On the Deal Q&A: Scaling up Sweet

Rogers Sugar and its subsidiary Lantic were not known for incremental M&A — until now
Rogers Sugar (RSI) is a storied Canadian sugar company. L.B. Maple Treat (LBMT) is a bottler and distributor of Canada’s iconic “liquid gold,” aka maple syrup. RSI had long planned to diversify. It finally found a match in LBMT, closing a $160.3-million acquisition in August. RSI has since added yet another maple syrup company — Decacer — to the mix. In this rapidly consolidating industry, dealmaking has never been so sweet.

LEXPERT: Deals seem to be flowing fast in the maple syrup business of late. Was it the right time for RSI/Lantic to get in?
Sébastien Roy, Davies Ward Phillips & Vineberg LLP (for RSI/Lantic): Yes, it was the right time for RSI/Lantic to get in. …. Our firm has been involved in three significant maple syrup transactions in 2017, including this one. It’s definitely an industry that is consolidating for the first time.
Jean-Sébastien Dugas, Fasken Martineau DuMoulin LLP (for Champlain Financial Corp. and LBMT): It’s a growth industry. Maple syrup is in increasing favour among consumers worldwide, particularly as opposed to more artificial or refined alternatives. There’s definitely lots of potential.

LEXPERT: How did the deal come about?
Roy: John Holliday, the CEO of RSI/Lantic, has been vocal since his appointment in 2015 about his interest in carrying out an acquisition in the sweetener-adjacent space. … John was introduced to the principals at Champlain [a private equity firm] in 2016, and after months of spirited negotiations, discussions and diligence, an agreement was reached between the parties.
Dugas: The company [LBMT] embarked on an aggressive acquisition strategy as of February 2016, when it was sold to our client, Champlain Financial Corp. They were confident of the benefits of scaling up the operation through M&A, and indeed it was one of the main pillars of their investment thesis. It would seem that RSI/Lantic have the same view.

LEXPERT: What regulatory approvals were necessary in this transaction?
Roy: The real regulatory hurdle for this transaction was approval from the Competition Bureau, since our transaction was notifiable. At first blush, one might think that there could be concerns since RSI/Lantic and LBMT are both large players in the sweetener industry, but from a competition standpoint, these products are in two quite different categories, so the approval process, to everyone’s relief, went very smoothly.

LEXPERT: Were there concerns that the combined company would lose its producer status with the Federation of Quebec Maple Syrup Producers (FPAQ)?
Dugas: LBMT has always been a big supporter of the FPAQ and the role that it plays to encourage the industry in Quebec. We saw no reason to believe that this would change with the transaction, as everyone’s objectives are aligned — grow the industry to everyone’s benefit, that is, producers represented by the FPAQ, bottlers and consumers.

LEXPERT: Getting a bit more into the specifics, there were several elements to the financing of this deal. The $69.2-million bought deal public offering of subscription receipts, the $57.5-million convertible debentures offering, and $50 million of debt. Why did RSI/Lantic decide to structure the financing in this way?
Roy: Subscription receipts are a staple of acquisition financing, it’s a product that is well understood by investors and allows the company to issue equity upfront, without diluting its existing shareholders in the event that the deal does not close. We were told that the equity market was not deep enough to finance the acquisition entirely on the equity markets, so a portion of the capital markets financing was done by issuing convertible debentures. The balance was taken from available funds under RSI/Lantic’s credit facilities.
Warren Katz, Stikeman Elliott LLP (for the syndicate of underwriters co-led by TD Securities Inc. and BMO Capital Markets): Rogers Sugar had not done an equity offering for more than 10 years. Rogers Sugar also wanted to finance part of the transaction from its credit facility. Further to numerous discussions between the underwriters and Rogers Sugar, it was decided that it would be more prudent to split the deal between a debenture offering — which Rogers Sugar is accustomed to — and an equity offering. This turned out to be a wise decision.

LEXPERT: What was it like working on this aspect of the deal?
Roy: This deal was like a beast with many-heads — the capital markets financing, which I oversaw in addition to the acquisition itself, was one of them. It was interesting to be able to prepare a prospectus that effectively IPOed the LBMT business. We worked hard as a team on the disclosure, and I think it’s as thorough an explanation of the industry in Québec, including its risks and opportunities, as you will find in a public document.
Katz: As underwriters’ counsel, we were not involved in the acquisition other than to review the agreement from a disclosure point of view. Announcing a significant acquisition transaction concurrently with a public financing is always challenging. However, with a good collaboration, we were able to get it done in a collaborative manner. … In a financing transaction such as this one, all parties are trying to provide investors with the most complete picture as possible. Deals are easy when everyone keeps this objective in mind.

LEXPERT: Would you say this is an example of a Canadian business building alternative markets in Europe and Asia?
Roy: Yes, 85 per cent of the world’s maple syrup supply originates in Canada. I know for a fact that some large, developing markets like China have not yet developed a taste for maple syrup, but it’s a product category that has been progressing everywhere else, and this is a business that can definitely develop alternative markets in Europe, in Asia and in Oceania. LBMT notably sells in Australia. Kangaroos love their maple syrup!

LEXPERT: Despite LBMT having a US subsidiary, were there concerns about the possibility of trade barriers and restrictive policies, especially with the protectionist atmosphere currently?
Roy: The US is an important market, but it is not the only market. In addition, the US sugar industry enjoys trade protection and imposes tariffs on foreign producers, so RSI/Lantic is very familiar with restrictive trade policies. Once in a while, tariffs are lifted on sugar, and RSI/Lantic will benefit from a quota and sell sugar in the US. Finally, LBMT has a subsidiary that bottles in Vermont, as you pointed out. This is not an element which the deal team focused on too much.
Dugas: Pretty minimal. The vast majority of the world’s maple syrup comes from Canada, and Canadian maple syrup is currently crucial to meeting demand in the US. In addition, the demand for maple syrup outside of North America continues to grow. It’s hard to imagine a scenario where there would not always be a ready market for what Canada can produce, whether in North America or elsewhere.

LEXPERT: What was most memorable or unusual about working on this deal? What will you take away with you?
Katz: What was a bit unusual in this transaction was the fact that LBMT had completed three transactions in the last 12 months before the announcement … and those businesses had not yet been integrated into LBMT’s financial statements. We had to find a way to present that financial information … while providing sufficient explanation to reconcile that information with the IFRS [International Financial Reporting Standards] numbers.
Dugas: Our biggest challenge in this file was to ensure we respected the transaction tempo of RSI/Lantic while ensuring we maintained a fast and fluid communication with the investors of LBMT.
Roy: I described the feeling of working on this deal to some people as being a controller in an airport I oversaw all the various streams, the acquisition, the capital markets portion, the debt financing and the representation and warranty insurance process and all of these planes had to land on the same day, when we announced the acquisition and the bought deal financing. … It has been a real pleasure to be able to assist RSI/Lantic on this important step.

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