North American Construction : Identity of Company - Form 6-K

Identity of Company

1.1 Name and Address of Company

North American Construction Group Ltd. ("NACG" or the "Company")

27287 - 100 Avenue

Acheson, Alberta

T7X 6H8

1.2 Executive Officer

The following executive officer of the Company is knowledgeable about
the significant acquisition and this report:

Jason Veenstra, Vice President and Chief Financial Officer

North American Construction Group Ltd.
Tel. (780) 969-5570

Details of Acquisition

2.1 Nature of Business Acquired

Effective October 1, 2023, MacKellar Group ("MacKellar") was acquired (the "Acquisition" or "Transaction") by the Company. The Acquisition was completed pursuant to the terms of that certain share purchase agreement dated July 27, 2023, as amended September 20, 2023 (the "SPA"). MacKellar is an Australia-based provider of heavy earthworks solutions to the mining and civil sectors.

2.2 Acquisition Date

The closing of the Acquisition was effective October 1, 2023 (the "Closing
Date").

2.3 Consideration

Based on unaudited financial statements as at the Closing Date, the purchase price for the Acquisition is estimated at $382.2 million, consisting of the following:

a.an upfront cash payment of $65.4 million made on the Closing Date (the "Closing Payment");

b.assumption of equipment financing of $110.1 million as of the Closing Date;

c.additional cash payments totaling $92.2 million made on the Closing Date, used to pay out equipment financing (the "Payout Amount"); and

d.the estimated remainder of $114.5 million ("Post-Closing Payments") being paid through earn-out and deferred payment mechanisms in accordance with the terms of the SPA over a period of four years following the Closing Date (with the earn-out constituting approximately 70% of the Post-Closing Payments).

Concurrent with the closing of the Acquisition, the Company entered into an amended and restated senior revolving credit facility (the "Credit Facility") with an upsized overall lending capacity of $470 million provided by Canadian dollar and Australian dollar tranches. The Credit Facility permits incurrence of $350 million of secured equipment financing from third party providers resulting in a total borrowing limit of $820 million. As part of the amendment, the maturity date of the Credit Facility was extended to October 3, 2026. The Credit Facility is comprised of a revolver with no scheduled repayments and is not governed by a borrowing base that limits available borrowings.

The Payout Amount and Closing Payment paid on closing were funded by the Australian dollar tranche provided by the Credit Facility.

2.4 Effect on Financial Position

Upon completion of the Acquisition, MacKellar became a wholly owned subsidiary of NACG.

For details of the anticipated effect of the Acquisition on NACG's financial position please refer to Pro Forma Statements (as defined below), which are attached as Appendix C to this report.

Other than as disclosed in this report, NACG currently has no plans or proposals for material changes in its business affairs or the affairs of the acquired business which may have a significant effect on the results of the operations and financial position of NACG.

2.5 Prior Valuations

To the best knowledge of NACG, no valuation opinions have been obtained within the last 12 months by either NACG or MacKellar required by securities legislation or a Canadian exchange or market to support the consideration paid by NACG for the Acquisition

2.6 Parties to Transaction

The Acquisition was not with an informed person (as such term is defined in Section 1.1 of National Instrument 51-102 - Continuous Disclosure Obligations), associate, or affiliate of NACG.

2.7 Date of Report

This report is dated as of December 14, 2023.

Financial Statements

•NACG's audited consolidated financial statements for the years ended December 31, 2022, and 2021 are incorporated by reference and are available at www.sedarplus.ca.

•NACG's unaudited consolidated interim financial statements as at and for the nine months ended September 30, 2023 are incorporated by reference and are available at www.sedarplus.ca.

•Attached as Appendix A are the unaudited condensed interim financial statements of MacKellar as at and for the three months ended September 30, 2023 and comparable periods (the "MacKellarInterim Financial Statements").

•Attached as Appendix B are the audited financial statements of MacKellar as at and for the year ended June 30, 2023 with June 30, 2022 comparative figures (the "MacKellarAnnual Financial Statements").

•Attached as Appendix C are the unaudited pro forma consolidated financial statements of NACG for the nine months ended September 30, 2023 and for the year ended December 31, 2022 (the "Pro Forma Statements").

