mergers, consolidation, and the future of...

Mergers, Consolidation, and the Future of Institutional Timberland Investing

Nicholas School of the Environment // 20192

Instructor Bio - Jonathan PratherJONATHAN PRATHERPartner

[email protected]

Mr. Prather is a Partner at Perella Weinberg Partners and manages the firm’s Industrials practice where he focuses

on advising companies in the Timber, Basic Materials, Chemicals, Diversified Industrials and Transportation sectors

Mr. Prather has experience in structuring traditional and complex transactions, including Merger of Equals,

Spin / Mergers, Leveraged Buyouts, Cross-border, Restructurings and Recapitalizations

Prior to joining Perella Weinberg Partners, Mr. Prather was a Managing Director in Goldman Sachs & Co.’s Global

Industrials Group, where he managed relationships with public and private companies, assisting them in all aspects

of M&A, financing and strategic alternatives

Prior to joining Goldman Sachs in 2006, Mr. Prather was a Director at UBS in the Global Industrials Group

Prior to joining UBS, Mr. Prather was a Financial Analyst in Corporate Development at Simpson Investment

Company, the parent of Green Diamond Resource Company, in Seattle, WA

Mr. Prather has advised on the sale of over 17M acres of timberland valued at over $20B+

Mr. Prather received a BA with honors from the University of Colorado in History and International Affairs and a MBA

from Harvard Business School

He also serves on the board of the Forest History Society, based in Durham, NC

SELECTED CLIENT RELATIONSHIPS

Timberlands

Building

Products

Pulp &

Paper

Packaging/

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&docid=8hwMDjwqI93g5M&tbnid=CZWk9oqM5uPADM:&ved=0CAUQjRw&url=http://investment-advisors.findthebest.com/l/29095/Global-Forest-Partners-Lp&ei=Ed2cUpX5La7JsQS6pIGYBA&bvm=bv.57155469,d.cWc&psig=AFQjCNE5gPyZlohZ-t0ZENuljfZJZ4IOVA&ust=1386098318402936


Our team has sold more acres than any other advisor….

17M+

acres

$20B+in total

transaction

value

With broad experience globally…

RECENT TRANSACTION EXPERIENCE

SELECTED LANDMARK TRANSACTION EXPERIENCE

2018

Advisor to

on the sale of timberlands

in the U.S. South to

1,100K acres $1,390M

2013

Advisor to

on sale of timberlands in

AL, GA, SC, VA and WV to

501K acres $1,100M

2012

Advisor to

on sale of equity stake in

Kaingaroa Forest in New

Zealand to

>400K acres $1,430M

2012

Advisor to

on acquisition of 3 forward

rotations of the South

Australian Government’s

Green Triangle forest

plantations from

>260K acres $700M

2008

Advisor to


in Oregon to

114K acres $345M

2008

Advisor to

on the sale of its equity

holdings in TimberStar

Southwest and its portfolio

of forestlands to

900K acres $1,710M

2007

Advisor to


in Texas, Louisiana,

Georgia and Alabama to

1,550K acres $2,380M

2006

Advisor to

on sale of U.S. timberland

MI, LA, TX, AR and other

parts of the U.S. South to

5,100K acres $6,100M

Pending / Ongoing

Advisor to

of select hardwood assets

in the U.S. South

(~73K acres sold,

~254K acres remaining)

~327K acres

Pending / Ongoing

Advisor to

on potential sale of various

forestry assets in Latin

America

~620K acres

2019

Advisor to


Mato Grosso do Sul, Brazil

to

~89K acres ~$107M

2018/19

Advisor to


Alabama and separately in

Louisiana and Arkansas

~124K acres

2018/2016

Advisor to


U.S. South to

~480K acres

2015

Advisor to


Florida and Georgia to

~87K acres

2015

Advisor to


in Australia, including

~115K acres of hardwood

plantations

~240K acres >$95M

2014

Advisor to


in Alabama and Mississippi

to

~201K acres >$384M

SW

and others…

United States Canada Brazil

Chile Uruguay

South AfricaAustralia New Zealand

Ireland

Across Products…

Softwoods

Hardwoods

Exotics

PWP’s Dedicated Forestry M&A Practice


Select Trends in Timberland Investing We are Tracking

Evolution of Timberland Ownership

Timber Remains a Niche Asset Class Concentrated in the U.S.

