary closing conditions as well as signing of the real estate purchase agreement Real estate closing expected by end of Q1 2022
AAON, Inc. - November 18, 20216 Strategic Rationale Attractive End‐Markets o Provides AAON with exposure to the primary cooling data center market and the cleanroom systems market o Expands AAON’s custom air handling business High Barriers to Entry Customization Innovation Strong Leadership Growth o Five‐year revenue CAGR of 45%, including estimated 45%+ in 2021E o Strong demand within the data center and cleanroom verticals Profitability o EBITDA margins of mid‐to‐high double digits with a path to improve to the low‐20’s Synergies o Cost Synergies • Opportunity related to material/component procurement, in‐house fan production and manufacturing best practices o Revenue Synergies • Ability to finance and support BasX long‐term growth potential • Cross‐selling opportunity • Geographic footprint • R&D
AAON, Inc. - November 18, 20217 Strong Player In Hyperscale Data Center Cooling 2018 2021E BasX Data Center Sales 100% CAGR BasX Attractive Growth Opportunity The $6.5B U.S. data center cooling market is expected to grow 10%‐12% annually over the next four years The biggest bottleneck to data center construction is cooling supply constraints BasX has innovative cooling solutions for the data center market that continue to gain widespread acceptance Three‐year sales CAGR of 100% in 2018‐2021E Positioned to continue to outperform the market BasX’s direct sales team has strong customer relationships with blue chip companies Multi‐year purchasing agreements and strong backlog provides solid visibility Unitary Data Center Cooling Systems High Density IT Cooling Systems Products: Packaged DX Air Handling Units Custom Air Handling Units
AAON, Inc. - November 18, 20218 Emerging Player In The Cleanroom Market BasX’s Compelling Market Position The $8.1B U.S. cleanroom market is expected to grow ~7% annually over the next four years There is over 3 million square feet of cleanroom projects planned in the market in the near‐term Attractive end‐markets, including semiconductor, bio‐pharmaceutical, medical and agriculture Strong backlog and robust bidding activity positions BasX to continue to outperform the market Best‐in‐class cleanroom sales and product team with decades of experience and relationships Differentiated solutions for its customers BasX has a strong position on several exceptional project opportunities that provide opportunity for large volume, low variability orders in semiconductor and product markets 2018 2021E BasX Cleanroom Sales 40% CAGR Products: Customers: Cleanroom Plenum Systems Modular Cleanrooms Modular Agriculture Facilities
Custom Air Handling Units AAON, Inc. - November 18, 20219 Complimentary Custom Air Handlers BasX’s High‐Growth Air Handling Business The $3B U.S. air handling market is expected to grow ~7% annually over the next four years Electric air‐source heat pump technology is expected to take market share from traditional commercial HVAC technology Strong backlog and robust bidding activity positions BasX to continue to outperform the market The air handling business will fully complement AAON’s existing high‐growth air handling business BasX provides differentiated solutions for AAON’s existing customer base In‐house fan development and manufacturing team that will help AAON further vertically integrate its supply chain 2018 2021E BasX Custom Air Handling Sales 6% CAGR Products: Packaged DX Air Handling Units Customers:
AAON, Inc. - November 18, 202110 Summary Attractive Commercial End‐Markets Highly Engineered Products High Barriers to Entry Customization Innovation Strong Leadership Growth Profitability Synergies Earnings Accretive