Cautionary Note Regarding Forward Looking Information

This report contains "forward-looking information" within the meaning of applicable securities legislation which reflects the current plans and expectations of the Company with respect to future events and financial performance. All statements other than statements of historical or current facts may be forward looking information. Forward-looking information includes statements that are predictive in nature, depend upon or refer to future events or conditions, or include words such as 'believes', 'continues, 'expects', 'projects', 'anticipates', 'plans', 'estimates', 'seeks', 'intends', 'targets', 'forecasts', or negative or grammatical versions thereof and other similar expressions, or future or conditional verbs such as 'may', 'will',

'should', 'would' and 'could'. Forward-looking information is based on management's plans, estimates, projections, beliefs and opinions as at the date of this report, and the assumptions related to those plans, estimates, projections, beliefs and opinions may change; therefore, they are presented for the purpose of assisting the Company's security holders in understanding management's views at such time regarding those future outcomes and may not be appropriate for other purposes. Although the forward-looking information contained in this report is based on assumptions which the Company believes are reasonable, there can be no assurance that actual results will be consistent with such forward-looking information. There can be no assurance that the forward-looking information will prove to be accurate. The material factors and assumptions used to develop such forward-looking information, and the risks and uncertainties to which such forward-looking information are subject, are described in the Company's management discussion and analysis for the three and nine months ended September 30, 2023. Actual results could differ materially from those contemplated by such forward-looking information because of any number of factors and uncertainties, many of which are beyond NACG's control. Due to the risks, uncertainties and assumptions inherent in forward looking information, readers should not place undue reliance on forward looking information contained herein. The forward-looking information in this report relate only to events or information as of the date on which the statements are made and, except as specifically required by applicable securities laws, the Company undertakes no obligation to update or revise publicly any forward-looking information, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. For more complete information about the Company, please read NACG's disclosure documents filed with the SEC and the CSA. These free documents can be obtained by visiting EDGAR on the SEC website at www.sec.gov or on the CSA website at www.sedarplus.ca.

Cautionary Note Regarding Pro Forma Statements

The Pro Forma Statements have been prepared using certain of the Company's and MacKellar's respective historical consolidated financial statements as more particularly described in the notes to such Pro Forma Statements. The Pro Forma Statements are not intended to be indicative of the results that would actually have occurred, or the results expected in future periods, had the events reflected in the Pro Forma Statements occurred on the dates indicated. Since the Pro Forma Statements were developed to retroactively show the effect of a transaction that occurred at a later date, and even though they were prepared following generally accepted practice using reasonable assumptions, the Pro Forma

Statements reflect limitations inherent in the very nature of pro forma data. The data contained in the Pro Forma Statements is intended to illustrate the potential financial impact of the Acquisition and related adjustments which are preliminary in nature. The underlying assumptions for the pro forma adjustments provide a reasonable basis for presenting the financial effect directly attributable to the Acquisition. These pro forma adjustments are tentative and are based on currently available financial information, and certain estimates and assumptions that the Company believes are reasonable in the circumstances, as described in the notes to the Pro Forma Financial Statements. However, adjustments and assumptions of this nature require the exercise of judgement and are difficult to make with complete accuracy, and the estimates and assumptions reflected in the Pro Forma Statements may not, with the passage of time, turn out to be relevant or correct. The actual adjustments to the consolidated financial statements will depend on a number of factors. Therefore, it is expected that the actual adjustments will differ from the pro forma adjustments, and the differences may be material. Undue reliance should not be placed on the Pro Forma Statements.

APPENDIX A

MACKELLAR INTERIM FINANCIAL STATEMENTS

APPENDIX B

MACKELLAR ANNUAL FINANCIAL STATEMENTS

APPENDIX C

PRO FORMA STATEMENTS

Pro Forma Consolidated Balance Sheet

(Expressed in thousands of Canadian Dollars)

(Unaudited)

Pro Forma Consolidated Balance Sheet (Continued)

(Expressed in thousands of Canadian Dollars)

(Unaudited)

Pro Forma Consolidated Statements of Operations

(Expressed in thousands of Canadian Dollars)

(Unaudited)

Pro Forma Consolidated Statements of Operations

(Expressed in thousands of Canadian Dollars)

(Unaudited)

Notes to the Pro Forma Consolidated Financial Statements

(Expressed in thousands of Canadian Dollars)

(Unaudited)

1. Description of the Transaction

Effective October 1, 2023, North American Construction Group Ltd. ("NACG" or the "Company") acquired MacKellar Group ("MacKellar") with its heavy construction equipment fleet. MacKellar is an Australia-based provider of heavy earthworks solutions to the mining and civil sectors with a strong reputation derived from decades of reliable performance.

2. Basis of presentation

The unaudited pro forma consolidated balance sheet as at September 30, 2023, and the unaudited pro forma interim consolidated statements of operations for the nine months ended September 30, 2023, and for the year ended December 31, 2022, have been prepared for illustrative purposes only, to give effect to the acquisition of MacKellar by NACG pursuant to the assumptions described in the notes of these unaudited pro forma interim consolidated financial statements.

