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Activist investor singing a different song with new deal

High-profile activist investor Eric Rosenfeld.

Kevin Van Paassen/The Globe and Mail

Eric Rosenfeld is best known in Canada as an activist shareholder – and one who sings to boot.

He has taken stakes in companies such as Spar Aerospace Corp. and Geac Computer Corp., and tried to shake things up. And he's done it while belting out ditties on shareholder rights, set to familiar show tunes. (Any one for a round of "Get me to the vote on time?")

Now, he's got another deal going in Canada, but a very different one, and it requires him to sing a different song.

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In addition to running the activist money management firm Crescendo Partners, Mr. Rosenfeld has a buyout of a fast-growing but relatively unknown Canadian oil field services company that he is trying to push through.

Mr. Rosenfeld is head of a Nasdaq-listed special purpose acquisition company (SPAC) called Trio Merger Corp. that is trying to buy Calgary-based SAExploration Holdings Inc.

SPACs offer another way for a company to go public, something that may be attractive given the tough market for some initial public offerings. Merging with a SPAC provides an entryway to a stock market. But it's not as simple as announcing a deal, as the SAExploration saga illustrates.

As a SPAC, Trio is essentially a shell company that raises money then goes hunting for a deal. When it finds one, it has to get its investors to sign off on spending the money. That's where Trio is now. It has raised almost $70-million.

The challenge is that some investors buy SPAC shares simply because they know they can buy the stock at a slight discount to the amount of money that must be distributed if the SPAC doesn't do any deals. (The cash is invested in bonds in the meantime.) For example, Trio trades for $10.03 (U.S.) a share right now and investors would get $10.08 if the transaction doesn't happen.

So the management teams at Trio and SAExploration have to get on the road and convince investors that they are better off doing the takeover than just getting the cash back, or convince new shareholders who are keen on the transaction to buy in and vote in favour.

The vote is likely to be in late May.

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So far, the response from investors in Trio signals the transaction has a good shot of going through, said SAExploration chief financial officer Brent Whitely, who has been meeting them to pitch the deal.

"We have had really positive response. It's hard to ignore the health of this company. It's really a good story, and it's matched with performance."

Mr. Rosenfeld said his firm looked at 75 companies before finding SAExploration. What they discovered was a Canadian-headquartered company with operations all over the world, and a speedy growth rate.

Revenue has risen by more than 10 times since 2008, climbing to $257-million from $24-million. The company booked a profit of $10-million in 2012. Earnings before interest, taxes, depreciation and amortization is growing at a rate faster than 30 per cent a year.

SAExploration's specialty is doing seismic work for oil companies in some of the roughest places on the globe.

"They are not a typical seismic company," Mr. Rosenfeld says. "Their niche is operating in really hard places. The jungles of Bolivia, Peru, Papua New Guinea. Alaska."

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SAE goes in and builds a full site, then cleans it up when the seismic work is done.

"They will go into the jungles, hire locals, build a village with hospital, wireless Internet, do the seismic, then put it all back the way it was," Mr. Rosenfeld says.

The company had been looking for money to finance its fast growth, and had hired bankers from Canaccord Genuity to help with the search.

"Keeping that fire fuelled has been a bit of a challenge," Mr. Whiteley says.

The company looked at an initial public offering, and at a deal with a private equity firm before meeting up with Trio.

The IPO route was too tough in current markets, and private equity would be inadequate because the company is in constant need of capital, so a one-time injection is not enough. "It's a little different way to go public but it gets money into the company," Mr. Whiteley says. "Then we have access to the public markets."

SAExploration is little known in Canada, even though it is based in Calgary, because it does most of its work elsewhere. Until 2011, the headquarters was in South America. Most of the principals in the company are Canadian, living in Calgary. And many customers are international oil companies based in Calgary or Houston, including Nexen Inc. and Cenovus Energy. So it made sense to move the headquarters to Calgary.

A listing on Canadian markets would also make sense, Mr. Whiteley said. If Trio's deal is successful, SAExploration will end up trading on the Nasdaq. But the Toronto Stock Exchange would likely follow.

While $250-million in annual revenue is smallish for Nasdaq, it's a relatively big company in Canada. As well, there is a constellation of analysts and investors who specialize in TSX-listed oil and gas service and production companies.

"Certainly we'll get more love up there because we're on the larger side," says Mr. Whiteley, who is based in Houston. "It's definitely in the works to do a dual listing. The nexus of the company is in Canada."

(Boyd Erman is a Globe and Mail Reporter & Streetwise Columnist.)

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