Lower Returns as an Asset Class

Tapering Size of Timberland Investments Relative to Private Capital

Limited Dealflow in Recent Years

Divergence of Lumber and Log Prices

Sustainable Investing on the Rise

Climate Change Impact on Portfolios

1

2

3

5

4

6

8

7


Evolution of Timberland Ownership

1969 1994 2019

Rank Firm

1

2

3

4

5

6

7

8

9

10

Rank Firm

1

2

3

4

5

6

7

8

9

10

Rank Firm

1

2

3

4

5

6

7

8

9

10

Source: Forisk

Timberland ownership in the U.S. has shifted towards TIMOs and REITs

1


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Conservation TIMO Industrial/Forest Products REIT

Source: RISI, Campbell Global

TIMO Ownership has Stalled1

HISTORICAL U.S. TIMBERLAND OWNERSHIP BY TYPE


Timber Remains a Niche Asset Class Concentrated in the U.S.

GLOBAL ASSET CLASS MARKET VALUE (U.S.$ IN TRILLIONS)

Source: SAALT, HNRG, Wall Street Research

Notes: 1. Including debt and equity

2. Investable global private timberland

(1)

(2)

(1)

26.5 25.6

19.5 18.8

8.2 7.6

3.9 2.6 2.4

0.3 0.2

Non-U.S.

Bonds

North

America

Equity

U.S. Bonds Non-U.S.

Equity

Real Estate Emerging

Equity

Private

Equity and

Infra

Inflation-

Linked

Bonds

High Yield

Bonds

Commodities Timberland

Total Investment Universe by

Geography ($B)

Institutional Investment by

Geography ($B)

U.S.$100

Brazil$35

LatinAmerica

$20

Canada$7

New Zealand$14

Australia$8

Southeast Asia$5

South Africa$3

$190+

U.S. Northwest

$8

U.S. South$21

U.S. Lake States

$1

U.S. Northeast, $2

U.S. Appalachia, $2

Canada, $2

Latin America$5

Australia & New Zealand

$10

Other$0

~$50

2


U.S. NCREIF ANNUALIZED NOMINAL RETURNS

Source: NCREIF

11.0%

7.2%

3.8%

4.9%

3.2%

1988 - 2018 L15Y L10Y L5Y 2018

Lower Returns as an Asset Class3


Tapering Size of Timberland Investments Relative to Private Capital

Source: World Bank, Preqin, Timberlink

4

0

1

2

3

4

5

6

7

8

9

$10T

2005 2010 2015 2018

0

10

20

30

40

50

$60B

(Pri

vate

Eq

uity

NA

V,

U.S

.$ i

n T

rilli

ons) (T

IMO

M

ark

et V

alu

e, U

.S.$

in B

illions)

TIMO Market Value

Private Equity Net Asset Value

TIMO MARKET VALUE (U.S.$ IN BILLIONS) VS. PRIVATE EQUITY NET ASSET VALUE (U.S. $ IN TRILLIONS)

Private Equity NAV

~170x Total TIMO

Market Value


Limited Dealflow in Recent YearsTOTAL U.S. TIMBER M&A VOLUMES (ACRES SOLD, 000s) (1995 – 2018)

Source: BTG Pactual, TIR, RISI, Wall Street Research

Note: (1) Excludes Weyerhaeuser’s 2016 acquisition of Plum Creek Timber

0

1,500

3,000

4,500

6,000

7,500

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

North Central Northeast South West

(1)

5

Average: 2,650

Average: 1,700

~36%

decrease


Divergence of Lumber and Log Prices6LUMBER PRICES VS. REGIONAL SOFTWOOD SAWTIMBER PRICES (TOTAL RETURN, 2009-2018)

(25%)

-%

25%

50%

75%

100%

125%

150%

175%

Ja

n-0

9

Ju

l-0

9

Ja

n-1

0

Ju

l-1

0

Ja

n-1

1

Ju

l-1

1

Ja

n-1

2

Ju

l-1

2

Ja

n-1

3

Ju

l-1

3

Ja

n-1

4

Ju

l-1

4

Ja

n-1

5

Ju

l-1

5

Ja

n-1

6

Ju

l-1

6

Ja

n-1

7

Ju

l-1

7

Ja

n-1

8

Ju

l-1

8

U.S. Pacific NW Domestic Stumpage U.S. South Stumpage Lumber Pricing Composite

Source: Random Lengths, TMS, Log Lines

Note: (1) Represents weighted average prices of 15 key framing

lumber items produced in North America

(1)


Source: JPMorgan, GIIN

Sustainable Investing on the Rise7

APPLICATION TO FORESTRY INVESTING

Conservation Easements Mitigation Credits New Markets Tax Credits

Opportunity Zones /

Community DevelopmentCarbon Sequestration Carbon Offsets

RETAIL INVESTMENT IN SUSTAINABLE FUNDS

(U.S. $, MILLIONS) CUMULATIVE NUMBER OF IMPACT INVESTORS

0

250

500

750

$1,000

2008 2010 2012 2014 2016Money Market Bond Equity

Multi-Asset Alternatives Real Estate

0

50

100

150

200

250

199

7

199

9

200

1

200

3

200

5

200

7

200

9

201

1

201

3

201

5

201

7


HURRICANE WILDFIRE

EXTRATROPICAL STORMS TORNADO

8 Climate Change Impact on Portfolios

Source: Outdoor Underwriters


How is the Market Responding?

