Good afternoon, ladies and gentlemen, and welcome to the Collabor Group conference call. At this time, note that all participant lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. Also note that this call is being recorded on Wednesday, February 19th, 2025. At this time, I would like to turn the conference over to Monsieur Louis Frenette.
Merci, thank you, Sylvie. Good afternoon, everyone, and welcome to today's conference call to discuss the acquisition of the food distribution assets of Alimplus Inc., operating as Maire en Plus, and of all the issued and outstanding shares of Toupret, a subsidiary of Alimplus, which we announced earlier this morning. Joining me today on the call is Pierre Blanchette, our Chief Financial Officer. The press release can be found on our website and at cidarplus.ca. The accompanying presentation, including our statement on forward-looking information, can also be accessed online in the investor section at collabor.com. I'm very excited to be here today, this afternoon, to discuss this important milestone for Collabor, one that our respective teams have been working on for a long time. This transaction will consolidate our position as the largest Quebec food distribution company operating in the province.
For over 40 years, Alimplus, which operates under the Maire en Plus brand since 2020, has grown to become a specialized food service distributor serving HRI clients, mainly in Western Quebec. They operate out of two main facilities, totaling 200,000 square feet, one in Montreal and the other one in Drummondville, which is approximately 115 kilometers from Montreal. Their product offering resembles ours and is comprised of food and non-food products. They offer national brands and private label products. Maire en Plus is part of the Maire en Food Service Group, which also operates four Maire en Food Depot stores in the greater Montreal area, which they will continue to own and operate. Along with the asset purchase agreement, we negotiated a six-year supply agreement for all their Maire en Food Depot stores.
We have also acquired all the issued and outstanding shares of their subsidiary, Toupret, which specializes in ready-to-use pre-cut fruits and vegetables. This offering aligns with industry trends of providing product service to operators that helps them reduce operating costs and improve efficiencies. We are very excited by the potential of this business. As a whole, this transaction represents $225 million of annual sales from an attractive mix of clients. 55% are restaurants, of which 82% of them are independent; 29% from retail customers, including the Maire en Depot stores; 14% are institutional; and 2% are other clients. The purchase price is expected to be around $51.5 million, depending on certain adjustments. The transaction is subject to customary closing conditions and is expected to close during the second quarter. This transaction is highly strategic as it greatly accelerates the path to growth and value creation for all our stakeholders.
As Pierre will discuss, it will help drive operational leverage. It is accretive to shareholders, and with the financing structure supporting the deal, we are maintaining a manageable leverage ratio. Aside from having a highly strategic fit with our business, Maire en Plus has great customer and supplier relationships and an engaged workforce. We share the same values as a strong Québécois identity. We are both motivated by our desire to support our local food industry and promote the work of our artisans and professionals. I believe that together, we will clearly raise our offering and competitive position in the marketplace. Being stronger Canadian players in this current political environment will position us favorably with our customers. Let's take a deeper dive into the key rationale supporting this acquisition and how it fits our strategic plan.
Please refer to our usual four pillars as shown in slide six of the presentation. About profitability: by acquiring these assets, we gain an interesting and complementary mix of customers within the HRI industry, with limited overlap and a focus on higher-value independent restaurants and retail customers. We have a similar product offering that improves our combined purchasing power. We gain a complementary product offering that provides additional cross-selling opportunities, especially with private label, national brands, quality specialty products, and pre-cut ready-to-use fruits and vegetables. In time, we will share best practices to further optimize our operations, process, category management, and procurement practices. Not only do these benefits set the stage for our ability to improve profitability, but they also provide us with a clear win-win for everyone.
On the growth front, our second pillar, back in 2020, we implemented a five-year strategic plan with great ambition to enter Western Quebec market. After organically testing the market, successfully concluding a few accretive acquisitions, and completing the build-out of our new Saint-Bruno wholesale and distribution facility, we are now firmly planting a stake in the ground in our coveted market. The transaction provides us with an established customer base on which to build and accelerate market share gains, and a wider, more efficient distribution network. This transaction allows us to achieve the objective we set out in the second phase of our strategic growth plan. The third pillar about people: through this acquisition, we also gain access to additional qualified experience and dedicated employees needed for our growth ambition.
Lastly, our fourth pillar, the brand: for more than four years now, we've worked continually to improve our brand and experience with customers. I believe that our shared values of supporting the local food industry and promoting the work of our artisans and professionals set this transition up for success. Pierre, before I turn the call over to you, I'd like to thank the entire Collabor team and our partners who worked diligently to make this transaction happen. Pierre, over to you.
