Value Unleashed

Market Update

Thirty-five Canadian M&A transactions were announced this past week. Oil decreased by 3.1% after a slight decrease last week. Correspondingly, the Canadian dollar climbed by 0.37 cents, ending the week at 76 cents. The TSX underperformed the S&P 500 by 0.6% in U.S. dollar terms, as the TSX approached its 52-week high. 

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 rose 0.14% from last week. Total leverage levels have remained consistent from last week although they have decreased 0.4x from one year ago indicating a tighter lending market.

 

 

Looking through the Windshield

“In the business world, the rearview mirror is always clearer than the windshield.”[1] 

But like a good set of wipers, insights from reliable sources can improve that forward looking visibility.

Leading law firms with active M&A practices represent one such reliable source, so when Blakes’ Mergers & Acquisitions: Trends to Watch in 2017 report crossed my desk, it went directly to the top of my reading pile. The article didn’t disappoint, and this week, I’d like to share a couple of the authors’ findings related to government policy, that are likely to drive Canadian M&A forward in 2017.

Canada:  A more attractive target for foreign investment

“Now is the time to sharpen Canada’s competitive edge and seek new and innovative ways to attract investment and talent from around the world.” – Government of Canada Fall Economic Statement: Investing in the New Economy

In Fall 2016, the federal government announced several new measures directed at increasing foreign investment in Canada, including:

1. Creating an “Invest in Canada Hub” to promote Canada as an attractive investment destination, as well as to streamline the process for foreign investors;

2. Raising the threshold for foreign investment review under the Investment Canada Act from $800 million to $1 billion in 2017, two years sooner than the planned date in 2019;

3. Increasing the review threshold for “trade agreement investors”[2] to $1.5 billion; and

4. Publishing guidelines to provide clarity for the national security provisions of the Investment Canada Act which currently, are very difficult for foreign investors to navigate.

We noted previously that for the first time since 2013, Canada ranks as one of the top five countries where foreign investors will actively pursue acquisitions[3].  From 2010 – 2016, foreign investors have comprised 32-35% of Canadian target acquisitions. 

We expect that in a world where trade globalization is becoming more controversial, Canada’s welcoming foreign investment climate could drive those numbers higher in 2017 and beyond.

A shared vision with the U.S.:  Infrastructure Investment

While our Prime Minister Trudeau and the U.S. president-elect diverge in many of their views, they both prioritize infrastructure spending, which should create investment opportunities in both infrastructure projects and related industries.

In Canada, the federal government has proposed:

1. An additional investment in infrastructure of C$81 billion over 11 years; and

2. The creation of a new Canada Infrastructure Bank, responsible for investing at least $35 billion from the federal government into large infrastructure projects that contribute to economic growth through direct investments, loans, loan guarantees and equity investments.

In addition, just to the south, President-elect Trump has pledged to spend US$1 trillion on American infrastructure over the next decade.

Our strengthening vision for 2017

We’ve previously discussed our positive expectations for 2017, noting the level of early stage M&A activity towards the end of 2016, as well as current market conditions and our own experience here at Valitas. Our optimism is reinforced by the government’s commitment to attracting higher levels of foreign investment and to infrastructure spending, which are likely to generate investment opportunities around related projects and industries.

Our view: the road ahead looks pretty good!

 

Announced

Leagold Mining to Acquire Desarrollos Mineros San Luis

Leagold Mining Corporation (TSXV:LMC.H), a Canadian mid-tier gold producer operating in Latin America, has agreed to acquire Desarrollos Mineros San Luis, S.A. De C.V, a Mexican company that engages in the mining of minerals and ore. Total transaction value is estimated to be $350 million.

 

Canada Pension Plan Investment Board to Acquire GlobalLogic

Canada Pension Plan Investment Board, has agreed to acquire GlobalLogic Inc., an Apax Partners LLP and Altamir SCA (ENXTPA:LTA) backed U.S.-based IT outsourcing firm. No transaction terms were released.

 

Chartwell Retirement Residences to Acquire The Orchards Retirement Residence

Chartwell Retirement Residences (TSX:CSH.UN), a real estate investment trust that invests in North America, has agreed to acquire The Orchards Retirement Residence, a U.S.-based owner and operator of a retirement village community. Total transaction value is estimated to be $29.1 million.

 

Xplornet Communications to Acquire YourLink

Xplornet Communications Inc., a Canadian rural broadband provider of wireless high-speed Internet services, has agreed to acquire YourLink Inc., an independent business that provides wireless Internet solutions to rural and remote communities in Saskatchewan. Total transaction value is estimated to be $28.8 million.

 

Turbine Truck Engines to Acquire Novo Healthnet Limited

Turbine Truck Engines, Inc. (OTCPK:TTEG), a U.S.-based clean-air technology company, has agreed to acquire Novo Healthnet Limited, an independent business that owns and operates rehabilitation clinics across Ontario. No transaction terms were released.

 

Finance Magnates to Acquire ForexLive

Finance Magnates Ltd., an Israeli company that owns and operates a currency market news and information website, has agreed to acquire ForexLive, a subsidiary of the Canadian currency trading insights and analysis provider Live Analytics Inc.. No transaction terms were released.

 

NterOne to Acquire ARP Technologies

NterOne Corporation, a U.S.-based training and consulting company, has agreed to acquire ARP Technologies Inc., an independent Canadian business that offers Cisco wireless and call center training services worldwide. No transaction terms were released.

 

Inaria International to be Acquired

Inaria International Inc., a Canadian sports and active wear products provider, has announced that it will be acquired. No buyer details were released. Total transaction value is estimated to be $2.1 million.

