Mr. Greg Reid reports

KRAKEN ROBOTICS ANNOUNCES SIGNING OF STRATEGIC ACQUISITION TO EXPAND GLOBAL MARITIME CAPABILITIES

Kraken Robotics Inc. has entered into an agreement to acquire Covelya Group Ltd., a leading international provider of mission-critical underwater technology solutions operating through its subsidiary companies: Sonardyne International Ltd., EIVA A/S, Forcys Ltd., Wavefront Systems Ltd., Voyis Imaging Inc. and Chelsea Technologies Ltd. (All dollar amounts are expressed in Canadian dollars, unless otherwise noted.)

The company will acquire Covelya Group for total consideration of $615-million, excluding transaction costs and subject to adjustment, of which $480-million will be paid in cash and $135-million will be satisfied through the issue of common shares of the company to the seller pursuant to a share purchase agreement dated March 3, 2026, between Kraken, its subsidiary, Kraken Robotic Systems Inc., and Sonardyne Holdings Ltd.

Acquisition rationale:

• Positions Kraken as a major supplier of dual-use subsea technology;
• Combined revenue (1) of $365-million in 2025 with a combined adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) margin (2) of 24 per cent;
• Acquiring a high-growth (24-per-cent revenue CAGR (compound annual growth rate (3)) since 2023), profitable company with attractive margins;
• Allows for deeper customer relationships in the fast-growing defence and maritime surveillance market;
• Expands product offering and Kraken's total addressable market in subsea technology;
• Adds strategic locations for geographic expansion and improves business diversification;
• Bolsters technical capabilities with an experienced engineering team and highly advanced facilities;
• Accretive across key financial metrics with opportunity for revenue and cost synergies;
• Maintains balance sheet strength with flexibility to finance future growth;
• Capitalizes on supportive trends in both defence and non-defence sectors, including energy.

Covelya Group background

Covelya Group designs, manufactures, sells and supports high performance underwater technology for maritime defence and commercial customers globally. Through its subsidiary companies, Covelya Group provides a sophisticated suite of technology and software centred around providing reliable navigation, communication, positioning, imaging, measuring and monitoring for maritime uncrewed systems, as well as some crewed surface vessels. In addition to being a subsystems provider, Covelya Group also offers stand-alone capabilities, notably deployed sensors and remotely operated towed vehicles (ROTVs). It is a large, highly profitable, high-growth organization that is expected to report revenue in 2025 of between $249-million and $275-million. Covelya Group is headquartered in the United Kingdom with nearly 750 employees, operating 12 facilities across North America, South America, Europe and Asia-Pacific. With a record of more than 50 years in underwater technology, Covelya Group has a strong history of innovation, quality manufacturing and customer service in addition to extensive, trusted relationships across a diversified client base.

Management comments

"We have long admired Covelya Group and its operating businesses and are very pleased to join forces with its talented team," said Greg Reid, president and chief executive officer of Kraken. "Strategically, this acquisition will provide a unique opportunity to combine two leading subsea technology providers with complementary products, operating in markets with barriers to entry and high-growth potential. Additionally, some key customers of Covelya Group are also existing customers of Kraken, providing significant opportunities to create value by cross selling within our overall client base.

"The combined company will be able to provide more integrated solutions of mission-critical systems for underwater platforms and subsea sensors/monitoring systems," said Mr. Reid. "These key technology systems include Kraken's subsea batteries and synthetic aperture sonar, and Covelya Group's subsea navigation, positioning and communications offering. In supplying multiple products and services, Kraken will become a more attractive partner to naval system integrators at a time when industry demand is growing rapidly. This accretive acquisition also enhances our technical capabilities, expands our total addressable market and improves overall business diversification. We look forward to this combination and the potential to create value for shareholders, customers, employees and other stakeholders."

