Lexpert Magazine

36 LEXPERT MAGAZINE | JULY/AUGUST 2017 Philippe Bourassa, a Blakes partner based in Montréal with extensive experi- ence in mergers and international transac- tions, worked hand in hand with Tuzyk. "To be able to have a proposal by the end of October in that two-month period, it meant our client had to run a full, detailed due diligence, had to negotiate and agree with the other party a fully detailed asset purchase agreement." Among the stickier points were those class action lawsuits that were beginning to emerge against Performance Sports Group. "Of course, we were not interested in be- ing part of that class action," says Bourassa. For consideration of the deal Sagard, along with its eventual partner, Fairfax, negoti- ated contractual assurances that the class action would not follow the assets they were buying. The Big DIP ere was also the question of how to keep the insolvent company's weakening heart beating while a life-saving deal was being sorted out. To do that, explains Bourassa, Sagard Holdings "had to fund a substantial amount of financing to make sure that [PSG] would survive during that time pe- riod." is would be the US$386-million DIP financing that kept PSG going until someone — whether Sagard or a higher bidder — came along. e DIP financing was something Sa- gard didn't intend to fund alone. It had stated it was looking to close a PSG trans- action with help from partners. an internal investigation, says Tuzyk, sent "a bit of a shockwave" through Sagard. And the fact that, two weeks later, PSG retained Centerview Partners LLC as its independent financial advisor told Sagard execs that Performance Sports Group was looking for a major transaction, quite likely a sale, to rescue it. On August 31, Sagard quickly brought in Blake, Cassels & Graydon LLP (with 28 lawyers in all on the team) as it determined how it might save its investment in PSG. In the US, Sagard retained Kirkland & Ellis LLP as its legal representative (with 32 law- yers working the file). Sagard, recounts Tuzyk, "recognized that, hey, this is going to be a complicated process, because the company is dual-listed and carries on operations in both Canada and the United States, not to mention the world." Significant advice, financial and legal, would be required on both sides of the border. A few days later, aer a flurry of intense activity, Sagard, on September 2, signed a non-disclosure agreement with PSG. at allowed it to do the necessary due diligence on PSG's operations to deter- mine if it might throw the company some kind of lifeline. A rather intense period for the legal teams ensued, with the 60-day fuse on de- fault burning away. Sagard and PSG, says Tuzyk, quickly "agreed that the primary objective of this whole exercise is to pre- serve the value of the iconic and innovative brands that the company has, Bauer and Easton bats among others, with time being of the essence." Finding Fairfax As Sagard began preliminary negotiations with Performance Sports Group, oth- ers — pension funds, private-equity firms and companies — tuned in. Among them: Prem Watsa and Fairfax. Known as the "Warren Buffet of Canada," the enigmatic Watsa is a contrarian investor who made his fortune in the insurance business. But he also hunts value in distressed mid-cap companies. In recent years Fairfax made a number of investments in struggling sports enterprises, including Golf Town and Sporting Life. Fairfax partnered up with Sagard late in the game, very near the October 31, 2016, deadline when PSG's 60-day extension to file its audited financial would expire. David Chaikof, an M&A and capital markets partner with Torys LLP in Toron- to, led Fairfax's external legal team on this transaction. Working with Fairfax's Gen- eral Counsel, Derek Bulas, and his small internal legal team, Chaikof has deep ties to Watsa and Fairfax. He's been Fairfax's legal point man on many major transac- tions, including Fairfax's current US$4.9- billion acquisition of Allied World Assur- ance Company Holdings. In Fairfax, Sagard had found a solid partner. at bode well for PSG too, says Stikeman's Waitzer. Fairfax "are folks that we know well and have done a lot of work with. And they know how to execute trans- actions. … Sagard understood Performance Sports' business because they'd been look- ing at it a long time. And Fairfax are con- trarians. ey're very experienced in doing transactions where others fear to tread." "In both cases," he adds, "Sagard and Fairfax are highly reputable. … e market may not have trusted the company, but in this transaction there was a high level of trust. Which isn't to say there weren't lots of issues we disagreed on and negotiated." Chaikof 's approach to handling the le- gal end of Fairfax's transaction was rooted in Prem Watsa's philosophy of business. Chaikof has worked with Fairfax for close to 30 years, beginning as a junior associate at Torys working under Eric Salsberg. Sals- berg joined Fairfax in 1985 and is now Vice President, Corporate Affairs and Corpo- rate Secretary. Chaikof has continued to work closely with Watsa, Salsberg and others in the Fair- "Public confidence was going in the wrong direction. And that can easily turn into a death spiral. … [Luckily] we at least had one bidder [Sagard] with a stake in PSG who understood the situation and was prepared to step up and put forward a stalking horse bid." EDWARD WAITZER > STIKEMAN ELLIOTT LLP | ART OF THE DEAL |

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