The Arnprior-based soft armour maker announced Monday that it plans to take all of its operating assets and manufacturing private, leaving the public company behind as a shell firm with cash proceeds.
PSP is negotiating the terms of the transaction with an interested purchaser, which is "an affiliate" of Florida-based Sun Capital Partners. The sale will be "on a cash-free, debt-free basis for cash payable at closing," PSP stated.
This means that the public company will find itself with cash and no operating assets. The public firm will also, likely, change its name. Manufacturing will continue under private ownership, likely still under the PSP brand, said CEO Doug Lucky in an interview with OBJ.
"What we needed to do is permanently secure the company's finances for the future, and that's what this transaction does," Mr. Lucky said.
When asked what would come next, he noted as things stand now he, the rest of the management team and all of the employees are expected to remain on board.
The struggling company will continue to find ways to improve its cash flow through organic growth, partnerships with other companies and acquisitions.
"At this point it's a bit early, but the direction we have is that we're going to be continuing to execute on our strategy," he added.
Sun Capital, a private investment firm, targets itself specifically to "underperformers, turnarounds, and special situations," according to its website. Last week, a subsidiary oversaw the sale of Del Monte Canada to ConAgra Foods.
A special meeting with PSP shareholders has yet to be scheduled, but will probably be in March, Mr. Lucky added. The assets acquisition will "likely" close soon afterwards.
He framed the situation as a positive one, adding that moving PSP private would remove about $1 million to $1.5 million annually in public reporting costs that include maintaining a board, lawyers, audits and certain other expenses.
By comparison, PSP lost $400,000 in its last quarter.
But the transaction is still subject to the vote of PSP shareholders, who have turned down similar arrangements in the past.
PSP found itself in financial trouble after moving to Ottawa from the west coast around 2007 to keep a closer eye on the competition. According to Mr. Lucky, that plus a series of rapid acquisitions defocused the company, putting it in trouble as the recession deepened.
In May 2010, PSP and Revision Eyewear disclosed a deal where Revision would buy PSP for about $4.6 million, or 14 cents a share. That was a 50-per-cent premium over the weighted average trading price of PSP's common shares on the TSX Venture Exchange for the 30 trading days prior to March 4 that year.
A month later, PSP disclosed it could not get two-thirds of its shareholders on board, the threshold needed for the deal to go through. Another proposal to sell only the headborne business to Revision for $1.275 million was similarly shot down, pulling PSP to the brink of bankruptcy.
By August that year, Revision had most of these assets at a reduced price. Weeks later, PSP's senior management team resigned and Doug Lucky took the helm of the company.
Mr. Lucky swiftly took the company through changes, including moving the head office from Kanata to Arnprior, selling subsidiary APS Distributors, overseeing a merger with Zuni Holdings Inc. (where he was an adviser) and convincing past customers to sign new contracts with PSP.
PSP signed deals with the RCMP and the Department of National Defence, most recently picking up a $1.1-million contract amendment from DND in December.
"Companies commonly lose their way as they try to be everything to everybody, and they try to buy revenue growth. What I'm hearing from the people that I work with, and our customers and our suppliers, is it's so refreshing that we are focused," said Mr. Lucky in a December OBJ interview.
Still, PSP continued to bleed red ink, posting a loss of $400,000 in its December quarter with sales reduced from the year before.
Should Monday's announced transaction go through, PSP will subsequently "formulate a strategic direction to maximize value for shareholders," the firm stated.
The public company's common shares will transfer to the NEX board of the TSX Venture Exchange as this process occurs.
