Instead the company is seeking approval from long-suffering shareholders for a more complex scheme which will see it place Snorkel in a new company – Snorkel International Holdings – and retain a 49% stake.
The remaining 51% will be assumed by US firm Xtreme Manufacturing which is set to contribute between $35 million and $50 million of working capital to the business. Snorkel has been prevented from taking advantage of the increased demand for aerial work platforms by a lack of ready cash as we discussed in more detail here.
The details of the transaction are slightly complicated with Tanfield holding a 'preferred interest position' of $50 million.
If, within five years of the completion of the agreement, Snorkel achieves earnings before interest, tax, depreciation and amortisation (EBITDA) of at least $25 million in any 12-month period then Tanfield can demand payment of this $50 million – so long as Snorkel International Holdings can fund the payment and it has a net debt/EBITDA ratio of less than two. This would reduce Tanfield's interest to 30%.
Should this transpire, Tanfield also has a ‘put’ option on its remaining 30%, which will oblige Xtreme to purchase it at an agreed multiple of 5.5 times EBITDA - again subject to Snorkel International Holdings having sufficient funds.
In recommending investors vote in favour of the deal at a general meeting scheduled early next month (7 Oct) Tanfield notes an outright sale could only have been achieved at a price which reflected the acute need for working capital. In the year ended 31 December 2012, the losses of the Snorkel division were approximately £14.6 million and it had net assets of £23.5 million.