Skip to main content

The MEC store in downtown Toronto is photographed on Sept. 21 2020.

Fred Lum/The Globe and Mail

The monitor overseeing the creditor protection process for MEC is urging the court to approve the retailer’s deal to be acquired by a U.S. private-equity company, saying it provides “the highest and best value” for the assets.

A report filed with the Supreme Court of British Columbia on Thursday by the monitor, Alvarez & Marsal Canada Inc., sheds new light on the retailer’s financial performance, as well as the terms of its proposed sale to a Canadian subsidiary of California-based Kingswood Capital Management LP. MEC’s next court appearance is scheduled on Monday in Vancouver.

Kingswood has agreed to pay an estimated $107.5-million to $110-million in cash for MEC, depending on a working capital adjustment to be calculated upon closing, according to the report. The buyer will assume liabilities including $25-million in vendor trade payables and accruals, $2-million in employee obligations and $13.2-million in obligations related to gift cards. MEC is expecting to close the deal in mid-October.

Story continues below advertisement

MEC has been losing money in recent years, and the court documents show that the loss has been widening. MEC has restated its results for the year ended Feb. 24, 2019, to report a larger net loss of $15.9-million on $462.4-million in sales. In the most recent fiscal year ended Feb. 23, 2020, its net loss widened to $22.7-million, on $463.4 million in sales.

In the past six months, like many retailers, MEC was severely impacted by store closings because of the novel coronavirus. From Feb. 23 to Sept. 6, 2020, the retailer recorded a net loss of $20.9-million on sales of $162.8-million, according to the monitor’s report.

MEC announced the deal with Kingswood on Sept. 14, and obtained protection under the Companies' Creditors Arrangement Act (CCAA), which could allow a sale to proceed if it receives court approval. Some members of the co-operative who objected to the deal have raised more than $100,000 in funds and hired legal representation. They plan to petition for representation in the process on Monday.

According to the monitor’s report, MEC began the process to seek out alternative investment or a buyer for the business in June, after it had failed to refinance its debt earlier this year. MEC’s financial adviser contacted 158 parties; nine of them ultimately signed a letter of intent contemplating an acquisition of most or all of MEC’s assets. All of them included a plan to make the acquisition under the CCAA process. By the beginning of September, the board reviewed four final bids and selected Kingswood’s offer on Sept. 11.

MEC did not consult with creditors, including landlords, about the sales process before it entered CCAA proceedings.

“To engage with unsecured trade creditors, landlords, the general employee base or MEC members prior to the execution of the [purchase agreement] and seeking relief under the CCAA, would have, in the Monitor’s view, created significant uncertainty and disruption to MEC’s day-to-day business and put MEC’s business operations and a potential going concern sale at unnecessary risk,” the report stated. It added that approval of the deal is urgent, partly because MEC needs to purchase additional stock to meet demand leading up to the holiday season and remain stable.

Kingswood has committed to keeping at least 17 of MEC’s 22 stores open, and to retain 75 per cent of its “active” employees. As of Sept. 7, MEC had 1,516 employees, 1,143 of whom it defined as active. Another 197 were on leave and 176 had been temporarily laid off. That means Kingswood has promised to preserve at least 857 jobs.

Story continues below advertisement

The report also laid out the value of the real estate that MEC owns. MEC leases 16 of its 22 stores, and has already sent notice to landlords that it is ending the leases of three additional stores. The stores MEC owns – in North York in Toronto, North Vancouver, Ottawa, Burlington, Ont., Calgary and Winnipeg – collectively have a net book value of $65.9-million. It also owns its distribution centre in Surrey, B.C., which has a net book value of $24.4-million, according to the court filing.

“MEC’s apparent insolvency appears to be the cumulative result of an unsustainable 25 store operating model, the disastrous impact on sales and cash flow of the COVID-19 pandemic coupled with inadequate financing capacity to sustain ongoing operating losses and allow for necessary investment in working capital (primarily inventory)," the report stated.


Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Coronavirus information
Coronavirus information
The Zero Canada Project provides resources to help you manage your health, your finances and your family life as Canada reopens.
Visit the hub

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the author of this article:

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error Editorial code of conduct
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

Comments that violate our community guidelines will be removed.

Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies