Covalon Technologies Reports Definitive Agreement to Acquire AquaGuard

And its Specialized Salesforce Capable of Selling Covalon’s Products Throughout the United States

Covalon Technologies Ltd. (the “Company” or “Covalon”) (TSXV: COV.V; OTCQX: CVALF), an advanced medical technologies company, today announces that it has entered into a definitive agreement to acquire AquaGuard, the Seattle, Washington-based division of medical technologies company Cenorin, LLC. AquaGuard’s specialized products provide patients with crucial moisture protection for wound, surgical, and vascular access sites throughout the body while showering.

Brian Pedlar, Chief Executive Officer of Covalon, said, “I am very excited about this acquisition – AquaGuard’s experienced sales team and specialized product line are a perfect synergistic fit for Covalon’s business. AquaGuard’s talented sales team has built strong relationships with clinicians and hospital staff throughout the United States that make decisions on the very same products Covalon makes – vascular access dressings, surgical site management products, and advanced wound care dressings.”

Gerry Arambula, President of AquaGuard, stated, “The AquaGuard sales and operations teams are very excited about joining forces with Covalon. Our AquaGuard team has built a profitable and growing business that is well-positioned to represent and sell many of Covalon’s infection management products, such as IV Clear, immediately into our customer base. We are looking forward to working with the Covalon team to transform Covalon’s business in the United States. Products will be made available through AquaGuard’s established distribution channels at key hospitals and group purchasing organizations across the United States, as well as through third-party distribution partners, including Amazon.”

Gerry Arambula and existing AquaGuard leadership will continue to play key roles in leading the business going forward. Following the closing of the transaction, Covalon will have in the United States a customer base of over 1,500 hospitals and clinics. Covalon also anticipates an opportunity to sell AquaGuard’s products through Covalon’s international distribution channels.

Under the terms of the definitive agreement, Covalon will acquire all of the assets and staff dedicated to the AquaGuard business from Cenorin, LLC. Covalon anticipates the transaction will close in less than sixty days and is subject to customary closing conditions and TSX Venture Exchange and lender approval. The consideration of $16.1 million (US$12,375,000) is comprised of the following:

  • $4.7 million (US$3,617,392) in cash on closing
  • $0.65 million (US$500,000) of shares of Covalon issued on closing and held in escrow for up to two years
  • $3.32 million (US$2,552,300) payable 12 months from the closing date
  • $6.5 million (US$5,000,000) payable 24 months from closing date
  • $0.92 million (US$705,308) of assumed liabilities payable to management and key staff of AquaGuard by issuance of shares of Covalon on closing
  • In addition, there is potential contingent consideration of up to $1.17 million (US$900,000) payable upon achievement of certain revenue targets by December 31, 2018.

During its last fiscal year ended December 31, 2017, the AquaGuard business recorded $11.1 million (US$8.5 million) in revenue and $683,000 (US$526,000) in profit before taxes.

Covalon’s Board of Directors unanimously approved entering into the agreement. Acting as financial and legal advisors to Covalon are Morrison Park Advisors, and Stikeman Elliott LLP, respectively.

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