Value Unleashed

Market Update

Fifty Canadian M&A transactions were announced this past week. Oil increased slightly after oil producers agreed to cut output. Conversely, the Canadian dollar fell by 1.07 cents, ending the week at 75 cents. The TSX underperformed the S&P 500 by 1.0% in U.S. dollar terms, reflecting the effect of a rising S&P 500 further exacerbated by the decline 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 decreased slightly from last year’s levels. Total leverage levels have remained consistent from last week although they have decreased 0.8x from one year ago, perhaps indicating a tighter lending market. Or perhaps not.  In an article this week in The Lead Left, lenders complained about, among other factors, generous adjustments to EBITDA by sponsors, which possibly lend a fictional element to that 4.8X leverage multiple.      

What’s the Deal:  The Future of Recreational Marijuana in Canada

Reading over our deal summaries week after week, I’ve been struck by a common thread…cannabis.  Each week, there is at least one cannabis-related deal on the list.  Sometimes the buyer is strategic and sometimes financial, but there it is. 

At the same time, valuations of publicly traded cannabis companies have reached lofty heights, as south of the border, more states legalize the use of cannabis in some form, and here in Canada, investors anticipate a market expansion with the impending legalization of recreational marijuana.

Because of the state of current Canadian law, reported deals generally relate to medical marijuana.  But given the activity in the sector, and the recently released report by The Task Force on Cannabis Legalization and Regulation, we thought it would be interesting to take a look ahead at future prospects for the legalization of recreational marijuana in Canada. 

What you should keep in mind:

It’s not legal yet

The task force report was released on December 13, 2016, with input received from a wide-ranging set of stakeholders.  The report is not law, but rather, a comprehensive set of recommendations to guide pending legislation on the legalization of recreational marijuana. The federal government expects to introduce draft legislation in the spring of 2017, with the law coming into force after being passed by Parliament, and once regulations have been developed[1].

No recommendations on the grandfathering of medical marijuana producer licenses

We will have to wait for the draft legislation to gain insight on this point.  Worthy of note, however, is the task force recommendation that federal regulation of the production of cannabis and its derivatives should draw “on the good production practices” of current medical marijuana producers.[2]

“I think that marijuana should not only be legal, I think it should be a cottage industry…I’m sure it would be even better if you could grow it with fertilizers and have greenhouses.”- Stephen King

Some of the Task Force’s key recommendations:

• A minimum age of purchase of 18, but leaving provinces and territories free to harmonize with their minimum alcohol purchase age;
• Restrictions on advertising and promotion should be similar to those related to alcohol and tobacco; packaging should be plain, not “appealing to children”, opaque and child resistant;
• Edibles deemed to be “appealing to children” should be prohibited, including products that resemble or mimic familiar food items.  In addition, a maximum amount of THC/serving should be set and packaging labeled with a THC symbol;
• Wholesale distribution and retail sales should be regulated at the provincial level;
• Mixed products should be prohibited i.e. cannabis mixed with alcohol, nicotine, caffeine;
• Potent strains of cannabis should be taxed at higher rates to discourage purchase.

As a current candidate for leadership of our Conservative party once said: 

“You either make it illegal, in which case you support a huge underground economy or you tax it within the limits people can afford.” – Kevin O’Leary

The federal government has recognized this in their move towards the legalization of recreational marijuana.  And we expect that down the road, our deal summaries (and deal activity) will reflect a new legal framework.

If you are interested in this sector but don’t feel like reading the task force report in detail, please feel free to contact us here at Valitas at karen.fisman@valitas.com for more information.

Weekly M&A Deal Summary

Announced

Tucows to Acquire eNom

Tucows Inc. (NasdaqCM:TCX), a Canadian provider of network access, domain names, and other Internet services, has agreed to acquire eNom Inc., a U.S.-based wholesale domain name registrar. Total transaction value is estimated to be $111.4 million.

Delrand Resources to Acquire Kuuhubb

Delrand Resources Limited (TSXV:DRN.H), a Canadian business that engages in the acquisition and exploration of diamond properties in the Democratic Republic of the Congo, has agreed to acquire Kuuhubb Oy, an independent Finnish company specializing in boosting Asian distribution and brand/IP collaborations of mobile app and VR vendors. Total transaction value is estimated to be $7.4 million.