Thank you, Louis. I'm very proud to be here today to discuss the financing agreement and other financial topics relating to this exciting milestone. To add to Louis' comment, I would like to thank all our partners who also helped us bring this deal to the finish line, including the team at McCarthy Petrol, our banking syndicate led by TD Bank, and our financial partner, Arist Maquette. The following financial arrangement will be put in place at closing to support this transaction. First, we amended our existing credit facility by increasing it by $5 million and extending its maturity to 48 months following the close of the transaction. Second, we extended the maturity of our existing $15 million subordinated debt with Arist Maquette to 54 months following the close of the transaction.
Lastly, we entered into a new $15 million deeply subordinated debt agreement with Arist Maquette, which has a five-year term. As Louis said, this transaction accelerates our strategic growth and profitability plan. Our financing structure allows us to maintain a manageable leverage ratio and provides the ability to generate strong operational cash flows, enabling us to gradually and efficiently lower leverage as the full benefit of this transaction materializes. It has been this management team's playbook. I will now turn the call over to the operator for our Q&A period with Annelies.
Thank you. Ladies and gentlemen, if you do have any questions, please press star followed by one on your touch-tone phone. You will hear a tone that your hand has been raised. If you wish to decline from the polling process, please press star followed by two. If you're using your speakerphone, you will need to lift the handset first before pressing any keys. Please go ahead and press star one now if you do have any questions. First, we will hear from Kyle McPhee at CoreMark Securities. Please go ahead, Kyle.
Everyone, first question for me: can you give us some color on the geographic concentration of the acquired $225 million of revenue? How much is weighted to the west versus the east parts of Quebec? I'm asking in the context of trying to figure out regional density and capacity utilization by region.
Hi, Kyle. It's Louis. Thank you for your question. It's about around 65% is in the greater Montreal area. So it's in Western Quebec, most of the sales. This is complementary with our strategic plan to accelerate the development in that part of Quebec.
Got it. Okay. Thanks for that. I think I have a good idea of what your capacity looks like in the west. Can you remind us how much excess capacity you currently have with your Eastern Quebec facilities for your current business?
In Eastern Quebec, there's room because we moved some volumes from Quebec City to Saint-Bruno, close to Montreal. So we have a bit of capacity over there in our new facility, complementary to their two warehouses in Montreal and Drummondville.
Got it. Okay. And then so for the $225 million of acquired revenue, your slides that you provided here indicate it's a very similar mix of revenue by channel and client type versus Collabor today. Is there any reason to think the acquired revenue comes with a materially different gross margin profile versus your existing distribution business?
As we told you before and the other people, the restaurants usually the margins are higher. This acquisition will help us secure our mix even more because there's more retail. So their proportion of retail is larger, and especially that will serve their retail stores, the four stores. That will help us increase the share of that part of the business. But the rest, they're in the same business as we are. So there's nothing special different with what we do. The only thing different is Toupret, which is an added value specialty pre-cut fruits and vegetables that is an added value for the restaurants. They sell at retail also. The margin in fruits and vegetables are usually higher than the rest. So that's part of the accretiveness of this deal. That helps.
So a bit higher retail weight, but also the fruit and vegetable margin. It sounds like it's probably not a huge material gross margin difference versus your distribution now. Am I understanding that right?
I don't know what to answer today. I think it's good. In general, the fruits and vegetables, plus an added value action of cutting that for the restaurants. They pay for it. It's good for us. It's a better margin. It's good for the operators because they save time. That's why they buy these products. The opportunity there, Kyle, is that they are concentrated around Quebec City. With us, Toupret will expand in Western Quebec and Montreal. We have the workforce and with the to do this. This is good. At the end of the day, the margin is higher on fruits and vegetables than the rest.
Okay. And then is there any reason to believe this acquired revenue comes with a different level of OPEX intensity? Anything to do with facility efficiency or lease terms or delivery distances? Any color on that would help us figure out the EBITDA margin here?
Kyle, it's Pierre. The answer so far is it's a similar business, so similar type of intensity on OPEX.
Okay. And can you tell us how much time is left on the leases at all the acquired facilities?
One is pretty long. The other one is midterm.
Okay. I think your press release indicated there are three facilities, but you keep talking about two. What am I missing?
Yeah. You're right. I'm forgetting about Toupret's smaller scale, midterm as well.
Okay. Okay. I'll pass the line. Thank you for all the color.
Thanks.
Next question will be from Michael Glenn at Freeman James. Please go ahead, Michael.
Hey. I just want to start. If we think about the strategy you have outlined to us with the independent restaurants, obviously, this transaction provides an immediate increase with those types of accounts. But how does this transaction actually accelerate your organic growth in this particular segment? Does it attract more independent restaurants? I'm just trying to understand the organic growth benefits of this.
