Superior Plus Corp. delivered on a two-year-old promise to focus the company on propane distribution on Thursday by selling its chemical business for $725-million to private equity fund manager Birch Hill Equity Partners.
Toronto-based Superior put its chemical division up for sale the spring of 2019 as part of a strategic decision to focus on the propane industry. The company acquired the business, which sells industrial chemicals used in pulp and paper and water treatment, in 2002 for $375-million. At the time of the purchase, Superior faced challenges from Canada’s competition regulator over plans to expand its domestic propane business. The company has since responded by expanding into the United States, making a series of acquisitions, many of which were financed with debt.
“The sale of specialty chemicals is an important component of our strategic plan and provides us with additional capital to further accelerate our accretive growth strategy in the U.S. propane market,” said Luc Desjardins, chief executive of Superior Plus, in a news release on Thursday. Superior is expected to use some of the money from the sale to pay down debt. Investment bank Barclays advised Superior on the sale.
Superior sold the chemical division for 5.5 times the unit’s earnings before interest, taxes, depreciation and amortization, or EBITDA, which analysts said was a “low” price, but a positive step for the company.
“The removal of an underperforming, volatile, non-ratable, commodity chemical business should give a meaningful lift to Superior,” Scotia Capital analyst Ben Isaacson said in a report. “While the exit multiple of 5.5 times [EBITDA] could have been higher, what ultimately matters is the impact to Superior shareholders, which we think is a net positive.”
Superior has acquired five propane businesses in the past six months, including companies in California, Maine, Massachusetts, Mont Tremblant, Que., and Fenelon Falls, Ont. Last July, the company raised $350-million to fund its growth plans by selling preferred shares to a unit of Brookfield Asset Management Inc.
Toronto-based Birch Hill focuses on investments in mid-market consumer-facing and industrial companies, with holdings that include Montreal-based CCM Hockey, Mastermind Toys, based in Toronto, and leading North American pet food and automotive paint manufacturers. Last February, Birch Hill raised $1.7-billion in its sixth fund. Toronto-Dominion Bank spun out its private equity arm as Birch Hill back in 2005, with former bank employees buying the asset manager.
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