Birch Hill to acquire Superior Plus’ ERCO Worldwide business for $725M

CPE News (2/18/2021) – Superior Plus Corp. (TSX: SPB) announced today that its subsidiary, Superior Plus LP, has entered into a definitive agreement with Birch Hill Equity Partners to sell its Specialty Chemicals business for total consideration of $725 million. Superior will receive $600 million in cash proceeds from Birch Hill, and $125 million in the form of a 6% unsecured note issued by an affiliated entity of Birch Hill that is acquiring Specialty Chemicals.

The transaction is expected to close in the first or second quarter of 2021.

Toronto based Superior operates two primary businesses: Energy Distribution includes the distribution of propane and distillates, and Specialty Chemicals includes the production and distribution of specialty chemicals products.

The sale of the Specialty Chemicals business, Superior said, represents the final step in its long-term portfolio transformation into a pure-play energy distribution company.

The Specialty Chemicals business operates as “ERCO Worldwide”. ERCO has operated for over 100 years and is focused on the production and supply of sodium chlorate and chlor-alkali products.

The company operates eight production facilities in North America and one in Chile and is the second largest producer of sodium chlorate in North America and worldwide. ERCO’s patented chlorine dioxide generators and related technology have been installed in pulp and paper mills worldwide.

As of December 31, 2019, ERCO had 581 employees.

Superior Plus’ major investors include Brookfield Asset Management Inc. (TSX: BAM.A, NYSE: BAM) and Marquard & Bahls AG, a Hamburg, Germany based company that operates in the fields of supply, trading and logistics of energy & chemicals.

In July 2020, Brookfield, through Brookfield BBP Canada Holdings Inc., invested US $260 million in newly created perpetual exchangeable Series 1 Preferred Stock of Superior Plus US Holdings Inc., a subsidiary of Superior. As a result of the investment, Brookfield and its affiliates own 260,000 shares of Preferred Stock, representing approximately 15% of the then-outstanding common shares.

Marquard & Bahls owns and controls 21,125,100 common shares of Superior Plus, representing 12.00% of the issued and outstanding common shares.

photo credit: Superior Plus, ERCO

News Release

Superior Plus Announces Sale of Specialty Chemicals Business and Acceleration of Acquisition Growth Strategy in Energy Distribution Business

February 18, 2021 07:15 AM Eastern Standard Time

TORONTO–(BUSINESS WIRE)–Superior Plus Corp. (“Superior”) (TSX:SPB) announced today that its subsidiary, Superior Plus LP, has entered into a definitive agreement with Birch Hill Equity Partners (“Birch Hill”) to sell its Specialty Chemicals business (“Specialty Chemicals”) for total consideration of $725 million (the “Transaction”). Under the terms of the Transaction, Superior will receive $600 million in cash proceeds from Birch Hill, and $125 million in the form of a 6% unsecured note (“Note”) issued by an affiliated entity of Birch Hill that is acquiring Specialty Chemicals.

The sale of Superior’s Specialty Chemicals business represents the final step in Superior’s long-term portfolio transformation into a pure-play energy distribution company. With this sale, Superior is reinforcing its focus on growing its industry-leading North American retail propane distribution platform and delivering long-term shareholder value. Proceeds from the Transaction will improve Superior’s financial flexibility and allow the company to accelerate its growth through acquisitions of retail propane distribution businesses. In 2020, Superior acquired more than $285 million of energy distribution assets, and Superior has already completed three acquisitions in the U.S. and Canada in 2021. Superior has a robust pipeline of acquisition opportunities and anticipates more than doubling the U.S. Propane Distribution EBITDA from operations over the next five years.

“We are excited to enter into this transaction with Birch Hill,” said Luc Desjardins, President and CEO of Superior. “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.”

Superior is committed to maintaining a resilient balance sheet, growing the business through acquisitions and returning capital to shareholders. Superior’s Energy Distribution business generates significant free cash flow to support the company’s existing dividend. Superior plans to use the net proceeds from the Transaction initially to reduce debt, including paying down the outstanding balance on its revolving credit facility. As a result of the Transaction, Superior’s lease liabilities are expected to decrease $104.0 million, further reducing Superior’s Total Debt. Superior’s Net Debt to Pro Forma Adjusted EBITDA leverage is expected to be 2.8x(1) pro forma the completion of the Transaction.

Superior will be holding an Investor Day in the coming months to outline our new long-term business plan and strategy.

Key terms of the Note:

Principal amount of the Note and accrued and unpaid interest due 5½ years from close of the Transaction;
The Note bears interest at a rate of 6% compounded annually, which interest may be accrued and paid on maturity;

Purchase Price Adjustment Mechanism

The purchase price is subject to adjustment. If the average EBITDA from operations of the Specialty Chemicals business for the three, consecutive twelve-month periods following the closing date of the Transaction (“Average EBITDA”) is between $100 million and $115 million, the purchase price will not be adjusted and the amount due on maturity of the Note, including interest, will be $172.3 million.
If the Average EBITDA is more than $115 million, the purchase price will be increased (effective and with accrued interest as of the closing date) by the amount of the difference multiplied by 4.5 up to a maximum of $84 million and the buyer will issue an additional Note in such amount to the seller.
If the Average EBITDA is less than $100 million, the purchase price will be reduced (effective and with accrued interest as of the closing date) by the amount of the difference multiplied by 4.5 up to a maximum of $84 million and the seller will issue a Note to the buyer in such amount.

