Interfor recently announced that it has reached an agreement with an affiliate of Kelso & Company to acquire 100% of the equity interests of EACOM Timber Corporation.
EACOM is a leading lumber producer in eastern Canada, with operations across Ontario and Quebec, including:
- Seven sawmills with a combined annual spruce-pine-fir (SPF) lumber production capacity of 985 million board feet;
- An I-Joist plant with an annual production capacity of 70 million linear feet;
- A value-added remanufacturing plant with an annual production capacity of 60 million board feet;
- Rights to access approximately 3.6 million cubic meters per year of responsibly managed and internationally certified fibre supply; and
- An office in Montreal.
The purchase price is C$490 million on a cash and debt-free basis, including C$120 million of net working capital. In addition, Interfor will assume EACOM’s countervailing (CV) and anti-dumping (AD) duty deposits at closing for consideration equal to 55% of the total deposits on an after-tax basis. As of September 30, 2021, EACOM had paid cumulative CV and AD duties of US$150 million.
“This transaction makes Interfor a truly North American lumber producer, with operations in all the key fibre regions on the continent, further diversifying and de-risking our operating platform and enhancing our growth potential and opportunity set,” said Ian Fillinger, President and CEO “This transformational growth secures a desirable SPF product mix to meet the growing demand of our customers, at a time when SPF fibre supply is under increasing pressure in other jurisdictions in North America and around the world. These are productive and well-managed mills, and we see meaningful opportunities to further enhance their performance by integrating them with our portfolio and applying our proven operating expertise. We are excited for the opportunities that the acquisition brings, and we look forward to welcoming the talented EACOM team into our company and partnering with them to operate and grow the business in the years ahead.”
The acquisition is consistent with Interfor’s growth-focused strategy as a pure-play lumber producer, increasing Interfor’s total lumber production capacity by 25%. In addition, the acquisition further builds upon Interfor’s already geographically diverse operations, adding significant scale in a new region. Eastern Canada is one of the major lumber-producing regions in North America, with highly competitive log costs, a desirable SPF product mix, and a supportive investment environment.
On a proforma basis, Interfor’s total annual lumber production capacity will increase to 4.9 billion board feet, of which 46% will be in the US South, 16% in the US Northwest, 20% in eastern Canada, and 18% in British Columbia.
The EACOM business will also provide an expanded opportunity set for potential future lumber-focused growth in eastern Canada, given its well-established systems, infrastructure, and team. The business will operate under the Interfor banner. Still, Interfor will maintain all of EACOM’s key operating leadership and employees and its office in Montreal to ensure continued regional support for the operations in the future.
“This transaction will allow our team to write its next chapter as part of one of North America’s best lumber companies,” said Kevin Edgson, President and Chief Executive Officer of EACOM. “Interfor’s operational excellence, financial strength, customer relationships, and North American-wide portfolio will provide substantial opportunities to our people and our stakeholders. Our companies have shared values, including a commitment to safety and environmental responsibility, and we are thrilled to be a part of Interfor’s continuing growth ambitions.”
Enhanced Market Opportunities
From a market perspective, the acquisition extends and complements Interfor’s geographic reach, enabling efficient supply to key eastern markets, such as the Greater Toronto Area (the fourth largest metropolitan area in North America) and throughout the Great Lakes region. Approximately 40% of EACOM’s external shipments remain in Canada and are not subject to CV and AD duties. The acquisition also adds diversity to Interfor’s customer mix by expanding exposure to key distribution segments, such as home centres.
From a product perspective, the acquisition adds lumber-adjacent offerings to Interfor’s portfolio of operations, with the addition of an I-Joist plant and a value-added remanufacturing plant. Consumption of I-Joists, like other engineered wood products (EWP), is closely tied to new housing construction, and demand continues to be robust. At the same time, supply has been limited due to constraints in the availability of suitable flange stock for its manufacture. EACOM supplies most of the flange stock for the I-Joist plant from its own operations in the form of machine stress-rated lumber, enabling significant control over the key inputs and a better ability to manage production levels. As a result, EACOM’s I-Joist plant has sustainably increased production by approximately 40% over the past three years. It is well-positioned to take advantage of the positive market dynamics across the EWP sector.
The completion of the acquisition is subject to customary conditions and regulatory approvals for a transaction of this kind and is expected to close in the first half of 2022.