Ontario court approves sale of Mastermind Toys chain

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Mastermind Toys will live to play another day.

The Ontario Superior Court of Justice has approved the sale of the money-losing toy store chain to Unity Acquisitions Inc., a company controlled by retail veterans Joe Mimran, Frank Rocchetti and David Lui. In earlier court documents, Mastermind said it was quickly running out of time, and that the entire chain could be forced to liquidate its stores if the deal was not approved this month.

According to filings related to the deal’s approval, 48 out of Mastermind’s 66 stores will remain in operation, which is all of the locations that were not already undergoing liquidation sales. The deal will also preserve more than 500 jobs, according to court documents. As of late last month, Mastermind employed roughly 800 people.

Mastermind GP Inc. announced the deal with Unity earlier this month, shortly after the Toronto-based retailer was granted protection from its creditors under the Companies’ Creditors Arrangement Act (CCAA). Mastermind, which is currently owned by Canadian private equity firm Birch Hill Equity Partners Management Inc., has been burning through cash. Unity was the only buyer in a recent sale process that was willing and able to execute a deal “in the limited time, and with the limited liquidity, available to the Mastermind Entities,” according to a report filed on Dec. 10 by the monitor overseeing the CCAA process.

Mastermind’s creditors would not see a better outcome through a liquidation or bankruptcy process, according to the report by the CCAA monitor, Alvarez & Marsal Canada Inc. Mastermind’s only secured creditor, Canadian Imperial Bank of Commerce, also supports the transaction, according to court documents. Justice Jana Steele approved the transaction on Dec. 13. The deal is expected to close in January.

“Although the pure economic recovery may be the same or similar as in a bankruptcy liquidation, … benefits to stakeholders are preferable under the proposed sale,” Justice Steele wrote in the endorsement document filed on Dec. 13. The endorsement further noted that 85 per cent of employees at the acquired stores will keep their jobs under “substantially similar terms,” suppliers will be able to continue to do business with Mastermind and landlords of those stores will have the opportunity to keep them as tenants.

Mastermind recorded a net loss of $18.1-million on $65.5-million in revenue in the first 10 months of this year. The company has been cutting costs, reducing purchases of inventory and delaying payments to its suppliers.

Mr. Mimran and his partners have been acquiring other Canadian retailers as well. Over the summer, Unity bought clothing store chain Kit and Ace, as well as Vancouver-based shoe brand Casca Footwear. Mr. Mimran and Mr. Rocchetti also took over retailer Tilley Endurables Inc. in 2020.

The court agreed to keep information about the purchase price sealed. An earlier report from the monitor indicated that the deal includes sufficient cash to pay down the remainder owing on Mastermind’s credit facilities with CIBC, after partially paying the amount through store sales. As of the recent court filings on Dec. 10, Mastermind owed roughly $18.5-million on those credit facilities, an amount that was set to change as the company continued to borrow cash to pay suppliers, rent, payroll and other expenses.

During the 10 weeks ending Jan. 28, 2024, all of Mastermind’s receipts will go toward paying down the CIBC borrowings, according to the company’s cash flow forecast. At the end of that period, which includes the busy holiday season, the document estimated that nearly $3.9-million will be owed to CIBC.