“New” Timber Investing Models

Industry Consolidation

Shifting Deal Flow Dynamics

– Focus on “A” Properties

– Investments in High Growth Regions

– Smaller Transaction Sizes

A

B

C


Evergreen Funds

Agriculture Overlay

Private Owners

Re-Emerging

“New” Timber Investing ModelsA

Joint Ventures

Direct Investing

Downstream Integration

Triple T

Pensions

/ Insurance


June 2017

acquired

August 2017

acquired

Industry ConsolidationBRECENT LARGE-SCALE TIMBERLAND MERGERS

(October 2017)

Pro forma market capitalization of

$3.3B, enterprise value of $4.0B

Deltic converted to a REIT at the close

of the transaction, resulting in

significant tax savings

Highly complimentary businesses with

consolidated timber base of ~2M acres

Expanded integrated model of

timberland ownership and lumber

manufacturing

(November

2015)

Pro forma market capitalization of $23B

and EBITDA of $2.2B

>13M acres of productive and diverse

timberlands, creating the largest private

timberland owner in the U.S.

New entity well-positioned to benefit

from improving housing markets

Enabled further leveraging of HBU

potential across the combined portfolio

/

/

Source: Company filings

RECENT TIMO ACQUISITIONS

September 2013

acquired


Shifting Dealflow Dynamics – Focus on “A” PropertiesC

Source: USFS FIA, TMS

PINE SAWTIMBER STANDING INVENTORY (2017) SAWMILL EXPANSION CAPACITY GAINS (2017-2021)


Shifting Dealflow Dynamics –Investments in High Growth RegionsC

Mature

Intermediate

Emerging

Investor Focus Areas

TIMBERLAND INVESTMENT REGIONS BY MARKET MATURITY

Source: NewForests


Shifting Dealflow Dynamics –Smaller Transaction SizesC

AVERAGE ACRES SOLD PER TRANSACTION (U.S.) (‘000s)

Source: TMR, Company filings

Notes: (1) Excludes Weyerhaeuser’s 2016 acquisition of Plum Creek Timber

221 214

107

244

191

149

47

72 76 67

203

144 156

88

41 50

76 86

63

43

59

79

47

64

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

(1)

Timber M&A 101


Running a Sale Process - Considerations

Different Deal Types:

• Public vs. Private

• Asset vs. Stock

• Domestic vs. International

1 2

Every Process is Different – Buyer Universe and Asset Specific Considerations

Will Determine The Best Alternative

Different Sale Process Types:

• Broad vs. Targeted

• Single vs. Multi-Phase


Various Transaction Types to Consider

Bilateral Negotiations

Broad Auction

Asset Swaps

Targeted Auction

Crown Pine

(2018)

Red River

(2018)

Birmingham

(2018)

Ouachita

(2019)

U.S. South

(2017)

California

(2017)

Alabama

(2018)Menasha

(2016)


Illustrative: U.S. Real Asset Sell-Side Transaction Process (Broad Auction Scenario)

Estimated

Buyers’

Expenses(1)

# Parties

4-8 Months4-12 Weeks2-4 Weeks2-4 Weeks 4-6 Weeks 6-8 Weeks

Outreach Round 1 Round 2 Sign & Close

$0 $0 $0 - 50K $100 - 500K $250 - 500K $350 - 1,000K

100 - 200

Outreach NDAs

Signed

Round 1 Bids Round 2 Bids Signing Close Total

20 - 405 - 12 3 - 5 1

$100-500M TRANSACTION

Notes: (1) Excludes financial advisory fees

# Parties

4-10 Months4-12 Weeks3-6 Weeks2-4 Weeks 4-6 Weeks 8-12 Weeks

Outreach Round 1 Round 2 Sign & Close

$0 $0 $0 - 50K $300 - 1,000K $500 - 1,500K $800 – 2,500K

30 - 50

Outreach NDAs

Signed

Round 1 Bids Round 2 Bids Signing Close Total

10 - 203 - 8 1 - 3 1

$500M+ TRANSACTION

Buyers’

Estimated

Buyers’

Expenses(1)


Common Diligence Materials

GIS/Inventory Information

(3rd Party vs. Company

Data)

Legal / Environmental /

Employee

Recent Pricing Information

(by Product/Species)

3rd Party Regional

Market Study

Marketing Materials

“CIM”

Wood Flows

HBU, Minerals and Other

Non-Timber Attributes

Title


Key Lessons for Sellers

Know Your Data

Cross check data to avoid inconsistencies throughout process

Provide key data updates on timely basis to avoid “just in time” diligence

Understand nuances around basis of preparation, key assumptions,

adjustments for active operations, etc.

