Under the arrangement, Seprotech would consolidate its shares on a 10-to-one basis and then acquire all of the issued and outstanding shares of privately held WESA in exchange for issuing to WESA 14,157,433 post-consolidation shares of Seprotech, each at a value of about $0.664 per share.
The total transaction price for the shares would be $9.4 million. WESA will then become a wholly-owned subsidiary of Seprotech while controlling 69.23 per cent of Seprotech common shares.
WESA has also signed a letter of intent to give Seprotech a secured credit facility of up to $2 million.
Should this go through, the CEO of the new entity will be William Touzel, the current president of WESA. The chief financial officer will be the current CFO of Seprotech, Ian Malone.
"We look at this as a very strong growth opportunity for both WESA and for Seprotech," said Seprotech CEO Harry Marshall in an interview with OBJ. "We expect to grow dynamically and dramatically over the next two to three years."
Mr. Marshall said he informed employees this morning that there are no plans to reduce staff, and that the two companies are working to determine whether a campus combining both offices would be appropriate.
Both companies operate mainly within the resource sector, with WESA specializing in industrial business and Seprotech focusing mainly on wastewater and water treatment.
"It was a natural fit," Mr. Marshall said. "We can offer a complete suite of services to any client."
Mr. Touzel stated the two companies would operate as separate divisions after the reverse takeover.
"We will combine the operations of our WESAtech subsidiary, which was previously run by Harry Marshall ... into Seprotech's operation to form a unified technology systems division. WESA's environmental consulting division will continue to provide independent professional services to our clients."
Seprotech has been grappling with losses for the past few quarters. The news of this merger comes days after Seprotech announced it had lessened its quarterly loss by two per cent, to $339,000.
Margins were trimmed partially because the firm added staff in sales, technical and support areas in an effort to garner overseas business, Mr. Marshall stated at the time.
"Inevitably the costs associated with this type of growth orientation will hit margins at first, as was evident in the second quarter's results, but the improvement in both sales and back orders indicates the market for our products and services is expanding, supporting our new strategy."
WESA's net income in 2011 was $157,000, down 46 per cent from $230,000 in 2010, according to selected financial statements provided by the firms. Revenue was $22.6 million, up 10 per cent from $20.4 million in 2010.
The Ontario-based company describes itself as a professional services company with clients in water resources, waste management, occupational health and other fields. A subsidiary, WESAtech, focuses on providing water treatment systems to the mining industry in particular.
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