Burcon NutraScience has teamed up with an unnamed “industry plant protein company” to submit a bid to acquire the assets of distressed plant protein processor Merit Functional Foods, which went into receivership on March 1.
In a statement issued after the April 21 deadline for bids set by receiver PriceWaterhouseCoopers, Burcon, said: “If successful, the parties intend to restart the facility and together, strive to reach profitability.”
Burcon, which developed the protein extraction technology utilized by Merit, said: “As Burcon expects there to be competing bids, there is no assurance that the bid will be accepted.”
Burcon CEO Kip Underwood added: “We firmly believe that Burcon’s technologies and process expertise are fundamental to the Merit facility’s future profitability.”
PwC: Several interested parties have traveled from overseas to visit Merit’s plant
PriceWaterhouseCoopers (PwC) took over Merit’s plant in Winnipeg, Canada on March 1 after key lenders filed an application to place the firm in receivership. According to a sales process summary document issued in late March, it aims to select a bidder by Friday (April 28) with court approval obtained by May 26, and the transaction completed by May 31.
In a report issued on March 31, PwC said it had “executed 45 NDAs, completed 14 site visits, with five additional confirmed visits in the coming weeks… with several interested parties traveling from overseas and other parts of North America.”
It did not respond to requests asking how many bids it received by the April 21 deadline.
High purity pea and canola proteins
Merit’s plant, which became operational in 2021, has a capacity of 4,000 metric tons for canola and pea proteins, and has received C$200 million ($147 million) in investment. It is scalable to 10,000 tons within the existing footprint, which would cost a further C$130 million ($96 million) , according to a document issued by PwC on March 13.
Founded in 2019, Merit produces high-purity proteins using patented processes developed by Burcon that enable formulators to include higher levels of plant protein isolates in challenging applications such as low pH beverages without negatively impacting flavor or texture.
While the proteins “have been formulated into countless products globally,” said Merit co-CEO Ryan Bracken in LinkedIn post last month, Merit “couldn’t quite get to the level of cashflow needed to operate the business profitably, quick enough.”
“We continue to execute against our strategic themes: 1. Identifying additional revenue streams; 2. Getting closer to markets/customers; and 3. Securing greater influence of the manufacture of our technology.” Kip Underwood, CEO, Burcon
Merit ‘couldn’t quite get to the level of cashflow needed to operate the business profitably, quick enough’
Burcon is the leading shareholder in Merit with a 31.6% stake; Bunge acquired a 25% stake for C $30 million in mid-2020. Around the same time, the Canadian government invested almost C$100 million ($72 million), including C$9.2 million ($6.7 million) from Protein Industries Canada and C$90 million ($65 million) in debt financing.
Merit generated revenues of C$3million ($2.2 million) in the third quarter of fiscal 2023 (ending December 31, 2022), up 146% year-on-year. However, it had also “incurred cumulative losses and cash flow deficiencies that have adversely impacted its financial situation and liquidity position,” said Burcon, which itself posted a net loss of C$16.3 million ($11.8 million) in the quarter.
According to PwC, Merit owes federal lending agencies Export Development Canada and Farm Credit Canada C$58.6 million ($42.4 million) and C$36.5 million ($26.4 million) respectively, with an additional C$5 million ($3.6 million) owed to the Canadian Imperial Bank of Commerce. Merit’s assets total C$137.6 million ($99.7 million), with the bulk tied up in property and equipment.