LED Medical Diagnostics to Acquire Apteryx

LED Medical Diagnostics Inc. (TSXV:LMD), a Canadian developer and marketer of medical devices in the dental industry, has agreed to acquire Apteryx, Inc., a U.S.-based software development company with well-established applications for the dental imaging market. Total transaction value is estimated to be $10.3 million.

Generex Biotechnology to Acquire Emmaus Life Sciences

Generex Biotechnology Corporation (OTCPK:GNBT), a Canadian pharmaceuticals company that engages in the research, development, and commercialization of drug delivery systems and technologies for metabolic and immunological diseases, has agreed to acquire Emmaus Life Sciences, Inc., an Agility Capital, Mitsubishi UFJ Capital, Cato BioVentures and Sarissa Capital Management backed American business that engages in the discovery, development, and commercialization of treatments and therapies primarily for rare and orphan diseases. Total transaction value is estimated to be $324.2 million.

Agility Health to Acquire Medic Holdings

Agility Health, Inc. (TSXV:AHI), a U.S.-based provider of rehabilitation services, has agreed to acquire Medic Holdings Corp., an independent Canadian operator of foot care clinics and manufacturer of custom orthotics. Total transaction value is estimated to be $4.4 million.

Nutreco to Acquire Hi-Pro Feeds

Nutreco N.V. (AMS:NUO), a leading feed maker company in the Netherlands, has agreed to acquire Hi-Pro Feeds LP, a Canadian animal nutrition supplier operating in North America. No transaction terms were released.

Para Resources to Acquire Nicaragua Milling Company

Para Resources Inc. (TSXV:PBR), a Canadian natural resources company that engages in the acquisition, exploration, and development of mineral properties in South and Central America, has agreed to acquire Nicaragua Milling Company Limited, a Belizean provider of gold toll mining and production services. No transaction terms were released.

Network Media Group to Acquire Network Entertainment

Network Media Group Inc. (TSXV:NTE), a Canadian developer and producer of entertainment content, has agreed to acquire Network Entertainment Inc., a Canadian provider of television and film production services. Total transaction value is estimated to be $216 thousand.

Metalla Royalty & Streaming to Acquire Silverback

Metalla Royalty & Streaming Ltd. (OTCPK:EXCF.F), a Canadian precious metals royalty and streaming company, has agreed to acquire Silverback Ltd., an independent Canadian company that owns silver stream at a producing gold mine. No transaction terms were released.

Carl Data Solutions to Acquire AB Embedded Systems

Carl Data Solutions Inc. (DB:7C5), a Canadian developer of Big-Data-as-a-Service-based solutions for data integration, business intelligence, and the Industrial Internet-of-Things applications, has agreed to acquire AB Embedded Systems Ltd., an independent Canadian industrial sensor and data logger manufacturer. Total transaction value is estimated to be $785 thousand.

Invictus MD Strategies to Acquire PlanC BioPharm

Invictus MD Strategies Corp. (OTCPK:IVIT.F), a Canadian private equity firm, has agreed to acquire PlanC BioPharm Inc., an independent Canadian producer of medicinal cannabis. Total transaction value is estimated to be $8.6 million.

American Bath Group to Acquire MAAX Bath

American Bath Group, LLC, an MPV Capital Partners backed designer and manufacturer of fiberglass reinforced plastic, sheet molded compound, and acrylic bathtubs and showers, has agreed to acquire MAAX Bath Inc., a Brookfield Asset Management backed Canadian bathtub supplier. No transaction terms were released.

Closed

Molson Coors Canada Acquires Bebidas de Calidad de Madrid

Molson Coors Canada Inc. (TSX:TPX.B), a leading global brewing company, has acquired Bebidas de Calidad de Madrid S.L., a ZX Ventures backed Spanish beer producer. No transaction terms were released.

Newlook Capital Acquires Direct Elevator Services

Newlook Capital Inc., a Canadian private equity firm, has acquired Direct Elevator Services Ltd, a Canadian services provider for elevator maintenance. No transaction terms were released.