Simon Partridge, executive chairman of Covelya, said: "We have mutually admired Kraken's technology alongside its management team and believe this transaction is extremely beneficial to both companies. For Covelya Group, we will be able to leverage Kraken's experience in the rapidly growing defence and maritime surveillance market while also enhancing our product and service-based offerings. The combined company will have a broad product portfolio and a stable customer base, with in-house technological capabilities required to enable the rapid growth expected for underwater vehicles. As part of a larger and well-capitalized enterprise, we will have a greater ability to reinvest in developing new technologies in addition to addressing the larger, more complex needs of our customers. We are extremely excited about today's announcement and the opportunity to accelerate the new company's growth trajectory moving forward."

Strategic rationale

Creates a major supplier for dual-use subsea technology: This strategic combination advances Kraken's strategy to deliver market-leading value to customers globally by providing the company with industry-leading subsea technology, increased size and scale, long-standing customer relationships, experienced technical teams, and a greater capability to provide integrated solutions. With highly advanced facilities, alongside global manufacturing and sales capabilities, the company will be well positioned to continue to drive innovation.

Deeper customer relationships in the fast-growing defence and maritime surveillance market: Autonomous platforms within the defence industry currently include ROTVs, remotely operated vehicles (ROVs), autonomous underwater vehicles (AUVs), uncrewed surface vessels (USVs) and stationary sensors, all of which depend on power, navigation, communication, positioning and imaging sensors. As a result of the acquisition, Kraken will now be able to provide a more comprehensive and robust technology offering, including each of these mission-critical solutions, across a wider range of platforms. These complementary products, which are currently embedded within a broad group of key defence customers, will allow Kraken to become a more attractive partner to naval system integrators while also earning a greater share of the overall content sold per platform. This combination is timely as defence budgets are increasing globally and the adoption of autonomous systems as force multipliers in naval military applications continues to accelerate. The increasing trend towards distributed and networked systems is also expected to increase demand for positioning, navigation and communication solutions.

Expands product offering and Kraken's total addressable market within subsea technology: Covelya Group's technologies provide Kraken greater exposure to new segments of the subsea technology market and enhanced opportunities for revenue growth in both products and services. Kraken will now be able to provide solutions for various autonomous underwater platforms and crewed vessels. Such incremental technology solutions for Kraken includes those that provide navigation, dynamic positioning, underwater communications, subsea data collection, intruder detection sonar, subsea integrity and production monitoring, forward-looking sonars, subsea infrastructure installation, and geohazard monitoring. Covelya Group also provides Kraken with software and integrated system solutions that enable remote and onsite operations and enhanced data collection with features for automation, autonomy and artificial intelligence, built upon over 50 years of demonstrated experience in subsea operations. In addition to the growing demand within the defence industry, the company's combined solutions have numerous applications in various commercial end-markets.

Adds strategic locations for geographic expansion and improves business diversification: Kraken will become a more diversified business in terms of its end-markets, product offering, customer base and geographic exposure, by way of this acquisition. With more than 700 customers on a combined basis, Covelya Group is expected to provide Kraken with additional momentum and growth opportunities with defence customers while also bolstering the company's presence and cash flow stream within the commercial market. This broader customer base is also beneficial for feedback to accelerate new product development cycles. Geographically, Kraken and Covelya Group can leverage their respective strengths across different regions, allowing for stronger sales and marketing capabilities for future growth.

Bolsters technical capabilities with an experienced engineering team and access to highly advanced facilities: Both Kraken and Covelya Group share a common culture centered around innovation and technical excellence as evidenced by a combined portfolio of over 110 patents (issued and pending). Over its history, Covelya Group has invested heavily in manufacturing, assembly, calibration and testing facilities. This acquisition provides Kraken with important in-house technological capabilities, access to additional research and development for new product development, and a team of engineers with a lengthy record around innovation. Kraken expects to leverage this expertise across the organization. At closing, the company will have over 450,000 square feet of production capacity located in key markets globally and approximately 1,200 employees, including 790 technical staff, comprising engineers, scientists and technical sales.

