MEC, the outdoor sports co-op founded in the 1970s by a handful of B.C. mountain climbers, is being sold to an American firm.
Co-op members were shocked by the news and some wonder how the MEC's board of directors could approve the sale without a vote by the membership at large. Many MEC members may not have been aware that MEC was even in financial trouble and up for sale.
MEC's board of directors announced September 14 that they have approved a court-sanctioned sale of the distressed outdoor equipment retailer to an American firm, Kingswood Capital Management.
According to an MEC news release, the COVID-19 pandemic pushed the co-operative to the brink of financial ruin, forcing it to seek protection against creditors under the Companies' Creditors Arrangement Act (CCAA).
"A special committee of the board engaged in an extensive examination of options and alternatives to address the persistent financial challenges faced by MEC's business in recent years," MEC said in its press release.
"Exacerbated by the unprecedented disruption of the COVID-19 pandemic, these challenges impacted MEC's ability to secure a refinancing on terms that would meet MEC's future needs."
MEC owns and operates 22 retail outlets across Canada. MEC's board of directors unanimously approved a plan to see Kingswood acquire "substantially all of MEC's assets."
Mountain Equipment Co-op was started in the 1970s by a group of B.C. mountain climbers. It was later rebranded as MEC, but remained a co-operative. That ownership model will change, after the court-approved sale in finalized.
"The transition from a co-operative structure is needed to ensure a stable future for MEC's retail business," the MEC press release states.
The restructured company will be headed by Eric Claus, a Canadian retail executive.
According to an audit by KPMG, MEC suffered an $11.5 million loss in 2019.
"After careful consideration of all viable options, the board made this difficult decision," MEC's board chairperson Judi Richardson said in a press release.
"Despite significant progress on a thoughtful turnaround strategy undertaken by new leadership, no strategy could have anticipated or overcome the impact of the global pandemic on our business.
"Today's announcement, including the transition from a co-operative structure, is creating a positive path forward for MEC. Kingswood's commitment to honouring the MEC ethos and the solid financial footing that this transaction will provide gives us tremendous confidence in the future."
MEC members pay a one-time $5 lifetime membership fee. This gives them one share in MEC. So, in essence, they are shareholders.
Members can earn dividends, depending on how much they spend at the co-op each year, and whether the co-op turns a profit.
Under the CCAA, the board of directors of a company facing insolvency do not need the approval of co-op members to approve a sale, said Kathleen McDonald of NKPR, a public relations firm that is handling the public relations for MEC and Kingswood Capital.
"The CCAA has a broad remedial purpose, allowing an organization to maintain its business ‘in the ordinary course’ while also giving it the breathing room necessary to restructure its affairs—all with a view to preserving its business for the benefit of employees, customers/members, suppliers and other stakeholders in the communities in which it operates," she wrote in response to inquiries from BIV.
"One of the ways that the CCAA does this is also by enabling an insolvent organization like MEC to effect a sale of its assets with the approval of the supervising court, and without shareholder or member approvals.
"This can be particularly important where, as here, time is of the essence to the insolvent organization to ensure that its business can be preserved."