Value Unleashed

Market Update

Forty-three Canadian M&A transactions were announced this past week. Oil decreased slightly after a strong rally last week. Correspondingly, the Canadian dollar climbed by 0.74 cents, ending the week at 76 cents. The TSX underperformed the S&P 500 by 0.3% in U.S. dollar terms, reflecting the effect of a rising S&P 500 partially offset by the advance in the Canadian dollar.

The new issue environment for U.S. middle market loans remains robust, with average total leverage of 4.8x EBITDA, while new issue clearing yields have not changed materially from last year’s levels. Total leverage levels have remained consistent from last week although they have decreased 0.7x from one year ago indicating a tighter lending market.

Mid-market M&A Indicator October 2016

Consistent with the September reading, the October M&A Conditions Index (MACI) composite signals an expansionary environment with further strengthening of leading indicators. Leads remain firmly in expansionary territory, reaching their highest level since October 2015.  LOI volume remains well into expansionary territory for the third consecutive month, the healthiest expansionary streak of the past year. The strength of these leading indicators signal a robust M&A environment for early 2017.

Mergers & Acquisitions Magazine has been publishing the M&A Conditions Index (MACI) since the fall of 2013 to gauge general M&A market conditions. For more information on the various indicators and the methodology, click here.

Insight Article:  M&A in 2017 – A Glimpse at What Lies Ahead…

As the end of the year draws near, we are setting our sights on 2017 and expectations for M&A. 

Consistent with the MACI leading indicators referenced above, EY’s recently released Global Capital Confidence Barometer gives us cause for optimism, at least through Q1, 2017.[1]  The article reports the survey results of more than 1,700 executives in 45 countries including Canada, which is where we will focus.

The report presents an auspicious outlook for 2017, with 44% of Canadian respondents expressing a belief that the Canadian M&A market will improve over the next twelve months (versus only 14% last year).  In addition, 48% expect to actively pursue a merger or acquisition in the next 12 months.  While this is below global (57%) and U.S. (75%) levels, Canadian expectations do exceed the historical average.  Moreover, and more tangible than expectation, Canadian respondents have deep deal pipelines, with more than 80% currently looking at multiple acquisitions.  Finally, adding an extra layer of momentum to the Canadian M&A market, and for the first time since 2013, Canada ranks as one of the top five countries where global respondents will actively pursue acquisitions.  

The favourable outlook expressed in the EY report and the positive MACI leading indicators are consistent with Intralinks’ recent forecast of M&A activity through Q1 2017.  Intralinks tracks early stage virtual data room activity in preparation for M&A due diligence to assess future transaction volume.  Global early-stage M&A activity in Q3 2016 increased 7% year over year (YOY), representing the highest growth rate in 2016 to date, with Canada registering YOY growth of 10%.

Positive management expectations, higher levels of M&A due diligence and our own experience at Valitas lead us to feel optimistic about 2017. In the latter part of the year, we signed several mandates that will be announced in Q1 2017 and are working with a number of companies to assess their strategic alternatives in light of current market conditions.

Current market conditions provide compelling support for a strong start to 2017.  There is plenty of cash on corporate balance sheets and in private equity coffers, and credit terms remain favourable.  In our current slow organic growth environment, companies are relying on acquisitions to drive revenue growth.  Additionally, management will continue to use targeted acquisitions to “future proof”[2] their companies in response to challenges posed by new innovations and disruptors. The limitation to future activity remains in the shrinking pool of quality targets and inflated valuation. Worthy of note, however, is that 75% of Canadian respondents to the EY survey were bullish on the quality of acquisition opportunities.  We’ll hang our hat on that (at least for now).  It’s nice to end the year with on strong start to 2017 on the horizon.

Weekly M&A Deal Summary

Announced

Portola Resources to Acquire Argentina Lithium Assets

Portola Resources Inc. (TSXV:PZ), a Canadian junior mineral properties exploration company, has agreed to acquire Argentinean-based mineral exploration companies Lithium Energi Argentina, S.A., Antofalla North, S.A., and Antofalla South, S.A.. Total transaction values are estimated to be $1.1 million, $2.8 million, and $4.2 million respectively.

CDN BVentures to Merge with Appature Technologies

CDN BVentures Ltd., a Canadian reporting issuer, has agreed to acquire Appature Technologies Inc., which specializes in launching, acquiring and vertically integrating social media mobile applications. No transaction terms were released.

Cliffside and AutoCapital Canada to Invest in Automobile Loans

Cliffside Capital Ltd. (TSXV:CEP), a strategic passive investor, and AutoCapital Canada Management Inc., a national financial services company providing vehicle purchase financing, have agreed to acquire interests in a new limited partnership holding automobile loans originated and serviced in Canada, with an aggregate principal balance of approximately $1.5 million.

Vanc Pharmaceuticals to Acquire HealthTab

Vanc Pharmaceuticals Inc. (TSXV:VANC), a manufacturer and distributor of generic and over-the-counter pharmaceuticals, has agreed to acquire HealthTab, Inc., which operates a web-enabled health screening system that allows users to access test results from point-of-care analyzers, track health history, and share health information. No transaction terms were released.

Canadian Cannabis to Acquire Tree of Knowledge

Canadian Cannabis Corp. (OTCPK:CCAN), a manufacturer and marketer of medical marijuana products in Canada and internationally, has agreed to acquire Tree of Knowledge, Inc., a vertically integrated producer and distributor of hemp based Cannabidiol products, located in Washington. No transaction terms were released.

Snow Eagle Resources to Acquire Bukit Energy

Snow Eagle Resources Ltd., a Canadian capital pool company, has agreed to acquire Bukit Energy Inc., a Longbow Capital backed oil and gas exploration and production company. No transaction terms were released.