Accretion and financial metrics

The acquisition is immediately accretive and is expected to generate low-to-mid-double-digit EPS (earnings per share) accretion in 2027, after including the full impact of expected cost synergies. The acquisition is also expected to be accretive across other key financial metrics, including revenue, EBITDA and cash flow per share.

Covelya Group is expected to generate revenue in 2025 of between $249-million to $275-million and Covelya adjusted EBITDA (4) of between $60-million to $67-million in 2025, representing a CAGR (5) of 24 per cent and 41 per cent, respectively, since 2023. On a combined basis, Kraken and Covelya Group's estimated revenue for 2025 is expected to be between $351-million to $379-million with a combined adjusted EBITDA margin of 24 per cent. These estimated results are based on preliminary unaudited financial statements and are subject to adjustment.

The company is targeting approximately $10-million of cost synergies within the first 24 months through expected efficiencies in a shared supply chain, facilities, optimization of research and development efforts, integration of technology systems, and administrative optimization. Additional revenue synergies, such as cross-selling opportunities, have not been included in the expected accretion or synergy assumptions.

At closing, Kraken will maintain a strong balance sheet and financial flexibility to finance future growth opportunities with a combined net leverage (6) ratio of approximately 0.8 times. The company expects this ratio to improve over the near to medium term through a combination of growth and debt repayments.

Certain preliminary 2025 year-end results and 2026 guidance

On a preliminary and unaudited basis, Kraken's financial results for fiscal 2025 are expected to show consolidated revenue in the range of $102-million to $104-million and adjusted EBITDA of $24-million to $26-million. These annual results, which are the highest in the company's history, were driven by record results in Kraken's SeaPower batteries and Synthetic Aperture Sonar products, as well as strong results in the subsea services division. This growth, however, was partially offset by the decline in sonar-related revenue in the current year due to the timing of Katfish projects and the acquisition component of the Canadian Navy RMDS system integration project nearing completion.

For 2026, Kraken expects revenue to be between $165-million and $175-million and adjusted EBITDA to be between $40-million to $50-million, excluding any contribution from the acquisition. The company's outlook for 2026 is driven by existing purchase orders for SeaPower batteries, expected purchase orders for sonar products and continued growth in the commercial services business, including a full year contribution from 3D at Depth Inc., which was acquired in 2025. Consistent with prior years, revenue in 2026 is expected to be weighted toward the second half of the year.

The company plans to release updated 2026 guidance for the combined company upon closing of the acquisition, which is expected to occur in the second quarter of 2026. Closing of the acquisition is conditional upon the satisfaction of customary conditions, such as the approval of the TSX Venture Exchange and regulatory approvals.

Management structure

Kraken will continue to be led by the current management team, including the recent additions of Bernard Mills as executive vice-president, defence, and Terra Penrose as chief people officer, alongside key members of the Covelya Group management team. Moving forward, Kraken will have two market-facing business units, being defence and commercial.

The company will continue to be headquartered in Canada, with operations across Australia, Brazil, Canada, Denmark, Germany, Singapore, the United Kingdom and the United States.

Acquisition financing and details

Under the share purchase agreement, the company will acquire all of the issued and outstanding shares of Covelya Group through its subsidiary Kraken Robotic Systems Inc. for total consideration of $615-million, excluding transaction costs and subject to customary purchase price adjustments, of which $480-million will be paid in cash and $135-million will be satisfied through the issue of common shares to the seller.

The company intends to finance the cash portion of the acquisition and related expenses through a committed, secured, non-revolving term credit facility in the amount of $150-million and the net proceeds of a bought deal public offering of subscription receipts for gross proceeds of approximately $350-million, as further detailed below.

The new credit facility will have a five-year term and will be provided under an amendment to the company's existing credit facilities. The drawdown of the new credit facility is subject to certain customary conditions for secured acquisition financings of this nature. The company's current $35-million revolving credit facility, previously set to expire in April, 2027, will also be amended with a five-year term from the date of the new credit facility.

