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Canadian M&A Market Recap: Week Ended December 2, 2016

  • Posted By: Karen Fisman, Louis Goldberg, Miranda Li, Michael Mazza and Paris Aden

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Market Update

Forty-eight Canadian M&A transactions were announced this past week. Oil rallied this past week by nearly 15% after OPEC members agreed to limit their oil output. Correspondingly, the Canadian dollar climbed by 1.18 cents, ending the week at 75 cents. The combination of the S&P 500 falling and the Canadian dollar climbing, led to the TSX in U.S. dollar denomination outperforming the S&P 500 by 2.4% this past week.

New issue clearing yields for U.S. middle market loans fell slightly this week by 0.06%. The spread to treasury for U.S. middle market new issue loans decreased for the second straight week, falling by 9 basis points this past week. The spread to treasury is now below last year’s spread by 8 basis points.

 

Valitas Insights: Growth in the Middle Market – Bucking the S&P Trend

Slow organic revenue growth is an issue for many companies – over the past twelve months, revenue growth for S&P 500 companies was an unimpressive 2.5%. This week, however, we are reporting on an interesting twist:  U.S. middle market companies are outpacing their larger counterparts by a strong margin, and PE owned companies are leading the pack. 

The National Center for the Middle Market (NCMM) recently released its Q3 2016 survey results.  Trailing twelve-month revenue growth for middle market companies was 6.3%, with employment growth of 4.9%.  Notably, private equity (PE) owned firms realized revenue growth of 9%.  Contrary to public perception that PE firms cut staff to produce cost savings, PE owned companies generated employment growth of 6.3%.  Over the same period, employment growth for large business and small business was, respectively, 2.3% and a mere 1.8%.

Innovation was identified as a key driver of revenue growth, impacting new products and services as well as processes.  Surveyed companies reported that they were concerned about a shortage of talent in meeting their future hiring needs, forecast at 4% and 5.6% for non-PE owned and PE owned firms respectively. 

These survey results are consistent with findings we’ve discussed previously linkng business courage to higher revenue growth.  We know courageous businesses invest more in innovation and hire employees at higher levels than their non-courageous peers.

Perhaps we can speculate that middle market companies are, on average, more courageous than their smaller and larger counterparts.  But why are PE owned firms outpacing the rest of the pack?  The NCMM report suggests several possibilities[1]:

  1. Selection bias:  PE firms select acquisition targets with the best prospects;
  1. Portfolio leverage:  Acquired companies may yield economies of scale/synergies as PE firms target add-ons to existing platforms;
  1. Infusion of outside capital:  Viable projects that could not be funded pre-acquisition are now being funded.   To quote the presenter of the NCMM report: “Pour water on the desert and bingo, the desert starts to bloom”; and
  1. Professionalization of Management: Add-on acquisitions benefit from management expertise at the platform level.  Additionally, post-acquisition, management issues are addressed and interests aligned with business goals.

The outlook for middle market companies remains positive for 2017, with revenue growth and hiring forecasts ahead of larger and smaller peers, reflecting a sustained, strong confidence in the economy. We’ve all heard the saying that “small business is the engine that drives the economy”.  Perhaps this should be reframed to include mid-size business as well.

 

[1] Read more about the value-creation principles employed by PE firms in our October 28 Insight Article

 

Weekly M&A Deal Summary

Announced

HICL Infrastructure, InfraRed, Dutch Infrastructure Fund, and Northleaf to Acquire Northwest Parkway

HICL Infrastructure Company Limited (LSE:HICL), a UK based investor in infrastructure; InfraRed Capital Partners, a venture capital firm specializing in infrastructure and real estate investments; Dutch Infrastructure Fund B.V., a principal investment firm; and Northleaf Capital Partners, a private equity firm, have agreed to acquire Northwest Parkway LLC, which owns, operates, and maintains the Northwest Parkway located in the U.S.. No transaction terms were released.

Standard Lithium to Acquire Moab Minerals

Standard Lithium Ltd. (TSXV:PPC), which engages in the exploration for and development of oil and gas properties in Canada and the United States, has agreed to acquire Moab Minerals Corp., a private British Columbia company. No transaction terms were released.

Wellstar Energy to Acquire Sundial Energy

Wellstar Energy Corp. (TSXV:WSE), which acquires, explores, and develops oil and gas properties, has agreed to acquire Sundial Energy Ltd., a leader in renewable energy solutions. Total transaction value is estimated to be $40 thousand.

