Interfor benefited from people’s COVID-induced passion for home renovations
Up 40 percent on the year, the Burnaby company is spending half a billion to buy mills in Eastern Canada
The stock: It’s been an up-and-down year for lumber prices, and even more for the stock of B.C.’s No. 3 producer, Interfor Corp. (TSX:IFP). Last spring’s wood spike, fuelled by North Americans’ pandemic preoccupation with domestic upgrades, has given way to a more balanced, if volatile, supply-demand dynamic. Interfor evidently saw the pullback as a buying opportunity. On November 23, it announced an agreement to acquire Eacom Timber Corp. of Montreal from its private equity owner, Kelso & Co., for $490 million.
The drivers: The purchase adds seven sawmills, two specialty plants and a billion board feet of production to Interfor’s portfolio, increasing the company’s output by one quarter. Importantly, it diversifies Interfor’s geographical footprint beyond B.C., Washington and the southeastern U.S., into Ontario and Quebec. With B.C.’s contribution to the mix down to 18 percent of the total, Interfor isn’t significantly affected by the provincial government’s old-growth harvesting deferral announced earlier in November.
Having recorded $475 million in earnings before interest, taxes, depreciation and amortization (EBITDA) in 2020, the Eacom assets should also meaningfully contribute to Interfor’s bottom line. Burnaby-based Interfor posted net earnings of $65.6 million, or $1.05 per share, in the third quarter, down significantly from a blowout ($419.2 million, $6.45/share) second quarter.
The acquisition is part of Interfor’s strategy to become one of the world’s largest pure-play lumber producers, president and CEO Ian Fillinger said in a release. “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.”
Word on the street: Interfor shares rose nearly 3 percent, to $32.62, on the news Tuesday. (Year-to-date, the stock is up 40 percent.) “Our initial take is the deal metrics look attractive,” CIBC Capital Markets analyst Hamir Patel said in a note to clients. “We expect the transaction to close near the end of Q1/22 as there should not be any anti-trust hurdles given the fragmented nature of the lumber industry and the new operating region for the company.”
Coming and going: Digital health-care provider CloudMD Software & Services (TSXV:DOC) of Vancouver has reached an agreement to acquire Toronto-based mental health platform MindBeacon Holdings (TSX:MBCN) for a combination of cash and CloudMD shares worth about $116 million, or $4.78 per MindBeacon share. The transaction is expected to close after a meeting of MindBeacon shareholders this coming January.