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Quebec’s Dutil family taking Canam Group private

Canam Group Inc. is being taken private in a deal that will shift control of the structural steel maker to U.S. private equity firm American Industrial Partners.

Quebec's Dutil family, a dynasty in the province's manufacturing industry, is taking Canam Group Inc. private in a deal that will shift control of the structural steel maker to U.S. private equity firm American Industrial Partners.

The agreement was one of two go-private transactions announced Thursday involving small-cap Quebec companies. In the other, high-performance lighting maker Lumenpulse Inc. said it agreed to be acquired by a group led by its founder in tandem with Power Corp., which will add the business to its existing investments in sustainable energy.

The two deals highlight the difficulty companies can have managing market expectations on a quarterly basis. Lumenpulse has struggled to maintain its 2014 initial public offering price, often missing earnings estimates as profit growth came in clumps. Canam has been working through troubled contracts and has grappled with forecasts after telling analysts 2016 would be better than 2015. It wasn't.

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"Ultimately, a go-private offer is a path that makes sense for Canam," said Mona Nazir of Laurentian Bank Securities, who recommends investors tender their shares. "[It] allows management greater flexibility to run the business on a longer-term horizon without being held accountable to the Street's quarterly report card."

Saint-Georges, Que.-based Canam said it struck a definitive agreement to sell the company to a group led by members of the Dutil family and American Industrial Partners (AIP) for a price of $12.30 a share in cash. Pension fund Caisse de dépôt et placement du Québec and labour fund Fonds de solidarité FTQ, long-time shareholders of Canam, are also expected to buy into the deal by rolling in all or part of their shares, the company said.

The deal is valued at about $875-million on an enterprise basis, which includes the assumption of debt. The offer represents a premium of 98.4 per cent to the closing price of Canam stock on April 26, but it's less than the shares' 52-week high of $13.54.

Canam shares soared to $12.19 in Toronto trading, just below the offer price. The company's recent revenue and margin deterioration and waning investor confidence in management suggests a deal will get done.

Should Canam shareholders approve the transaction, AIP would control the company with a majority of its equity and control the board, Canam said.

The family, the Caisse and the Fonds de solidarité could own as much as 40 per cent of the equity. Canam's head office would remain in Quebec.

Marc Dutil, Canam chief executive, said the deal was born from the family's conclusion that the cyclical and risky nature of the construction industry is increasingly at odds with the imperatives of public markets. The company is coming off a difficult stretch after reporting a surprise loss for its fourth quarter, announcing it would abandon structural steel work on complex, large-scale projects after encountering trouble on a major contract in the United States.

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"I think there's a disconnect between the pace at which we see our business going and what the markets were expecting," Mr. Dutil said in an interview. Beyond capital, AIP brings an operational depth that will be invaluable to Canam going forward, he said.

"Our goal is to really work for Marc and with Marc and act as a force multiplier to help improve and grow the business," said Joel Rotroff, an AIP partner. "And that's a much better task done privately than publicly."

New York-based AIP is a middle-market private equity firm that makes investments largely in established industrial companies located in North America. It has $4.1-billion (U.S.) in assets under management.

Canam's board has approved the transaction on the recommendation of a special committee of independent directors. A vote for Canam's shareholders is expected to be held before the end of June.

The Dutils are a family of politically connected business titans who hail from the Beauce region of Quebec, an isolated area between Quebec City and the Maine border that has historically produced more than its natural share of entrepreneurs. The family founded two main businesses: Canam, a fabricator of steel and construction products, and Manac, a major builder of highway semi-trailers.

This deal comes almost two years after Manac was also privatized by a consortium of Quebec investors including the family and the Caisse.

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AIP was a significant shareholder of Manac at the time following an initial public offering and subsequently sold off its stake.

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