Birch Hill Carves Specialty Chemical Biz from Superior

Publicly traded Superior Plus has agreed to sell its specialty chemicals business to Birch Hill Equity Partners for a total consideration of C$725 million.

Superior Plus (TSX: SPB) is a distributor and retailer of propane products and liquid fuels as well as a provider of propane-consuming equipment including tanks and cylinders.

The company also provides equipment installation and repair services. The Calgary-headquartered company is the sixth-largest retail propane distributor in North America.

Superior’s specialty chemicals business operates as ERCO Worldwide and is active as a producer and supplier of sodium chlorate and chlor-alkali products, and chlorine dioxide generators.

Sodium chlorate is an industrial salt used to make chlorine dioxide which is predominantly used in the paper industry to bleach pulp. Chlor-alkali products are used to produce chlorine and sodium hydroxide – commonly referred to as lye or caustic soda – which are commodity chemicals used in a variety of industries.

Customers of ERCO operate in the pulp and paper, food, energy, agriculture, water treatment, airport de-icing, fertilizers and specialty chemicals sectors and many of its patented chlorine dioxide generators are installed in pulp and paper mills worldwide.

Superior acquired ERCO, then Sterling Pulp Chemicals, in 2002 from Sterling Chemical for $590 million. In 2003, the company’s name was changed to ERCO and is an acronym for engineering, research, commitment and optimization.

In 2019, the business had estimated revenues of C$844 million and EBITDA of C$152 million (an 18% EBITDA margin).

Headquartered near Toronto in Etobicoke, Ontario and led by President Ed Bechberger, ERCO has approximately 580 employees and operates eight production facilities in North America and one in Chile and is the second-largest producer of sodium chlorate in North America.

The purchase agreement between Superior and Birch Hill calls for a C$600 million cash payment from Birch Hill and a C$125 million unsecured 6% note due in 2026. In addition, the purchase price has an adjustment mechanism. 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 is more than $115 million, the purchase price will be increased by the difference multiplied by 4.5 up to a maximum of $84 million. If the average EBITDA is less than $100 million, the purchase price will be reduced by the difference multiplied by 4.5 up to a maximum of $84 million. No changes to the purchase price are triggered if the average EBITDA is between $100 million and $115 million.

Superior has been active in transforming itself through acquisitions and divestitures into a pure-play energy distribution company and wants to double its US propane distribution EBITDA over the next five years. In 2020 it acquired $285 million of energy distribution assets and has already completed three acquisitions in 2021.

“We are excited to enter into this transaction with Birch Hill,” said Luc Desjardins, the president and CEO of Superior. “The sale of the specialty chemicals business 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.”

Toronto-based Birch Hill invests in North American-based companies that are valued between C$30 million and C$600 million. The firm was founded in 1994 and closed its fifth private equity fund, Birch Hill Equity Partners V LP, with C$1.3 billion of capital in January 2016.

Barclays was the financial advisor to Superior on this transaction which is expected to close in the first or second quarter of 2021.

© 2021 Private Equity Professional | February 19, 2021

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