Seller Diligence &

Preparation is Key

Start early

Prepare management & operations teams for questions from third parties

A lengthier diligence process up front may help to avoid contract issues /

price adjustments in the final stages of a process

Assign a Key

Transaction

Coordinator

Assigning a “quarterback” from your team helps advisors to manage

diligence, streamline communication, and ensures someone has a holistic

view on the information and process

Link between management, transactions, and operations teams helps to

maintain a “tight” process from start to finish

Manage Valuation

Expectations with

Constituents

Review key appraisal assumptions (pricing, specs, discount rate)

Any discrepancies between appraisals and “market” valuation should be

managed appropriately with LPs


Questions?

Appendix


0

500

1,000

1,500

2,000

2,500

0

5

10

15

20

25

30

35

40

45

$50

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

20

17

20

19

20

21

(Sta

rts in

'00

0s)

(U.S

.$ p

er

Ton,

Stu

mp

ag

e)

Pine Sawtimber Stumpage Price (LHS) Housing Starts (RHS)

Key Macro Themes – Housing Outlook

Source: NAHB, Forisk, FRED


U.S. SOUTH STUMPAGE PRICES ($ / TON, NOMINAL)

Key Macro Themes – Flat Foreseeable U.S. South Log Price Outlook

0

5

10

15

20

25

30

35

$40

2018 4Q 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Sawtimber Pulpwood Hardwood Mixed Sawtimber

Source: Forisk as of Q1 2019


Source: Random Lengths, CIBC, Company presentations

Note: (1) Represents weighted average prices of 15 key framing

lumber items produced in North America

Key Macro Themes – Lumber Supply / Demand VolatilityLUMBER PRICING COMPOSITE (1980 – CURRENT)(1)

$353

100

150

200

250

300

350

400

450

500

550

$600

1980 1984 1989 1994 1999 2003 2008 2013 2018

37% decline from peak,

and over 50% for

western lumber prices

RECENTLY ANNOUNCED CURTAILMENTS

(MMFBM, ANNUALIZED)

1,696

983

1,116

730

Q4 '18 Q1 '19 Q2 '19 Permanent

BC

ON/QC

U.S. West

U.S. South


55%

63%

2017 Q4 2018 Q4

Source: RISI, HNRG

CHINESE TARIFFS ON U.S. WOOD PRODUCTS

GROWING RUSSIAN SHARE OF GLOBAL

LUMBER IMPORTS TO CHINA

Key Macro Themes – China Trade Dynamics

Product

U.S. Export

Value

(U.S.$M)

Tariff (%)

Potential

Tariff

(U.S.$M)

Share of

Applied

Tariff (%)

Softwood

Lumber$112 20% $170 27%

Hardwood

Lumber$1,564 5% - 25% $298 47%

Softwood

Logs$552 5% - 20% $50 8%

Hardwood

Logs$502 20% - 25% $107 17%

Other

Products$82 5% - 25% $14 2%

Total $2,812 $639


PWP At A Glance

53 Partners20+ years of

average experience

500+

Employees

6Sectors

700+Clients

since inception

40+Countries

since inception

Over $1TAnnounced M&A deal

volume since inception

PWP is a global independent financial advisory firm. Our business model is predicated on providing

independent, honest advice from the most experienced and senior people in the financial community.