Korea Kolmar to Acquire CSR Cosmetic Solutions

Korea Kolmar Co., Ltd. (KOSE:A161890), a provider of beauty and health products in South Korea and internationally, has agreed to acquire CSR Cosmetic Solutions Inc., a Canadian company that develops and manufactures cosmetic products. Total transaction value is estimated to be $11 million.

SintecMedia to Acquire Operative Media

SintecMedia Ltd., a Francisco Partners Management backed company that designs and implements management systems for the telecom industry, has agreed to acquire Operative Media, Inc., an Edison Partners, Wellington Financial, Aardvark Capital, and Vaux les Ventures backed business that provides advertising management solutions for the telecom industry worldwide. Total transaction value is estimated to be $269 million.

MTY Food Group to Acquire La Diperie

MTY Food Group Inc. (TSX:MTY), a Canadian franchisor and operator of quick-service restaurants (QSR), has agreed to acquire La Diperie, an ice cream chain in Canada. Total transaction value is estimated to be $1 million.

Liberty Leaf to Acquire Black Sheep

Liberty Leaf Holdings Ltd. (CNSX:WER), which focuses on the medicinal and recreational cannabis market, has agreed to acquire Black Sheep, a U.S. based company that manufactures and sells cannabis pharmaceutical products. No transaction terms were released.

Equatorial Resources to Acquire Ophiolite Consultants

Equatorial Resources Limited (ASX:EQX), an Australia-based company that explores for and develops iron ore properties in the Republic of Congo, has agreed to acquire Ophiolite Consultants Pty Ltd, a Canadian cobalt mining company. Total transaction value is estimated to be $40 million.

AutoCanada to Acquire Guelph Hyundai

AutoCanada Inc. (TSX:ACQ), an automobile dealership franchisor, has agreed to acquire Guelph Hyundai, a dealer for Hyundai vehicles in Canada. No transaction terms were released.

Catalent Pharma to Acquire Accucaps Industries

Catalent Pharma Solutions, Inc., a global provider of development solutions and delivery technologies for drugs, biologics, and consumer health products, has agreed to acquire Accucaps Industries Limited, a Canadian manufacturer of pharmaceutical softgels for the healthcare and consumer product markets. No transaction terms were released.

Canopy Growth to Acquire MedCann

Canopy Growth Corporation (TSX:CGC), a Canadian medical marijuana producer and seller, has agreed to acquire MedCann GmbH, a German company that sells medical cannabis flowers to pharmacists. Total transaction value is estimated to be $12 million.

Accedo to Acquire Digiflare

Accedo Broadband AB, an IQube and SEB Asset Management backed Swedish producer of multiplatform publishing systems and user interface products, has agreed to acquire Digiflare Inc., a Canadian developer of multiplatform video applications. No transaction terms were released.

Cedar Tree Investment to Acquire Retirement Concepts

Cedar Tree Investment Canada Inc., an operator of retirement homes, has agreed to acquire Retirement Concepts, which operates retirement communities and homes in British Columbia and Quebec. No transaction terms were released.

McFarlan Rowlands to Acquire Burns Demeyere

McFarlan Rowlands Insurance Brokers Inc., a Canadian insurance brokerage, has agreed to acquire Burns Demeyere and Associates Inc., a personal and commercial insurance services provider based in Canada. No transaction terms were released.

AnalytixInsight to Acquire Euclides Technologies

AnalytixInsight Inc. (TSXV:ALY), which offers financial research and content for investors and online information providers, has agreed to acquire Euclides Technologies, Inc., a U.S. based developer of technology solutions for field service management. Total transaction value is estimated to be $2 million.

AnalytixInsight to Acquire Fixify

AnalytixInsight Inc. (TSXV:ALY), has also agreed to acquire Fixify Ltd., a U.S. based company that develops and provides Saas field service management software solutions for organizations. No transaction terms were released.

MacDonald Mines to Acquire Silica Claims

MacDonald Mines Exploration Ltd. (TSXV:BMK), which engages in exploration for and development of mineral properties in Canada, has agreed to acquire 6 claims known as the "Charlevoix Silica Property" located in the Province of Quebec. Total transaction value is estimated to be $50 thousand.

 

Closed

Conte Foods Importers Acquires Larosa Food

Conte Foods Importers Ltd., which imports and wholesales specialty and gourmet Italian food products, has acquired Larosa Food Importing & Distributing Ltd., a Canadian food producer. Total transaction value is estimated to be $1 million.