The company anticipates that the completion of the acquisition will occur in the second quarter of 2026. Completion of the acquisition is subject to certain conditions, including, among other things, receipt of all required regulatory approvals, including the approval of the TSX-V, receipt of applicable approvals or non-objections under foreign direct investment and merger control regulations, other consents and regulatory approvals, and other customary closing conditions for a transaction of this nature. The transaction has been approved by the board of directors of the company, and has received all required approvals from the seller and its shareholders.

The seller is expected to own approximately 4 per cent of the issued and outstanding common shares on a pro forma basis after completion of the acquisition and the exchange of the subscription receipts issued pursuant to the offering, assuming no exercise of the overallotment option (as defined below). The consideration shares will be subject to a lock-up agreement with one-third released at 12, 18 and 24 months from the completion date of the acquisition. The seller will not participate in the offering. The acquisition is arm's length and no finders' fees will be paid.

Public offering of subscription receipts

In connection with the acquisition, Kraken has entered into an agreement with a syndicate of underwriters led by Bank of Nova Scotia and Desjardins Capital Markets, under which the underwriters have agreed to purchase, on a bought deal basis, 41,177,000 subscription receipts at a price of $8.50 per subscription receipt for aggregate gross proceeds of approximately $350-million. The company intends to use the net proceeds of the offering to partially finance the cash purchase price of the acquisition, as further described below.

The company has also granted the underwriters an overallotment option, exercisable in whole or in part, for a period of 30 days following the date of the closing of the offering, to purchase up to an additional number of subscription receipts (or in certain conditions, common shares) equal to 15 per cent of the number of subscription receipts sold pursuant to the offering, at the offering price and on the same terms and conditions as the offering, to cover overallotments, if any.

Each subscription receipt will entitle the holder thereof, without payment of any additional consideration or further action on the part of the holder, to receive one common share upon the satisfaction or waiver of certain release conditions (including the satisfaction of all conditions precedent to the completion of the acquisition, other than the payment of the purchase price and the satisfaction conditions precedent that by their nature are to be satisfied at completion), subject to adjustment in accordance with the terms of a subscription receipt agreement to be entered into upon closing of the offering.

The gross proceeds from the offering (including from any exercise of the overallotment option prior to the completion of the acquisition) less 50 per cent of the underwriting commission (as defined below) and the underwriters' expenses will be held in escrow pending the satisfaction or waiver of the release conditions. If the acquisition is completed on or prior to 5 p.m. Toronto time on Dec. 31, 2026, the escrowed funds will be released to the company and each subscription receipt will be exchanged for common shares. If the acquisition is not completed prior to the deadline, the holders of subscriptions receipts will receive a cash payment equal to the offering price of the subscription receipts plus their pro rata share of any interest actually earned on the escrowed funds during the term of the escrow, less applicable withholding taxes. The company will pay the underwriters a cash commission equal to 4.0 per cent of the gross proceeds of the offering, of which 50 per cent will be paid upon closing of the offering and 50 per cent will be paid on upon the closing of the acquisition.

Closing of the offering is expected to occur on or about March 12, 2026. The offering is subject to customary regulatory approvals, including approval of the TSX-V.

The subscription receipts will be offered in all provinces and territories of Canada pursuant to a prospectus supplement to the short form base shelf prospectus of the company dated Aug. 7, 2025, and other jurisdictions outside of Canada as may be agreed between the company and the underwriters. Access to the prospectus supplement, the corresponding base shelf prospectus and any amendment to such documents is provided in accordance with securities legislation relating to procedures for providing access to a shelf prospectus supplement, a base shelf prospectus and any amendment.