No, Michael, thanks for your question. No, it has nothing to do with organic growth. The organic growth was when we were hunting to gain stores, restaurants, retail, whatever in the field with our sales force. This acquisition brings us a lot more customers and especially where we're not as developed, which is the Montreal, which we call the western part of Quebec. This is by acquisition that we get those restaurants, and it's not organically done. Our job is once it's with us, that we'll both gain more stores organically. We'll knock at the door of the restaurant and try to convert them from a competitor to us.
Is there a share of wallet opportunity with the restaurants that you're taking on now or with the existing independents that you serve that this provides a benefit with, some type of benefit?
Yes.
Like you can sell more into them?
Yeah, absolutely. That's the idea of our revenue synergies where we have more private label at Collabor that the customers of Arist Maquette will be able to take on. The private label is called Menu at Collabor. As an example, we have around 550 products that are not necessarily available to these customers as we speak. We have two specialty businesses that we'll try to integrate to offer to those new customers under Arist Maquette where we'll be able to sell fish and seafood products. We have a company called Noggess. From low-zone meat business, we'll try to sell more fresh-cut meat to these new customers that don't necessarily have access to that today. So the idea is to benefit from our longer number of products we have.
On the other side, Toupret, we'll use Toupret, the new business for cut fruits and vegetables ready to serve. We don't have access to that today for our Collabor customers. That will become an opportunity to introduce Toupret into the Collabor customers. We do a bit of business with them, but very minimal. Now we'll press on the gas pedal on that.
Okay. And then can you also just speak to the key management team at Arist Maquette? Do they stay on? Any information on who will be running the business once the transaction closes?
The management, you have to understand that the deal is not closed, okay? So I can't speak a lot about that. They have a fantastic workforce, sales force, operations, distribution, transportation. They have very good management employees. This company is not ours as we speak, okay? So we're waiting for the competition bureau. It'll take 30 to, I don't know, 45 days to have their release. We can talk about that. But at the end of the day, we'll need a lot of people for this to serve the customers. It's a big bunch of customers. So it's important that we have the workforce.
Okay. And Pierre, maybe one that's a bit technical in terms of the balance sheet, but the $51.5 million, so can you give any indication about how the lease liabilities balance on the balance sheet will get influenced by this transaction?
As we speak, Michael, I cannot. We're still in the early stage, so I cannot talk about the balance sheet.
The $51.5 million, does that include an assessment of the right of use assets, or that would be something different than the $51.5 million?
I'm not sure I understand your question, Michael.
On your balance sheet right now, Collabor, you have a right of use assets line. The $51.5 million that you're indicating, that is for property, plant, and equipment, maybe some intangibles and goodwill. Does that amount also include right of use assets?
We have not done the whole analysis from that point yet. So I cannot answer that question.
Okay. I'm just going to ask one more. Can you give an indication or a range on what the pro forma leverage? I know that you've talked about it being a manageable range. You were at 2.6 times exiting third quarter. Are you able to indicate where the comparable number would be with this transaction?
Yes. What I consider manageable is in the mid-threes up to. As I mentioned in the past many, many times, our goal is to have the roller coaster kind of effect on that leverage. So we've been in the past lowering it. Acquisition, it goes up, and then generate cash flows goes down again. That's the way we're managing it. We've been very prudent so far, and we'll remain very prudent with the approach. Capital allocation will be very sound for the business.
Okay. Thank you for the questions.
Thank you for your question.
Next question will be from Frédérick Tremblay at Desjardins. Please go ahead, Frédérick.
Thank you. Good afternoon. Just wondering if you could speak to maybe the historical revenue growth rates of the food distribution business as well as Toupret, just to give us an idea of what the historical growth profile has looked like.
Bonjour, Frédérick. The pre-COVID food service was growing faster than retail, okay? During COVID, food service declined, as you remember, and the restaurants were closed. Now it's coming back up. Usually, if you see 3% growth in food service, you see 2% in retail. That would be a normal trend under normal circumstances. Food service is growing. People eat more out of home or ordering than they were before.
Okay. That's helpful. Thank you. I'm just curious if you can maybe help us understand the size of Toupret. I mean, you've had some positive comments on it and opportunities there. Of the $225 million sales, roughly, what would be the size of Toupret?
Yeah. Yeah. Frédérick, I can't answer that question. We don't own it yet, okay? By default, it's much smaller than Arist Maquette. The distributor is bigger. Until the competition bureau gives us the okay, we can't divulge this type of information. We're still competitors, if you understand, as we speak until the closing. So sorry.
