It all goes back to the “need to sell” sellers. That’s how Centre Partners managed to pull off a $600 million deal in the midst of the financial crisis of the century (yes, I realize this credit crunch could be topped in the next 91.08 years). It’s the third largest deal to close thus far this quarter, beat by Blackstone’s Apria Healthcare and CVC Capital’s Pilot Travel Centers.
That “need to sell” seller is Connors Bros. Income Fund, a Canadian tuna company. And the need stems from the upcoming sunset of Canada’s low tax income trust structure. The income trusts have a low tax structure, and with their distributions of operating cash flow, they’re designed to give investors in stable public companies a yield based security-like return. When too many companies began taking advantage of the structure, Canada’s finance minister put an end to it, requiring all income trusts to be taxed like corporations by 2011. The hike has motivated plenty of sellers, including Connors Bros.
It places Connors Bros. in a rare class of sellers this quarter. The deal was actually signed the weekend Lehman Brothers fell. A source told peHUB the deal’s arrangers managed to “grind away,” even after a few of its original lenders now cease to exist.
But the most interesting thing about this play is its buyer. Centre Partners is no stranger to this company. Connors Brothers’s largest brand, Bumble Bee Tuna, was acquired in 2003 from none other than its new owner. Centre Partners had owned Bumble Bee and sold it to Connors Bros. over the course of two years. The exit netted Centre Partners $225 million, an 8.5x return with a 545% IRR for its third fund, a 1999 vintage, according to a Buyouts report.
Now Centre Partners hopes lightening strikes twice, this time around for its fifth, $880 million fund.
The capital structure is relatively normal for good times, and quite irregular for “these days,” with Walls Fargo and Falcoln Investment Advisors leading $350 worth of senior and senior sub debt, Ares Capital Corp providing $40 million mezzanine.