Industrial Alliance to Acquire HollisWealth

Industrial Alliance Insurance and Financial Services (TSX:IAG), a Canadian insurance company, has agreed to acquire wealth management advisory firm HollisWealth Inc.. No transaction terms were released.

Advent International to Acquire V.Group

Advent International Corporation, a U.S. based venture capital and private equity firm, has agreed to acquire V.Group Ltd., an OMERS Private Equity and OMERS Ventures backed global maritime service provider offering outsourced technical management of maritime assets. No transaction terms were released.

Archway Insurance to Acquire Alliance Assurance

Archway Insurance Inc., an insurance brokerage services provider in Atlantic Canada, has agreed to acquire Alliance Assurance Inc., a Canadian insurance brokerage company. No transaction terms were released.

Agropur to Acquire Scotsburn

Agropur Cooperative, Canada's largest dairy producer, backed by Desjardins, Caisse de dépôt et placement du Québec, Fondaction, Fonds de solidarité FTQ, Investissement Quebec, Investment Arm, and National Bank of Canada, Investment Arm, has agreed to acquire Scotsburn Cooperative Services Ltd., a leading manufacturer of ice cream, frozen yogurt and frozen novelties based in Nova Scotia. No transaction terms were released.

Premium Brands to Acquire Island City Baking and Conte Foods

Premium Brands Holdings Corporation (TSX:PBH), a Canadian manufacturer and distributor of food products, has agreed to buy Island City Baking, a B.C. based fresh and frozen bread maker, and Conte Foods, which makes fresh pasta and distributes specialty foods imported from Europe. Total transaction value is estimated to be $20.3 million.

Sprott Resource to Merge with Adriana Resources

Sprott Resource Corp., a publicly-listed private equity firm focused on the natural resource sector, and Adriana Resources Inc. (TSX-V:ADI), owner of 40% of the Lac Otelnuk iron ore project in Northern Quebec, have entered into a definitive agreement to effect a business combination, creating the $150 million Sprott Resource Holdings.

Closed

Premium Brands Acquires Diana's Seafood Delight

Premium Brands Holdings Corporation (TSX:PBH), a Canadian manufacturer and distributor of food products, has acquired Diana's Seafood Delight, a fresh and frozen seafood products retailer. No transaction terms were released.

CannaRoyalty Acquires Achelois

CannaRoyalty Corp., a Canadian investor and operator in the legal cannabis sector, has acquired Achelois LLC, a California-based manufacturer of skincare products under the brand name DermaLeaf. No transaction terms were released.

Kuuhubb Acquires Kemojo Studios

Kuuhubb OY, a Finland based company specializing in boosting Asian distribution and brand/IP collaborations of mobile app and VR vendors, has acquired Kemojo Studios, a mobile game developer based in Vancouver. No transaction terms were released.

GE Transportation Acquires Iders

GE Transportation, the world’s leading producer of rail and transportation-related products and offerings, has acquired Iders Incorporated, an electronic product design and manufacturing company for the rail industry. No transaction terms were released.

Fonds de solidarité FTQ and Investissement Quebec Invest in Plastique Micron

Fonds de solidarité FTQ, a private equity and venture capital firm, and Investissement Quebec, Investment Arm, a private equity arm specializing in development capital investments, have invested in Plastique Micron Inc., a Canadian manufacturer and exporter of plastic containers. No transaction terms were released.

XTM Acquires Milk Lab Design Studio

XTM Inc., a digital advertising and marketing agency, has acquired Milk Lab Design Studio, a Canadian media design and development services provider. No transaction terms were released.

Waterford Institute Acquires Curriculet

Waterford Institute Inc., an Arc Capital Development backed, non-profit edtech and research center, has acquired Curriculet, which provides a digital reading platform. No transaction terms were released.

Blue Sky Energy Acquires Sonoro Energy

Blue Sky Energy Inc. (TSXV:BSI), an independent Canadian oil and gas exploration company, has acquired Sonoro Energy Iraq B.V., which engages in exploration for, development, and production of unconventional asphalt/bitumen resources in Iraq. Total transaction value is estimated to be $4 million.

Shopify Acquires Tiny Hearts

Shopify Inc. (NYSE:SHOP), which provides a cloud-based and multi-channel commerce platform for small and medium-sized businesses, has acquired Tiny Hearts Limited, an iPhone application developer based in Canada. No transaction terms were released.

Print Audit Acquires NeoStream Technologies

Print Audit, Inc., a provider of print management toolsets, office collaboration systems and document management solutions, has acquired NeoStream Technologies Inc., a software company that provides document management, communication, and collaboration solutions to various industries worldwide. No transaction terms were released.

The Luminaires Group Acquires Luminis

The Luminaires Group Inc., a Sentinel Capital Partners and Audax Group backed, lighting products manufacturer, has acquired Luminis Canada Inc., a Canadian manufacturer of innovative indoor and outdoor LED lighting solutions. No transaction terms were released.

Chelsea Avondale Acquires MAX Canada

Chelsea Avondale, Ltd., a value investing company in the property and casualty insurance industry, has acquired MAX Canada Insurance Company, a faith-based property insurance provider. No transaction terms were released.

MTY Food Group Acquires La Diperie

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

Automotive Properties REIT Acquires Audi and Volkswagen Dealership Property

Automotive Properties Real Estate Investment Trust (TSX:APR.UN), an open-ended REIT located in Canada, has acquired an Audi and Volkswagen dealership property located in Quebec. Total transaction value is estimated to be $14.3 million.

Olymel Acquires Pinnacle Farms

Olymel S.E.C. / L.P., a Canadian leader in the production, processing, and distribution of pork and poultry meats, has acquired Pinnacle Farms Inc., a major hog producer located in Alberta. No transaction terms were released.