The base shelf prospectus is accessible and the prospectus supplement will be accessible within two business days from the date hereof, through SEDAR+. An electronic or paper copy of the shelf prospectus supplement, the base shelf prospectus and any amendment to the documents may be obtained, without charge, from: Scotiabank by mail at 40 Temperance St. (sixth floor), Toronto, Ont., M5H 0B4, attention: equity capital markets, by e-mail at equityprospectus@scotiabank.com or by telephone at 416-863-7704. Additionally, copies of these documents may be obtained upon request in Canada from Desjardins Capital Markets at 25 York St. (10th floor), Toronto, Ont., M5J 2V5, attention: equity capital markets, or by e-mail at ecm@desjardins.com by providing Desjardins with an e-mail address or address, as applicable. The base shelf prospectus and prospectus supplement contain important, detailed information about the company and the proposed offering. Prospective investors should read the base shelf prospectus and prospectus supplement (when filed) before making an investment decision.

Advisers

Scotiabank is acting as exclusive financial adviser to Kraken and has provided a fairness opinion to the Kraken board of directors that, as of the date of such opinion, and based upon the assumptions, limitations and qualifications set forth therein, the consideration payable pursuant to the share purchase agreement is fair, from a financial point of view, to Kraken.

Scotiabank and Desjardins Capital Markets are acting as lead bookrunners for the company's public offering of subscription receipts. Scotiabank is acting as administrative agent for the new credit facility.

Gowling WLG is acting as legal adviser to Kraken. Goodmans LLP is acting as legal adviser to the underwriters.

Piper Sandler is acting as exclusive financial adviser to Covelya Group. Osborne Clarke is acting as legal adviser to Covelya Group.

Conference call details

Kraken management will host a conference call today, March 3, 2026, starting at 4:30 p.m. ET, to discuss the announced acquisition. Participants can listen to this event via webcast or by dialling 1-833-752-3301 (North America) or 1-647-846-2734 (international) for operator assistance. A recording will also be made available following the call. This call will not include a question-and-answer session.

Shareholders and investors can find a presentation on Kraken's website, further highlighting details of the acquisition.

About Kraken Robotics Inc.

Kraken Robotics is transforming subsea intelligence through 3-D imaging sensors, power solutions and robotic systems. The company's products and services enable clients to overcome the challenges in the oceans -- safely, efficiently and sustainably.

Kraken's synthetic aperture sonar, subbottom imaging and lidar (light detection and ranging) systems offer best-in-class resolution, providing critical insights into ocean safety, infrastructure and geology. The company's pressure tolerant batteries deliver high energy density power for UUVs and subsea energy storage.

Kraken is headquartered in Canada with offices in North America, South America and Europe, supporting clients in more than 30 countries worldwide.

About Covelya Group Ltd.

Covelya Group is an international provider of underwater technology solutions and has been supporting exploration of the world's oceans and waters for over 50 years. Focused on innovation and technological development, Covelya Group offers market leading solutions for its customers' challenges.

(1) Combined revenue for 2025 represents the midpoint of the sum of the preliminary unaudited management estimated range for 2025 for each of company and Covelya Group, assuming an exchange rate of one pound sterling to $1.842.

(2) Combined adjusted EBITDA margin is a non-IFRS (international financial reporting standards) ratio based on the sum of preliminary unaudited management estimates of adjusted EBITDA and Covelya adjusted EBITDA for 2025, which are non-IFRS financial measures.

(3) Revenue CAGR refers to compound annual growth rate and is based on the midpoint of management estimated range for revenue for 2025 for Covelya Group, compared with Covelya Group's revenue for 2023.

(4) Covelya adjusted EBITDA for 2025 is a forward-looking non-IFRS financial measure.

(5) Adjusted EBITDA CAGR refers to compound annual growth rate, and is based on the midpoint of management estimated ranges for revenue and Covelya adjusted EBITDA for 2025, compared with revenue and Covelya adjusted EBITDA for 2023.

(6) Combined net leverage is a non-IFRS ratio based on Kraken net debt as at Sept. 30, 2025, which is a non-IFRS financial measure.

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