 

Closed

Colliers International Group Acquires Colliers International Denmark

Colliers International Group Inc. (TSX:CIGI), a Canadian real estate brokerage company, has acquired Colliers International Denmark A/S, a real estate brokerage services provider. No transaction terms were released.

 

VWR Acquires Seastar Chemicals

VWR Corporation (NasdaqGS:VWR), a U.S.-based provider of laboratory products, services, and solutions worldwide, has acquired Seastar Chemicals, Inc., a Canadian manufacturer of high purity reagents for research and laboratory markets. No transaction terms were released.

 

Hampton Financial Acquires All Group Financial Services

Hampton Financial Corporation (TSXV:HFC), an independent Canadian business that is actively engaged in family office, wealth management, institutional services and capital market activities,  has acquired All Group Financial Services Inc., an independent Canadian investment dealer. No transaction terms were released.

 

Stern Partners Acquires OUTtv Network

Stern Partners Inc., an independent Canadian venture capital and private equity firm, has acquired OUTtv Network Inc., an operator of  a specialty television channel in Canada. No transaction terms were released.

 

Place-Crete Systems Acquires Associated Asbestos Abatement

Place-Crete Systems Inc., a Mosaic Capital backed specialty contracting service provider in Western Canada, has acquired Associated Asbestos Abatement Ltd., an independent Canadian business that provides asbestos and mold removal services. No transaction terms were released.

 

Lotus Innovations Acquires Commerx

Lotus Innovations, LLC, a U.S.-based private equity and venture capital firm, has acquired Commerx Corporation, a Canadian Internet solutions provider. No transaction terms were released.

 

Morneau Shepell Acquires Les Consultants Longpré & Associés

Morneau Shepell Inc. (TSX:MSI), a Canadian human resource consulting and technology company, has acquired Les Consultants Longpré & Associés inc., an independent Canadian business that provides employee and family assistance programs and wellness programs. No transaction terms were released.

 

WBD Holdings Acquires Tundra Mechanical & Millwrighting (1988)

WBD Holdings Ltd., a Mosaic Capital backed Canadian industrial and maintenance construction company, has acquired Tundra Mechanical & Millwrighting (1988) Ltd., an independent Canadian business that offers fabrication, installation, and designing services for material handling systems. No transaction terms were released.

 

Mettrum Health Acquires Bodystream Cannabis Clinic Network

Mettrum Health Corp. (TSXV:MT), a fully integrated medical cannabis producer in Canada, has acquired Bodystream, a leading network of medical cannabis clinics with 14 locations across Ontario. Total transaction value is estimated to be $14.3 million.

 

kyu Acquires BEworks

kyu, a Japan-based marketing services company, has acquired BEworks Inc., a Canadian management consulting business. No transaction terms were released.

 

Ole Media Management Acquires Red Vinyl Music

Ole Media Management, L.P., a Canadian music publishing services business, has acquired Red Vinyl Music, LLC, an independent U.S.-based company that provides music publishing services. No transaction terms were released.

 

Spark Power Acquires New Electric Enterprises

Spark Power Corp., a provider of traditional and renewable power services and solutions in Canada, has acquired New Electric Enterprises Inc., a Canadian electrical contracting services company. No transaction terms were released.

 

McCubbin Hosiery Acquires Robeez Footwear

McCubbin Hosiery, LLC, a Patriot Capital, Guardian Capital Partners, and Hauser Private Equity backed designer, manufacturer and distributor of hosiery, slippers and soft-soled footwear in the U.S., has acquired Robeez Footwear, Ltd., a leading Canadian baby and toddler soft-soled footwear business. No transaction terms were released.

 

BDO Canada Acquires Hazlitt Steeves Harris Dunn

BDO Canada LLP, an independent business that provides auditing, accounting, tax, financial, and management advisory services, has acquired Hazlitt Steeves Harris Dunn LLP, a U.S.-based accounting and advisory company. No transaction terms were released.

 

Mattamy Homes Acquires Beachline South Residential

Mattamy Homes Limited, a Canadian homebuilder operating in North America, has acquired Beachline South Residential, LLC, a U.S.-based land developer. No transaction terms were released.

 

Capri Insurance Services Acquires CMW Insurance Services

Capri Insurance Services Ltd, a Canadian insurance brokerage and risk management business, has acquired CMW Insurance Services Ltd., an independent provider of commercial risk management and insurance products in Canada. No transaction terms were released.

 

Groupe Heafey Acquires Conrad Fort Lauderdale Hotel by Hilton

Groupe Heafey, a Canadian real estate investment company, has acquired the remaining units of the Conrad Fort Lauderdale Hotel by Hilton. Total transaction value is estimated to be $132 million.

 

KIRCHHOFF Automotive Acquires KIRCHHOFF Van-Rob

KIRCHHOFF Automotive GmbH, a German full-service supplier and development partner to the global automotive industry, has acquired KIRCHHOFF Van-Rob Inc., a Canadian automotive manufacturer that engages in the design and manufacture of large structural assemblies, chassis components, and crash energy management systems. No transaction terms were released.

 

David's Condiments Acquired

David's Condiments Inc., an independent Canadian producer and distributor of low sodium gourmet seasonings and food products in North America, has been acquired. No buyer details or transaction terms were released.

 

Invictus MD Strategies Acquires AB Ventures

Invictus MD Strategies Corp. (OTCPK:IVIT.F), a Canadian private equity firm, has acquired AB Ventures Inc., an independent Canadian company that cultivates and produces cannabis for medicinal purposes. Total transaction value is estimated to be $7.5 million.

 

 

Microsoft Acquires Maluuba

Microsoft Corporation, a U.S.-based technology conglomerate, has acquired Maluuba Inc., a Montreal-based machine learning platform. No transaction terms were released.