Dentsu Aegis Network Acquires S&E Sponsorship Group

Dentsu Aegis Network, a multinational media and digital marketing communications company, has acquired S&E Sponsorship Group Inc., a leading Canadian sponsorship consultancy focused on the sports and entertainment industries. No transaction terms were released.

HostedBizz Acquires ITUtility.NET

HostedBizz Inc., a cloud infrastructure service provider for IT reseller channels and business, has acquired ITUtility.NET, the owner of a broad portfolio of cloud solutions built around Microsoft business applications. No transaction terms were released.

ZAPI Acquires Delta-Q Technologies

ZAPI S.p.A., an Italian designer, developer, and manufacturer of electronic speed controllers and associated products for applications in electric vehicles, has acquired Delta-Q Technologies Corp., a Tandem and B.C. Renaissance Capital Fund backed developer and supplier of power conversion and power management solutions to vehicle manufacturers. No transaction terms were released.

Carnegie Technologies Acquires Pravala Networks

Carnegie Technologies, LLC, a U.S. developer of applications for mobile devices and cellular core network operations, has acquired Pravala Networks Inc., a Canadian developer of connection management platform software providing wireless connection for vehicles and mobile devices over any network. No transaction terms were released.

Direct Response Media Group Acquires Ad Save Publications

Direct Response Media Group Inc., a direct mail marketing services provider, has acquired Ad Save Publications, a Canadian company that offers print, web, and mobile marketing solutions. No transaction terms were released.

Quaker Chemical Acquires Lubricor

Quaker Chemical Corporation (NYSE:KWR), which develops, produces, and markets chemical specialty products for heavy industrial and manufacturing applications worldwide, has acquired Lubricor Inc., a Canadian manufacturer of industrial chemical products. Total transaction value is estimated to be $16 million.

MSLGROUP Acquires North Strategic

MSLGROUP, a strategic communication and engagement company, has acquired North Strategic, Inc., which offers public agency services in Canada. No transaction terms were released.

Secova Metals Acquires Eagle River Project

Secova Metals Corp. (TSXV:SEK), a Canadian gold exploration company, has acquired the Eagle River project with 77 claims or 4,354 contiguous hectares in the Windfall Lake gold district in Quebec. Total transaction value is estimated to be $0.2 million.

Cendyn Corporation Acquires Guestfolio Communications

Cendyn Corporation, an Accel-KKR backed online interactive marketing solutions provider, has acquired Guestfolio Communications Inc., a leading CRM marketing platform for boutique hotels. No transaction terms were released.

Bumper to Bumper Acquires Pacific Parts

Bumper to Bumper, a subsidiary of Uni-Select Inc., a Canadian distributor of automotive replacement parts, tools and equipment, and related products, has acquired Pacific Parts Ltd., also a subsidiary of Uni-Select Inc. No transaction terms were released.

Rogue Wave Software Acquires Akana

Rogue Wave Software, Inc., an Audax Group and Rally Ventures backed company that provides cross-platform software development tools, embedded components, and libraries, has acquired Akana, Inc., which offers a suite of API management, security, and micro-services solutions to help businesses accelerate digital transformation. No transaction terms were released.

Supremex Acquires Durabox Paper

Supremex Inc. (TSX:SXP), a manufacturer and seller of envelopes and related products in North America, has acquired Durabox Paper Inc., a Canadian manufacturer of corrugated paper boxes. No transaction terms were released.

N. Harris Computer Corporation Acquires iMDsoft

N. Harris Computer Corporation, a software solutions developer serving utilities, public sector, school, and healthcare agency customers in North America, has acquired iMDsoft Inc., a U.S. based company that provides clinical information systems for critical, pre-operative, and acute care environments. No transaction terms were released.

Transplace Acquires Lakeside Logistics

Transplace Inc., a Greenbriar Equity Group backed transportation management and logistics technology services provider, has acquired Lakeside Logistics Inc., a Canadian-based logistics services company. No transaction terms were released.

Newlook Capital Invests in MultiGas Detection and Instrumentation Services

Newlook Capital, a private equity company, has invested in MultiGas Detection and Instrumentation Services Ltd., a Canadian manufacturer of gas detection equipment. No transaction terms were released.

Knowroaming Acquires Telecom North America

Knowroaming Ltd., a telecommunications company that develops roaming solutions, has acquired Telecom North America, Inc., an interexchange carrier providing long-distance telecommunication services in the United States. No transaction terms were released. 

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