Just for Laughs Group | As soon as bought, (almost) as soon as in danger

The owners’ debt acquisition in 2018 quickly backfired

The three owners of Just for Laughs Group (JPR) were quickly haunted by their strategy – an acquisition through debt – to get their hands on the comedy giant. Two years after the transaction concluded in 2018, the financial health of the group already left something to be desired in the eyes of its auditor, we learned The Press.

This is what emerges from a report written by its auditor Deloitte, the firm mandated to scrutinize the finances, which we were able to consult. The document looks at the 2021 financial year and paints a worrying portrait of the finances of the now insolvent Quebec humor specialist. Its owners are Bell (26%), Groupe CH (25%) and Creative Artists Agency (CCA) (49%).

JPR was unable to meet its financial ratios – indicators that reflect the financial health of a company – with its lenders as early as 2020, the year that marked the start of the COVID-19 pandemic. This situation continued the following year and Deloitte estimated that nothing was going to change in 2022. The group was in the same position before taking shelter from its creditors on March 5.

“This is typical of a company that is over-indebted,” explains Raphaël Duguay, professor of accounting at Yale University, after analyzing the financial report. This can quickly turn into a mistake because there is little room for maneuver. »

Saidatou Dicko, professor of accounting sciences at the University of Quebec in Montreal (UQAM), agrees. After going through the document at the request of The Pressthe expert judges that at least three financial indicators of the group were already worrying in 2020. These are its solvency, its ability to meet its short-term commitments as well as its level of debt.

In 2020, JPR’s long-term debts (28 million) were already twice as high as shareholders’ equity – the resources of a company that belong to shareholders. At the end of 2021, long-term debts amounted to 31.5 million. This sum took into account the balance of payment – ​​which was 12 million at the time – which had to be paid to the ex-president and founder Gilbert Rozon. The latter will likely lose this amount since it is an unsecured debt.

“The profitability was not there, the financial balance was not there either and things were not going very well in terms of the level of solvency,” says M^me Dicko.

Risky strategy

The new president of JPR and former financial director Alain Boucher revealed, on March 15, before the Superior Court of Quebec, that the three shareholders of the humor specialist had opted for a leveraged acquisition (leveraged buyout) when buying the company from Mr. Rozon, in 2018. This means that the transaction was carried out by putting the group in debt.

“There was a fair amount of debt [au bilan] of the company at the start,” Mr. Boucher told Judge David R. Collier.

This is a common strategy in business. However, it can greatly reduce a company’s room for maneuver. It can be difficult to keep your head above water when unforeseen circumstances arise, such as a pandemic that prevents events like indoor shows or festivals from taking place. Mr. Duguay and Mr.^me Dicko believes that JPR has been weakened by the weight of its debt.

“It is certain that this [l’acquisition par endettement] weakened the company, says M^me Dicko, who also looked at the Deloitte report. This puts a lot of pressure on the financial balance sheet. »

Heavy boolet

At the time of filing for bankruptcy, the group had blamed its debacle on inflation – which caused a surge in spending on organizing major events –, changes in the “media industry” as well as “difficult times”. that free festivals go through. The content of the Deloitte report also shows that the group quickly suffered a heavy financial burden resulting from the acquisition strategy of Bell, Groupe CH and CCA.

The issue of financial ratios followed JPR until its fall. The lights were red in terms of ratios of “fixed charges, working capital and [de l’]indebtedness,” underlined controller Christian Bourque, of the PwC firm, in his initial report. This is responsible for the judicial restructuring which takes place under the Companies’ Creditors Arrangement Act (LACC) and which provides for the sale of the company’s assets.

With the exception of 2022, the years have ended in red ink at JPR since it belonged to Bell, Groupe CH and CCA, Mr. Bourque revealed before the Superior Court. According to the controller, losses amounted to 12 million during this period.

According to the controller’s timetable, JPR’s fate could be sealed in the week of May 13. It is at this time that the successful bids for the group or certain of its assets must be finalized. Mr. Bourque claimed, on March 15, to have had “many approaches” from “potential investors”.