Superior Plus to sell chemicals unit to Birch Hill for C$725m

Toronto-based energy distribution company Superior Plus Corp has agreed to sell its specialty chemicals business to Birch Hill Equity Partners for C$725 million.

Toronto-based energy distribution company Superior Plus Corp has agreed to sell its specialty chemicals business to Birch Hill Equity Partners for C$725 million. Superior will receive C$600 million in cash and C$125 million in a 6% unsecured note. Superior, which said it will pursue an acquisition growth strategy, is backed by Brookfield Asset Management.

PRESS RELEASE

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.