August 2, 2018 / 3:06 AM / 2 years ago

UPDATE 1-Canadian building-interior maker DIRTT drops bid to sell itself

(Adds confirmation from DIRTT)

By Greg Roumeliotis and Liana B. Baker

Aug 1 (Reuters) - DIRTT Environmental Solutions Ltd confirmed on Wednesday it was no longer in deal talks after Reuters reported that the Canadian building-interior manufacturer had abandoned an effort to sell itself.

Private equity firms seeking to raise debt financing for the acquisition of DIRTT struggled to convince banks to finance a business that is vulnerable to changes in the cyclical construction industry, according to people familiar with the matter.

DIRTT said in a statement following the Reuters story that its board of directors had formed a special committee and hired financial and legal advisors to consider “strategic alternatives” following an “inbound non-binding transaction proposal” earlier this year.

“It was determined that no strategic transaction should be pursued at the present time,” said DIRTT, whose name is an acronym for “doing it right this time.”

Founded in 2004, the Calgary, Alberta-based company has a three-dimensional design platform that helps customers make custom designs. It went public in 2013 on the Toronto Stock Exchange.

DIRTT’s custom prefabricated installations can be found in the headquarters of companies like Apple Inc and Alphabet Inc’s Google.

A U.S. Commerce Department report showed construction spending unexpectedly fell in March as a slump in homebuilding and renovations led to the biggest drop in investment in private construction projects in more than seven years.

DIRTT also entertained offers for a private investment in public equity (PIPE) transaction, that would give a private equity firm a minority stake in the company but choose not to pursue one in the end, according to the sources.

DIRTT, which has a market capitalization of C$553.38 ($425.45), had also been a target of U.S.-based activist investor Iron Compass, that threatened a proxy contest earlier this year.

The company announced a settlement with Iron Compass in April, and agreed to add two board directors recommended by the activist hedge fund. A representative for Iron Compass could not be reached for comment.

In January, the company’s co-founder Mogens Smed stepped aside as chief executive and was named executive chairman. DIRTT’s board formed a special committee to explore a sale, as Smed wanted to participate in the deal by partnering with a potential acquirer, according to the sources.

In the first quarter of the year through March 31, the company’s revenue rose 24.1 percent to C$80.7 million compared to C$65 million a year earlier. Its net income rose to C$3.56 million, after a net loss of C$1.3 million a year earlier. (Reporting by Greg Roumeliotis and Liana B. Baker in New York; Editing by Bernadette Baum and Stephen Coates)

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