Of course. No problem. No problem. Just on the synergies then, just to help us better understand, I guess, the sequence of those synergies, as you look at your internal integration plan for this upcoming acquisition, how should we think about sort of timing to realize the main synergies? Is it a year, two years? How do you think about the timing of all that coming together?
Again, we're still in the analysis phase of the business. So it's difficult to answer very precisely. But as we mentioned in the prepared remarks, in time, we will share best practices and improve processes together. And so it's hard for me to get a precise time.
If I can add, Pierre.
Of course.
For Frédérick, what's important is the revenue synergy. I talked about it a little bit earlier, like the private label, the cross-selling, and the specialty businesses are going to be accredited to the business, which is something that is very important, is the purchasing power, okay? At the end of the day, if they have a better agreement, I don't know, because we're competitors, I don't have access to that as we speak. But if they have with a supplier, because they do more business with a spring water as an example, they get 5% suppliers' revenues, and us, we get 4%. At the end of the day, we'll be bigger, and they'll be happy to give us 5%, okay? So this is important, and it goes both ways. We're bigger than them, so we assume that we have better suppliers' revenue.
With this acquisition, the suppliers will be happy to give the percentage for the total business as we book activities with them to do merchandising, to do promotions. At the end of the day, it'll be a win-win for us, for the consumers, and for the distributors that buy the business from our wholesale business. It'll be beneficial to them also as we have a better, stronger purchasing power.
Understood. That's all I had. Merci.
Merci, Frédérick.
Merci, Frédérick.
Next question is a follow-up from Kyle Metze. Please go ahead, Kyle.
Just on the private label, is the private label penetration of the target company similar to that of Collabor in terms of your revenue mix, or are they much further behind or ahead in terms of penetration?
Sorry, Kyle, can you repeat the question? The line cut, and I know you're talking about private label, but I missed the question.
Yeah. Just the private label penetration in their revenue mix, is the target company's penetration higher or lower than Collabor? Is there a material difference?
Lower.
The target is lower. Okay.
Yeah. The target is lower as they have much less SKUs. I think they have 150 SKUs of private label. We have 550. So their development is lower.
Okay. And so those SKUs that they do have, would those be fairly complementary to your private label categories, or is it all overlapping?
Most overlapping. But at the end of the day, they'll be happy, we guess. They'll be happy to buy our private label as we have more. We have 400 more SKUs than them, and it'll give better pricing for the consumers in their stores. At the end of the day, that's for the retail part. For the restaurant part, the offering will be much longer, and the restaurants will find, and the institution especially, will find great value into this. It's positive. The overlapping is, I guess, the first 100 SKUs of their private label out of 150 are overlapped. They're the big SKUs already. The idea is to sell more SKUs. SKUs are products.
Yep. Got it. Okay. I just want to verify if any parts of the target company are a client of your wholesale platform. Is there any wholesale revenue that becomes intercompany when the deal closes?
Today, it's very little from the wholesale. Very, very little. We're competitors, so they would use us as a when they're missing something in a surgery, they need it like a convenience store when you go. So it's very little.
Okay. And last one, is there any change in the cost of debt for your upsized and extended debt tranches? And can you also tell us the rate on your new subordinated debt?
We're not going to talk about that today, but it's not significantly higher.
Okay. That's good enough for now. Okay. That's it for me. Thank you.
Thank you.
Thank you. And at this time, Monsieur Frenette, we have no other questions registered. Please proceed.
Thanks again, Sylvie. Again, this transaction could not have been concluded without the hard work of our dedicated team. We are all very excited by the potential of Arist Maquette bringing to Collabor. It is a clear win-win for all stakeholders and consolidates our position as the leading food distributor in the province. It gives us the scale to go after significant market share. It provides us with more purchasing power that will benefit all customers, including our wholesale customers. It is accredited to our shareholders. It strengthens our Canadian and Quebec identity, positioning us well versus international suppliers. It brings a good mix of clients within the HRI market that contributes to our diversification strategy and reduces the risk. It solidifies both Collabor and Miraplus' ownership in Quebec hands.
In addition, given this management team track record for prioritizing debt reimbursement and prudently managing our business, we are confident in our ability to manage the effect of this transaction on our balance sheet. We are now in the last year of our five-year strategic plan. This transaction will become an important catalyst for growth and profitability and will set the foundations of our long-term ambition to become an industry consolidator. I am very excited about what the future holds for Collabor. On this, I thank you very much for joining us today, and stay safe and healthy. Thank you.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we do ask that you please disconnect your lines.