Several big forestry deals have come out of the woodwork this year, and the trend shows no sign of slowing as Ainsworth Lumber Co. Ltd. is sold for $1.1-billion (U.S.), including debt, in a deal announced Wednesday afternoon.
Building materials manufacturer Louisiana-Pacific Corp. is buying British Columbia-based Ainsworth, which makes engineered wood products such as floors and stairs, and has 700 employees in four manufacturing facilities across Canada. Ainsworth is 54-per-cent owned by Brookfield Asset Management Inc., which has been particularly active in Canadian forestry deals in 2013.
Brookfield got involved in the company in 2008 as a bondholder when Ainsworth underwent a $1.2-billion recapitalization and restructuring effort.
Ainsworth had run into trouble after buying mills in Minnesota that weren't economically viable and were eventually shuttered and sold at a steep discount. The collapse of the U.S. housing market put strain on the business and prevented the company from making the mills profitable.
Fast-forward to 2013 and U.S. housing starts have increased steadily. At the same time Chinese demand for log and lumber exports have made the timber and forestry industry stronger, despite soft lumber prices.
Nashville, Tenn.-based Louisiana-Pacific looks to benefit from the continued recovery in the U.S. housing market and better diversify its business in preparation for the next downturn. The company also seeks to grow its distribution in China and Japan. The buyer already employs more than 1,200 people in Canada, working in seven facilities in provinces across the country.
"This transaction is oriented on the opportunities we see in this sector, and we believe that Ainsworth and our people will have a bright future as part of LP," said Ainsworth's chief executive Jim Lake in a conference call, noting that Brookfield would support the deal.
Aggressive investors such as Brookfield that put money into forestry several years ago are starting to profit from the industry's gains, according to a PricewaterhouseCoopers report on mergers and acquisitions in the second quarter of the year.
"Private equity saw value that industry players didn't," said Scott McLean, a partner with PwC's forest, paper and packaging practice, in the report. "They had a willingness to restructure the acquired assets in an aggressive manner that is foreign to the industry."
In the second quarter Brookfield Asset Management and some of its related investors were sellers in two big deals: the sale of Longview Timber LLC to Weyerhaeuser Co. for about $2.65-billion, as well as the sale of Longview Fibre Paper and Packaging Inc. to KapStone Paper and Packaging Corp. for about $1-billion.
Brookfield recently completed fundraising for a new timber fund that raised $1-billion.
Louisiana-Pacific's financial advisers are Goldman Sachs Group and BMO Nesbitt Burns. Ainsworth's financial adviser is RBC Capital Markets.
The deal is expected to close at the end of the year. After that time, Brookfield's funds will own about 9 per cent of Louisiana-Pacific.