Performance Sports Group (PSG), maker of Bauer ice hockey equipment and Easton baseball and softball gear, filed for bankruptcy protection earlier today in Canada and the United States. Among other things, the company cited “weakening consumer demand,” the liquidation of Sports Authority back in March 2016 as well as the subsequent bankruptcy of an “internet baseball retailer” as key drivers of their financial downturn. According to the company’s most recent annual filing, 51% of Easton sales were to “big box” retailers.
The performance of the Company’s business in fiscal 2016 and fiscal 2017 to date has been significantly impacted by adverse market and economic conditions and related customer credit issues. The baseball/softball market experienced a significant downturn in retail sales across all product categories, but particularly in the Company’s important bat category. This weakening of consumer demand, coupled with the Chapter 11 filing by one of the largest U.S. national sporting goods retailers and the bankruptcy of an internet baseball retailer, has reduced the Company’s sales with respect to baseball and softball products.
The consolidation of hockey retailers in the U.S., and the bankruptcy of a key U.S. hockey customer, has reduced customer demand for products as the Company’s customers have continued to reduce their inventory levels. The Company’s results throughout fiscal 2016 and fiscal 2017 to date have also continued to be impacted negatively by foreign currency exchange rates, specifically, the depreciation of the Canadian dollar and other world currencies relative to the U.S. dollar.
Not surprisingly, PSG’s EBITDA collapsed for the LTM period ended in February 2016 which coincided with the Sports Authority bankruptcy filing in March.
As part of the bankruptcy process, PSG has secured a stalking horse bid from Sagard Capital and Fairfax Financial for $575mm which will serve as a baseline bid for a competitive auction process.
In connection with the Restructuring Process, the Company has entered into an asset purchase agreement (the “Purchase Agreement”) with an acquisition vehicle to be co-owned by an affiliate of Sagard Capital Partners, L.P. and Fairfax Financial Holdings Limited (collectively, the “Purchaser”), pursuant to which the Purchaser has agreed to acquire substantially all of the assets of the Company and its North American subsidiaries for U.S. $575 million in aggregate, assume related operating liabilities and serve as a “stalking horse” bidder through the Restructuring Process. The Purchase Agreement sets the floor, or minimum acceptable bid, for an auction under the supervision of the Courts, which is designed to achieve the highest available or otherwise best offer. The proceeds to be received on the closing of the acquisition should be in excess of the Company’s outstanding secured indebtedness and are expected to provide meaningful recoveries to the Company’s other stakeholders. A final sale approval hearing is expected to take place shortly after completion of the auction with the anticipated closing of the successful bid to occur in the first quarter of calendar year 2017, subject to receipt of applicable regulatory approvals and the satisfaction or waiver of other customary closing conditions.
Just another sign of the “strong” consumer benefiting from the Obama “recovery.”
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