These unaudited pro forma interim consolidated financial statements have been prepared on a basis consistent with the accounting principles and policies followed in NACG's December 31, 2022, annual consolidated financial statements and are based on the following financial statements:

•Unaudited interim consolidated financial statements of NACG as at and for the nine months ended September 30, 2023

•Audited consolidated financial statements of NACG as at and for the year ended December 31, 2022

•Audited consolidated financial statements of MacKellar as at and for the years ended June 30, 2023 and 2022

•Unaudited interim consolidated financial statements of MacKellar as at and for the three months ended September 30, 2023

•Unaudited interim financial information of MacKellar for the six months ended December 31, 2021 and 2022

The unaudited pro forma interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements of NACG for the year ended December 31, 2022 and the unaudited interim consolidated financial statements of NACG for the nine months ended September 30, 2023, both of which are filed publicly at www.sedarplus.ca, as well as the audited consolidated financial statements of MacKellar for the year ended June 30, 2023 and the unaudited interim consolidated financial statements for MacKellar for the three months ended September 30, 2023.

MacKellar prepares its financial statements in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. In preparing the unaudited pro forma interim consolidated financial statements, management performed a review to identify differences between NACG's accounting policies and those of MacKellar that could have a material impact on the pro forma financial statements. With the exception of adjustments detailed in note 3, the significant accounting policies of MacKellar conform in all material respects to those of NACG based on currently available information.

The unaudited pro forma condensed interim consolidated balance sheet as at September 30, 2023, has been prepared as if the Transaction described in note 1 had occurred on September 30, 2023. The unaudited pro forma condensed interim consolidated statements of operations for the nine months ended September 30, 2023 and twelve months ended December 31, 2022 have been prepared as if the Transaction described in note 1 had occurred on January 1, 2022.

These unaudited pro forma condensed interim consolidated financial statements are not intended to reflect the financial performance or the financial position of NACG which would have actually resulted had the Transaction been effected on the dates indicated. The adjustments included in these unaudited pro forma interim consolidated statements are tentative and are based on currently available information including certain estimates and assumptions. Actual amounts recorded may differ from those reported in these unaudited pro forma condensed interim consolidated financial statements, and such differences could be material. The unaudited pro forma interim consolidated financial statements are not necessarily indicative of the financial performance that may be obtained by NACG in the future, nor do they reflect any cost savings, operating synergies, or enhancements that the Company may achieve from the Acquisition.

The allocation of the purchase price has been prepared on a preliminary basis and as such may change materially.

3. Pro forma assumptions and adjustments

Pro forma adjustments to consolidated balance sheet

The unaudited pro forma consolidated balance sheet reflects the following assumptions and adjustments as if the acquisition of MacKellar had occurred on September 30, 2023.

(a) The consideration transferred upon closing includes cash consideration and Post Closing Payments which consist of three distinct mechanisms.

•Earn-out mechanism based on MacKellar's net income generated over four years. The estimated liability is based on forecasted information and as such, could result in a range of outcomes. The impact of a +/- 10% change in forecasted net income on

the earn-out liability is estimated to be:

Change in forecasted MacKellar net income	Impact on earn-out liability (undiscounted)
+10%	13,393
-10%	(13,393)

•Deferred consideration which is a vendor provided debt mechanism to be paid out evenly over four years and is estimated based on unaudited financial statements at closing.

•Contingent payment based on forecasted performance for a specific customer which is expected to be paid in full.

The Company has performed a preliminary valuation analysis of the fair value of MacKellar's assets acquired and liabilities assumed. Using the estimated consideration for the Acquisition, the Company has allocated the assets and liabilities as of the Transaction's closing date effective October 1, 2023 as follows:

The historical shareholders' equity of MacKellar, which includes share capital and retained earnings, has been eliminated. The $3,024 gain has been included in retained earnings in the pro forma consolidated balance sheet.

Adjustments have been recorded in the pro forma balance sheet to reflect the assets acquired and liabilities assumed of MacKellar at their preliminary fair values noted above.

NACG's existing Credit Facility funded the payout of $92,167 of the third party equipment financing assumed as part of the Transaction.

It is possible that the purchase price and fair values of assets and liabilities acquired will vary materially from those shown above. The allocation of the purchase price is based upon preliminary estimates and certain assumptions with respect to the fair value increment associated with the assets to be acquired and the liabilities to be assumed. Consequently, the final allocation of the purchase price may result in materially different adjustments than those presented here.

