Flowserve to Acquire Velan in All Cash Offer

Flowserve Corporation, a leading provider of flow control products and services for the global infrastructure markets, and Velan Inc., a leading manufacturer of highly engineered industrial valves, today announced that they have entered into a definitive agreement under which Flowserve will acquire Velan in an all cash transaction valued at approximately $245 million (Canadian $329 million), including the purchase of all of the issued and outstanding Velan equity for approximately $209 million (Canadian $281 million) and the assumption of approximately $36.3 million (Canadian $48.9 million) in outstanding gross debt as of November 30, 2022. Flowserve will also assume Velan’s $31.4 million (Canadian $42.2 million) of cash and cash equivalents, also as of November 30, 2022. The transaction is expected to close by the end of the second quarter of 2023.

Founded in Montreal in 1950, Velan is a leading manufacturer of industrial valves with a strong presence in the nuclear, cryogenic and defense markets. Velan is a family-controlled business, with a team of 1,650 people and manufacturing facilities in nine countries. Through its fiscal third quarter ended November 30, 2022, Velan reported trailing twelve-month revenues of approximately $380 million with reported EBITDA of approximately $21 million. Upon completion of the Transaction, Velan will become part of Flowserve’s Flow Control Division (FCD) segment.

Velan adds significant value to Flowserve’s existing valves portfolio and further builds upon Flowserve’s existing assets through the addition of Velan’s premier brands, strong heritage and technical expertise in attractive and diverse end markets. The additional scale, footprint consolidation and procurement opportunities provided by the combination is expected to result in substantial synergies. Further, the transaction is expected to increase Flowserve’s aftermarket potential, based on the large installed base of Velan products and the expansive network of Flowserve’s Quick Response Centers (QRCs.)

In addition to revenue synergies created through a global aftermarket footprint, Flowserve expects to realize approximately $20 million (Canadian $26 million) of run-rate cost synergies within two years after close. The transaction is expected to be accretive to Flowserve’s adjusted EPS in the first full year following close. Including anticipated synergies, the economics imply an EBITDA multiple of less than 7x.

“We are excited about the opportunity to add Velan and its talented team to the Flowserve family,” said Scott Rowe, Flowserve’s President and Chief Executive Officer. “With its strong positioning in the nuclear, cryogenic, industrial and defense markets and highly complementary product portfolio, the addition of Velan furthers our Diversification, Decarbonization and Digitization (3D) strategy. The Transaction also meets our disciplined financial criteria, bringing meaningful aftermarket revenue and synergy opportunities.”

Velan’s Chairman of the Board and of its Special Committee, James Mannebach, commented, “This agreement is the culmination of an extensive and robust review of strategic options to maximize shareholder value and reflects the incredible efforts of our team members to serve customers with a focus on innovation and excellence. The transaction provides Velan shareholders an opportunity to realize an immediate and attractive premium for their shares and is recommended by the Board of Directors and Special Committee of Velan. We see a very bright future for Velan as part of Flowserve’s leading global flow control business, and we look forward to working closely with their team to quickly integrate and realize the significant benefits of this complementary combination.”

Velan Holding Co. Ltd. (“Velan Holding”), Velan’s controlling shareholder, the sole holder of multiple voting shares, representing approximately 72% of the total shares outstanding of Velan and 92% of the aggregate voting rights attached to all Velan shares, respectively; together with Kernwood, an affiliate of Ed Kernaghan, a director of Velan, holding 1,405,500 subordinate voting shares, have entered into support and voting agreements pursuant to which they have agreed to vote all of their shares in favor of the Transaction at the special meeting.

Following closing of the transaction, Flowserve expects to maintain a significant presence in Québec, including Velan’s Montreal, Québec head office and the combined company will continue to maintain a significant global presence.

Velan Board Recommendation

The transaction follows the unanimous recommendation of Velan’s Special Committee of the Board of Directors, which reviewed various strategic alternatives available to Velan in order to enhance shareholder value (including status quo and a variety of other stand-alone structures). The Transaction represents the best and highest proposal received by the Special Committee as part of its process.

Approvals

The transaction is expected to proceed by way of a plan of arrangement by which Flowserve would acquire all of the issued and outstanding shares of Velan, subject to the satisfaction of customary closing conditions, including applicable court and regulatory approvals and the approval of at least 66⅔% of the votes cast by Velan shareholders represented at a Special Meeting in person or represented by proxy as a single class, and a simple majority of the votes cast by the Velan shareholders, by class, after excluding votes from certain shareholders. The Transaction is not subject to any financing conditions. The Transaction is expected to close by the end of the second quarter of 2023.

Offer Details

Further details regarding the terms of the transaction are set out in the arrangement agreement, which will be publicly filed in due course by Flowserve at www.sec.gov and Velan under its issuer profile at www.sedar.com. Additional information regarding the transaction, the terms of the arrangement agreement, the background to the transaction, the rational for the recommendations made by the special committee and the board of directors of Velan and how Velan shareholders can participate in and vote at the special meeting will be contained in a management proxy circular that Velan will prepare, file and mail to Velan shareholders in advance of the special meeting, which will also be made available on SEDAR under Velan’s profile at www.sedar.com. Shareholders are urged to read these and other relevant materials when they become available.