Luc Desjardins further stated, “Through the transaction structure, we have increased our financial flexibility, focused our business portfolio on energy distribution, and preserved an ability to share in the potential upside in the chemicals business over the next three years.”

The Transaction, which has been approved by Superior’s Board of Directors, is subject to customary closing conditions and is expected to close in the first or second quarter of 2021.

All dollar amounts in this press release are in Canadian dollars.

Orrick, Herrington & Sutcliffe LLP is acting as legal counsel to Superior on the Transaction. Barclays acted as financial advisor to Superior.

Net Debt to Pro Forma Adjusted EBITDA is based on Total Debt, Cash and Cash Equivalents as of September 30, 2020 and Adjusted EBITDA on a trailing twelve months basis ended September 30, 2020 adjusted to reflect completion of the Transaction and the anticipated immediate use of proceeds to repay outstanding debt. See “Non-GAAP Measures”)

About the Corporation

Superior consists of two primary operating businesses: Energy Distribution includes the distribution of propane and distillates, and Specialty Chemicals includes the production and distribution of specialty chemicals products.

For further information about Superior, please visit our website at: www.superiorplus.com or contact: Beth Summers, Executive Vice President and Chief Financial Officer, Tel: (416) 340-6015, or Rob Dorran, Vice President, Investor Relations and Treasurer, Tel: (416) 340-6003, E-mail: investor-relations@superiorplus.com, Toll Free: 1-866-490-PLUS (7587).

Non-GAAP Measures

Throughout this release, Superior has used the following terms that are not defined by International Financial Reporting Standards (“Non-GAAP Financial Measures”), but are used by management to evaluate the performance of Superior and its business: Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”), EBITDA from operations, Average EBITDA, Net Debt to Pro Forma Adjusted EBITDA leverage ratio. These measures may also provide additional useful information to and be used by investors, financial institutions and credit rating agencies to assess Superior’s performance and ability to service debt. Non-GAAP financial measures do not have standardized meanings prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies as they may calculate them differently from Superior. Securities regulations require that Non-GAAP financial measures are clearly defined, qualified and reconciled to their most comparable GAAP financial measures.

Non-GAAP financial measures should not, therefore, be considered in isolation or used in substitute for measures of performance prepared in accordance with GAAP. Investors should be cautioned that Adjusted EBITDA, EBITDA from operations and Average EBITDA should not be construed as alternatives to net earnings, cash flow from operating activities or other measures of financial results determined in accordance with GAAP as an indicator of Superior’s performance. Non-GAAP financial measures are identified and defined as follows:

Adjusted EBITDA

Adjusted EBITDA is defined as earnings before interest, taxes, depreciation, amortization, losses (gains) on disposal of assets, finance expense, restructuring costs, transaction and other costs, and unrealized gains (losses) on derivative financial instruments.

Adjusted EBITDA is used by Superior and investors to assess its consolidated results and ability to service debt. Adjusted EBITDA is a significant performance measure used by management and investors to evaluate Superior’s ongoing performance of its businesses.

EBITDA from operations

EBITDA from operations is defined as Adjusted EBITDA excluding costs that are not considered representative of Superior’s underlying core operating performance, including gains and losses on foreign currency hedging contracts, corporate costs and transaction and other costs, and excludes the impact of IFRS 16. Management uses EBITDA from operations to set targets for Superior (including annual guidance and variable compensation targets).

Average EBITDA

Average EBITDA is defined as the average EBITDA from operations of the Specialty Chemicals business for the three years following the closing date of the Transaction.

Net Debt to Pro Forma Adjusted EBITDA leverage ratio

Adjusted EBITDA for the Net Debt to Pro Forma Adjusted EBITDA leverage ratio is defined as Adjusted EBITDA calculated on a 12-month trailing basis giving pro forma effect to acquisitions and dispositions adjusted to the first day of the calculation period (“Pro Forma Adjusted EBITDA”). Pro Forma Adjusted EBITDA is used by Superior to calculate its Net Debt to Pro Forma Adjusted EBITDA leverage ratio.

Total Debt is the sum of borrowings before deferred financing fees and lease liabilities and Net Debt is Total Debt minus cash and cash equivalents. To calculate the Net Debt to Pro Forma Adjusted EBITDA leverage ratio divide Net Debt by Pro Forma Adjusted EBITDA.

Management believes that Net Debt to Pro Forma Adjusted EBITDA is an important measure to monitor leverage and evaluate the balance sheet.

Contacts

Beth Summers, Executive Vice President and Chief Financial Officer
Tel: (416) 340-6015

Rob Dorran, Vice President, Investor Relations and Treasurer
Tel: (416) 340-6003

E-mail: investor-relations@superiorplus.com
Toll Free: 1-866-490-PLUS (7587)