Nautic to buy Canadian trust for C$140m

US middle market firm Nautic Capital has agreed to pay C$140 million for Canada Cartage Diversified Income Fund, amid a change to Canada’s tax laws.

Nautic Partners is the latest US private equity firm to take a Canadian income trust private, with its C$140 million ($126.5 million; €93 million) acquisition of the trust related to trucking company Canada Cartage.

Providence, Rhode Island-based Nautic has agreed to pay shareholders C$11.30 per unit for the Toronto Stock Exchanged-traded Canada Cartage Diversified Income Fund. The price is a 27.6 percent premium over Canada Cartage’s closing unit price on 30 April, the day prior to an announcement that the firms were in negotiations.

Subject to unitholder and regulatory approvals, the deal includes a non-solicitation covenant, as well as a C$4.2 million break-up fee and the right for Nautic to match any superior proposals.

CIBC World Markets is Canada Cartage’s financial advisor, while Cormark Securities is advising its special committee. Torys is providing legal counsel to Canada Cartage, while Kirkland & Ellis and Borden Ladner Gervais are Nautic’s legal advisors.

The deal is part of a growing trend triggered by a change in Canadian tax policy, which will subject Canadian investment trusts to an additional 34 percent tax starting in 2011.

Since the policy change was announced last October, nearly 20 publicly traded trusts have been sold and more than a dozen have announced “strategic reviews”.

In April, New York-based Caxton-Iseman Capital purchased KCP Income Fund, parent of consumer products firm KIK Custom Products, for C$804 million.

Nautic, founded in 1986, typically makes $25 million to $100 million investments in the business services, manufacturing, healthcare and communications sectors. It has more than $1.8 billion in capital under management.