Chongqing Zongshen Power Machinery Acquires ELIX Wireless Charging Systems

Chongqing Zongshen Power Machinery Co.,Ltd (SZSE:001696), a Chinese company that develops, manufactures, and sells motorcycle engines, gasoline and diesel engines, and various agricultural and forestry machinery, has acquired ELIX Wireless Charging Systems Inc., a Canadian manufacturer of wireless power charging systems. No transaction terms were released.

Ricoh Acquires Avanti Computer Systems

Ricoh Company, Ltd. (TSE:7752), a Japanese manufacturer of commercial inkjet print heads and office imaging equipment, has acquired Avanti Computer Systems Limited, a Canadian provider of Print MIS (Management Information Systems) for the production print market. No transaction terms were released.

Datavail Acquires Navantis

Datavail Corporation, a Boulder Ventures, Meritage Funds, Catalyst Investors, Montis Capital, Tahosa Capital, and Lumerity Capital backed U.S.-based provider of remote database administration services, has acquired Navantis, Inc., a Canadian provider of systems integration and IT solutions. No transaction terms were released.

Optimum Talent Acquires Conroy Ross Partners

Optimum Talent Inc., a Canadian human resource consulting business, has acquired Conroy Ross Partners Limited, an independent company that provides executive search and business consulting services in Canada. No transaction terms were released.

Q4 Acquires CapMark Clarity

Q4 Inc., a HarbourVest Partners, Information Venture Partners, Kensington Capital Partners, SVB Silicon Valley Bank, Plaza Ventures, Emerillon Capital, Accomplice, and The OpenText Enterprise Apps Fund backed Canadian provider of cloud-based investor relations and capital market solutions, has acquired CapMark Clarity, a U.K.-based company that offers capital market intelligence services focusing on shareholder analytics. No transaction terms were released.

Holiday Inn Oakville Acquired

Holiday Inn Oakville, a Canadian hotel owner and operator, has been acquired. No buyer details or transaction terms were released.

Next Gear Solutions Acquires Luxor CRM

Next Gear Solutions, Inc., a Serent Capital backed U.S.-based developer and provider of restoration management software solutions, has acquired Luxor CRM Inc., a Canadian company that develops Web-based Customer Relationship Management software. No transaction terms were released.

Co-Operators General Insurance Acquires Denny's Insurance

Co-Operators General Insurance Co., a Canadian insurance and financial services provider, has acquired Denny's Insurance, a Canadian insurance brokerage services company. No transaction terms were released.

Keolis Canada Acquires Autocars Skyport

Keolis Canada Inc., a ground transportation provider, has acquired Autocars Skyport Inc., a Canadian provider of bus passenger transportation services. No transaction terms were released.

Gamber-Johnson Acquires Precision Mounting Technologies

Gamber-Johnson, LLC, a Main Street Capital Corporation (NYSE:MAIN) backed U.S.-based leading manufacturer of rugged computer mounting systems, has acquired Precision Mounting Technologies Ltd., a Canadian designer and manufacturer of in-vehicle computer laptop mounts and docking stations. No transaction terms were released.

Firebrand Technologies Acquires Enthrill Distribution

Firebrand Technologies, Inc., a U.S.-based provider of software and technology services for the book publishing industry, has acquired Enthrill Distribution Inc., a Canadian company that provides eBook distribution products and services. No transaction terms were released.

TELUS Acquires Mascon Communications

TELUS Corporation (TSX:T), a Canadian telecommunications company, has acquired Mascon Communications Corp., a Canadian telecommunication services provider in British Columbia. No transaction terms were released.

The Standard Insurance Brokers Acquires Smith & Associates

The Standard Insurance Brokers Ltd., an Ontario-based insurance brokerage business, has acquired Smith & Associates Ins. Ltd., a Canadian insurance broker. No transaction terms were released.

CRC Research Acquires Research House

CRC Research Inc., a Canadian company that offers marketing research services for medical and consumer markets, has acquired Research House, Inc., a Canadian provider of market research services. No transaction terms were released.

EMCO Chemical Distributors Canada Acquires Inortech Chimie

EMCO Chemical Distributors Canada Ltd., a chemical distributor business, has acquired Inortech Chimie, Inc., a Canadian supplier of coatings, ink, adhesive, and plastics. No transaction terms were released.