After its balance sheet took a pummelling from poor hog prices, one of Western Canada’s largest hog production companies will be getting a $10 million boost.
The Puratone Corporation has clinched an agreement in principle that will see United Grain Growers invest $8 million and Ensis Management Inc. invest $2 million into the company.
Puratone is involved in 30 feed, hog and poultry companies in Manitoba and Alberta. It has been working in the industry for 26 years.
“We were looking for a major capital injection,” said company president John Koslowsky.
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“We had used up a lot of our working capital because of the low hog market.”
After word got out that Puratone was looking for capital, the company had some casual discussions with UGG, which grew more serious as both parties realized their similar interests, said Koslowsky.
“It made a lot of sense to get that type of a shareholder into our organization,” he said.
When the deal closes, UGG will be the largest single shareholder in Puratone, with 32 percent of common shares.
Other shareholders include employees, plus 15 to 20 other investors, mainly from Manitoba, said Koslowsky.
Brian Hayward, UGG chief executive officer, said his company has been working on the agreement for several months, and is impressed with Puratone’s business plan and potential. The pork industry is growing in Manitoba, and will be exciting over the long term, said Hayward, although he acknowledged “there hasn’t been much enjoyment” in the industry during the past year.
Puratone has “fared reasonably well through all of this,” said Hayward. “It’s not been easy for anybody.”
He said a partnership with a larger company like UGG will help Puratone continue to execute its business plans during future downturns in prices.
Hayward noted UGG is more than a grain company, having doubled its feed sales during the past five years from its six feed mills in Western Canada. It is building a new feed mill at Olds, Alta. UGG also sells breeding stock under the Unipork name.
At the same time as it began discussions with UGG, Puratone was talking to venture capitalists at Ensis Management.
All three parties were inclined to work together, said Don Martin, Ensis vice-president. Ensis will have eight percent of Puratone’s common shares when the deal closes.
Fund managers are interested in the egg industry, and believe the hog industry will grow after the turmoil of the past year, said Martin.
He said Ensis likes Puratone’s management and its ability to work through the low point of the hog cycle.
“They have production capacity that we believe can be expanded and they have a good track record over many years, and we’re looking for companies that are positioned for growth,” said Martin.
Koslowsky said Ensis brings financial expertise to the company and an ability to help find future capital.
The deal is an agreement in principle, and is subject to due diligence from both investors. It must still be approved by the board of directors of Ensis.
