Investment firm Fairfax Financial Holdings Ltd. is circling beleaguered sports equipment manufacturer Performance Sports Group Ltd. and has formally teamed up with the company's largest shareholder.
Fairfax said Monday it has entered into a confidentiality agreement with Sagard Capital Partners LP, the U.S. investment firm backed by the Desmarais family's Power Corp. According to a filing with the U.S. Securities and Exchange Commission, Sagard, Fairfax and PSG have discussed a host of possible strategic alternatives related to the sporting-goods company's future including restructuring, equity issuances or debt refinancing.
This agreement aligns the two investment firms for any future transaction involving the Exeter, N.H.-based company, which controls the well-known Bauer and Easton sports brands. Fairfax, which has no known stake in PSG, recently acquired another struggling sports equipment company, buying Canada's largest golf retailer, Golf Town, from out of bankruptcy protection just a few weeks ago.
PSG has been struggling against a heavy debt load since its acquisition of the Easton Baseball and Softball business from Easton-Bell Sports in 2014. Troubles were compounded when U.S. sporting goods retailer and major customer Sports Authority went bankrupt earlier this year, forcing PSG to take a writedown that squeezed the profits needed to meet its obligations to lenders.
The company soon came up against a wall: PSG revealed in August its audit committee is reviewing accounting issues, and said it could not meet the deadline to file its financial statements for fiscal 2016. Its syndicate of lenders has given PSG until Friday, Oct. 28 to finalize its financial statements. The company is at risk of defaulting on its $440-million (U.S.) loan if it could not complete the work by that date.
PSG also revealed that it is under investigation by the U.S. Securities and Exchange Commission and has received inquiries from Canadian regulators. The company is additionally defending itself from a class-action lawsuit on behalf of shareholders, alleging it engaged in accounting manipulation in 2014 and 2015.
PSG has seen its share price tumble more than 80 per cent from its high in 2015.
Sagard, which owns 17 per cent of PSG, signalled in early September it was reconsidering its options for its investment and has its own confidentiality agreement with the company. The investment firm terminated a shareholder nomination agreement with the company, which would have given it the right to nominate a director to PSG's board.
Instead, Sagard said Sept. 2 that it was considering its strategic options, Bauer's selling its stake, acquiring more shares, or participating in a recapitalization of PSG. Among its options, Sagard said it could take part in a proposal involving a sale of the company in whole or in parts.
Representatives from Fairfax, Sagard and PSG did not immediately respond to requests for comment.
In addition to Sagard and Fairfax, large asset manager Brookfield Asset Management Inc. has also taken an interest in PSG. The company recently began accumulating shares in PSG and was weighing a bid for the company, according to a report from Bloomberg.
Fairfax has made other bets on struggling companies, including BlackBerry Ltd. The most recent deal came in mid-September, when Fairfax and investment firm CI Investments said they would acquire the Canadian operations of Golfsmith International Holdings Inc. Both firms were Golfsmith debtholders and the company had become similarly distressed and filed for bankruptcy protection in the U.S. and under the Companies' Creditors Arrangement Act in Canada with the aim to restructure its business.
PSG's Bauer division, which makes skates, hockey sticks and protective hockey gear, has changed hands several times in recent decades. The company was sold by an investment group to Nike Inc. in 1995, and Nike sold the company in 2008 to U.S. investment firm Kohlberg & Co.
PSG went public on the Toronto Stock Exchange in 2011 and was listed on the New York Stock Exchange in 2014. Kohlberg sold most of its stake between 2011 and 2014, but still owns 5.3 per cent of the company.
With files from Christina Pellegrini