Our Partners come from

traditional Wall Street firms

10 OfficesAcross 5 countries

New York, Houston, San

Francisco, Los Angeles,

Chicago, Denver

CalgaryDubai

UK Paris

OUR PEOPLE AND PLACES

OUR CLIENTS AND MARKETS


Special /

Independent

Committee

Evaluation of

Strategic

Alternatives

Complex /

Cross-border

Transactions

Unsolicited

Approach /

Activism

Going Private

/ Private

Equity

/

/

/

/

/

/

/

/

/

ADVISORY SERVICES REPRESENTATIVE ASSIGNMENTS

We Offer a Wide Array of Advisory Services


Selected PWP Building Materials Transactions

2007

2018

CHF4.0 billion

Sole advisor to Sika in connection with developing a resolution of the attempted

unsolicited acquisition of a controlling stake by Saint-Gobain

2017

Undisclosed

Advisor to The Forestland Group in connection with its sale of the

Anderson-Tully hardwood sawmill

2017

$0.6 billion

Advisor to Granite Construction in connection with its acquisition

of Layne

2017

$0.6 billion

Advisor to Pittsburgh Corning in connection with its sale to Owens

Corning

2017

$0.2 billion

Advisor to Millar Western in connection with its financial restructuring of

approximately $210 million of liabilities

2011-2017

$1.5 billion

Exclusive financial and capital markets advisor to the AWI Asbestos Trust with

respect to 7 monetizations including marketed follow-on offerings, registered

blocks and Rule 144 blocks

2015

$0.3 billion

Lead advisor to James Hardie in connection with its inaugural High Yield

Bond offering

2015

€42 billion

Independent advisor to the Board of Directors of Holcim in connection with the amendment of key economic and governance parameters in relation to

the envisaged merger between Holcim and Lafarge

2010

$0.8 billion

Advisor to Contech Construction Products, Inc. in connection with its restructuring of approximately $750

million of liabilities.

2009

$0.4 billion

Advisor to Panolam Industries in connection with its restructuring of approximately $400 million of

liabilities

2009

NA

Strategic advisor to Grant Forest Products – OSB producer

2009

Advisor to Masonite in connection with its restructuring of approximately $2.7

billion of liabilities

2007

$0.3 billion

Advisor to Global Forest Products in connection with its

sale to York Timber

2006

$0.3 billion

Advisor to West Fraser on the acquisition of International Paper’s

Wood Products business

2006

$0.3 billion

Advisor to Alghanim / Saint-Gobain in acquiring

Izocam from KOC

Global Forest

Products


Selected Pulp & Paper and Packaging Transactions2017Advisor to

on capital structure and strategic alternatives

~C$300 million

2016Advisor to

$405 million

on its capital structure review and subsequent

refinancing

2014Advised

on the spin/ merger of xpedx with Unisource

$689 million

2015Advised

on its sale to

Undisclosed

Joint lead arranger on 2013

acquisition financing for

$470 million

2013Lead arranger on

$178 million

acquisition financing for

2013

$175 million

Lead bookrunner

on its senior notes offering

2012/2013

Underwriter

$500 million

on TL exit financing

Advised

2012/2013

on strategic alternatives

Advised

Various

2001-13

on multiple M&A transactions involving

packaging assets

Advised

$1.3 billion

on its balance sheet restructuring and the sale

of its Snowflake mill

20122012/2013Underwriter / Agent

$850 million

Financing (Multiple Transactions)

2011

$860 million

Advised

on the spin / merger of its Consumer Office Products

division with

Advised

$6.0 billion

2011

on the sale to

2012

$1.0 billion

Advised

on the sale of

to

Advised

$388 million

on its acquisition of a 75% stake in

2011 2010

$6.8 billion

Advised

in relation to the company's restructuring

the creditors of

Advised

2010

~$580 million

on its restructuring and sale to an investor group

Advised2010

$885 million

on the Sale ofConpacel and Piracicaba

to

Advised

2009

$2.0 billion

on the acquisition of certain assets of Alcan

Packaging from

2010Joint bookrunner

$300 million

on senior securednotes offering

Advisor to

$485 million

2009

on its restructuring and sale to

Lead advisor / Underwriter

$1.5 billion

2008

on its rescue financing package

2008Advised

$6.0 billion

on the purchase of the Containerboard, Packaging and Recycling business of

CAD 9.4 billion

Advised

on its merger with

2007

2007

Advised

€382 million

on its acquisition of

2007Advised

€1.5 billion

on its IPO listing on the Dublin and London Stock

Exchanges

Advisor / Underwriter

$1.6 billion

2007

on its spin / merger of Boise Paper to

Advised2007

$600 million

on the acquisition of the packaging assets of

Rank GroupAdvised

$1.4 billion

2006

on the sale of its Coated and Super calendered Papers

business (Verso) to

Advised2006

$415 million

on the sale of itsBrazilian Coated Papers

business to

2006

Advised

$500 million

on the sale of its Beverage Packaging business to

Advised

2010

$502 million

on its sale to

$850 million

Sole bookrunner on Schweitzer-Mauduit’s

follow-on offering

2009

$108 million

2008

Advisor to

on strategic alternatives

Pulp & Paper Packaging

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