(b)An adjustment to recognize the fair value of MacKellar's consumables inventory of $6,106 on the balance sheet in accordance with NACG's inventory policy. Consumables inventory is short-term in nature and expected to be used within twelve months of purchase.

(c) An adjustment to record the $163,180 drawn from NACG's existing Credit Facility to finance the upfront cash payment for the Transaction and the payout of third party equipment financing assumed.

(d) An adjustment to recognize $5,591 of deferred financing costs related to the Transaction.

(e) Adjustments to recognize the net impact on balance sheet accounts for the following:

•entities that were previously a part of the consolidated MacKellar entity that were not purchased as part of the Transaction

•entities that were historically not included in the consolidated MacKellar entity that were purchased as part of the Transaction and are included in the consolidated MacKellar entity effective October 1, 2023.

The structural changes to the consolidated MacKellar entity noted above did not have a material impact on the pro forma statements of operations for the twelve months ended December 31, 2022 and the nine months ended September 30, 2023, and therefore no adjustments have been included in the pro forma statements of operations.

(f) The consolidated balance sheet for MacKellar was translated into Canadian dollars from Australian dollars for pro formareporting purposes at the below closing exchange rate:

•September 30, 2023, closing exchange rate per the Bank of Canada was $0.8723 CAD$ per AUD$.

Pro forma adjustments to consolidated statements of operations

The unaudited pro forma consolidated statements of operations reflect the following assumptions/adjustments as if the Acquisition of MacKellar had occurred on January 1, 2022:

(g) Additional depreciation expenseon the fair value of acquired plant and equipment of $7,720 and $19,483 for the twelve months ended December 31, 2022 and nine months ended September 30, 2023, respectively, in accordance with NACG's depreciation policy.

The expected useful lives for acquired property, plant and equipment are as follows:

Plant and equipment 4 to 20 years

Motor vehicles 7 years

Fixtures and fittings 4 to 13 years

Buildings 10 to 40 years

(h) Incremental interest expense of $11,540 for the twelve months ended December 31, 2022 and $8,655 for the nine months ended September 30, 2023, incurred by NACG on additional financing from the Company's existing Credit Facility to fund the Acquisition. The current interest rate on the Company's line of credit was used to calculate the transaction accounting adjustment for pro forma purposes, and as such does not reflect what the interest rates would have been on the line of credit throughout the periods presented in the pro forma consolidated statements of operations. A 1/8 of a percentage change in the variable interest rate used for pro forma purposes would have a $203 and $153 impact on the pro forma adjustment for incremental interest expense on the Company's existing Credit Facility for the twelve months ended December 31, 2022 and nine months ended September 30, 2023, respectively.

Elimination of $2,344 and $3,641 of interest incurred by MacKellar for the twelve months ended December 31, 2022 and nine months ended September 30, 2023, respectively, relating to third party equipment financing debt that was settled by NACG subsequent to closing.

The net impacts of the adjustments to interest expense detailed above have been reflected in the transaction adjustments to the pro forma statements of operations.

(i) $12,694 and $8,158 of non-cash interest expense on deferred consideration liabilities for the twelve months ended December 31, 2022, and nine months ended September 30, 2023, respectively.

(j) $4,106 of transaction costs incurred by NACG subsequent to September 30, 2023 in relation to the Acquisition. These costs include accounting, legal,regulatory,and financial advisory fees.

(k) $1,842 and $1,381 of amortization expense for deferred financing costs for the twelve months ended December 31, 2022 and nine months ended September 30, 2023, respectively.

(l) The income tax effect of the above adjustments (g) through (k) recognized in the amount of ($8,178) and ($7,828) for the twelve months ended December 31, 2022 and nine months ended September 30, 2023, respectively.

4. Pro forma statements of operations of MacKellar

The MacKellar statement of operations for the nine months ended September 30, 2023, has been prepared by subtracting the results of operations for the six months ended December 31, 2022, from the audited statement of operations for the year ended June 30, 2023, and adding the interim results from the unaudited statement of operations for the three months ended September 30, 2023. The amounts were then converted to Canadian dollars based on the Bank of Canada average Australian/Canadian dollar exchange rate for the nine months ended September 30, 2023 of 0.8999 as follows:

The MacKellar statement of operations for the year ended December 31, 2022, has been prepared by subtracting the results of operations for the six months ended December 31, 2021, from the audited statement of operations for the year ended June 30, 2022, and adding the results of operations for the six months ended December 31, 2022. The amounts were then converted to Canadian dollars based on the Bank of Canada average Australian/Canadian dollar exchange rate for the year ended December 31, 2022, of 0.9034 as follows: