Value Unleashed

Market Update

Sixty-four Canadian M&A transactions were announced this past week. Year to date, M&A deal count is 21.0% higher than the comparable period in 2016. The Canadian dollar depreciated by 0.02 cents, ending the week at 75 cents. The TSX fell by 0.3% and outperformed the S&P 500 by 1.1% in U.S. dollar terms.

 The new issue environment for U.S. middle market loans tightened with average total leverage of 4.3x EBITDA and new issue clearing yields 0.51% lower than last year’s levels. WTI crude continued to fall, ending 2.5% lower than the previous week.

Insight Article:  The Dry Powder Saga continues in 2017…

“Dry powder at record highs.” This phrase has acquired cliché status in current Private Equity (PE) circles.  According to Pitchbook, the global PE capital overhang hit a high of US$754 billion by June, 2016, with Prequin reporting the total as US$820 billion by year end.  Worthy of note: more than 70% of that overhang comes from prior vintages, with 81.5% of capital raised in 2015 still to be deployed[1]. 

Fundraising in 2016 increased 2.6% over 2015, representing a fourth year of enthusiastic capital commitment by Limited Partners (LP’s) to Private Equity.  And current sentiment suggests that capital overhang will persist through 2017.   

According to a recent Prequin survey, 95% of institutional investors reported that their PE fund investments met or exceeded expectations, and 84% reported a positive view of the asset class, up from 65% in 2015.  Of the respondents surveyed, 89% intended to commit the same or more capital more capital to PE than they did in 2016.  Our takeaway assumption:  despite escalating valuations and a competitive deal environment, the dry powder will continue to accumulate. 

Common sense and history suggest that this will correct over time.  High valuations are, inevitably, going to limit PE investor returns, resulting in the reallocation of funds into alternative asset classes and less competition for acquisition targets.   But in the meantime, it is worthwhile to consider insights shared by Roger Martin, former dean of the Rotman School of Management, in the Harvard Business Review. 

In his article, M&A: The One Thing You Need to get Right, Martin concludes that successful acquirers – those that create value for shareholders -  are more likely to be givers rather than takers. What does that mean?  Martin explains that acquirers need to bring something of value to the table i.e. be smarter providers of capital, provide better managerial oversight, or bring valuable skills, in order to create value, His thesis is aligned with views articulated at a recent webcast on the current state of private equity.  On the topic of effective competition in this challenging deal environment, speakers agreed that PE investors had to develop expertise at “playing” in specific sectors or verticals, in order to better understand how to provide value to a prospective target. 

In other words, and particularly in the current deal landscape:

“Ask not what your [target company] can do for you, ask what you can do for your [target company].” – Valitas adaptation of John F. Kennedy’s famous quote

M&A Deal Summary

Announced

Rhone Capital to Acquire Garda World Security

Rhone Capital, L.L.C., an American private equity firm, has agreed to acquire Garda World Security Corp., an Apax Partners backed Canadian company that provides security and cash services worldwide. No transaction terms were released.

Lingo Media to Acquire Vested Finance

Lingo Media Corporation (TSXV:LM), a Canadian educational technology company that develops and markets products for learners of English, has agreed to acquire Vested Finance, Inc., a Fastforward Innovations Limited (AIM:FFWD), Learn Capital, University Ventures, The Social+Capital Partnership and Sandleigh Ventures backed American company that provides financing solutions to students for higher education. No transaction terms were released.

Beijing BDStar Navigation to Acquire Rx Networks

Beijing BDStar Navigation Co., Ltd. (SZSE:002151), a Chinese company that engages in the research, development, production, marketing, and service of satellite navigation and positioning products and services, has agreed to acquire Rx Networks Inc., a TELUS Ventures and Discovery Capital Management backed Canadian mobile location technology company. Total transaction value is estimated to be $31.0 million.

Golden Leaf Holdings to Acquire Chalice Farms

Golden Leaf Holdings Ltd. (DB:9GL), a Canadian provider of cannabis oils solutions, has agreed to acquire Chalice Farms, LLC, an independent American company that produces and distributes cannabis. No transaction terms were released.

Gravis Energy to Acquire BiocurePharm

Gravis Energy Corp. (CNSX:GVE), a Canadian company that explores for and develops mineral properties, has agreed to acquire BiocurePharm, Inc., an IBK Capital backed South Korea-based biotechnology company that engages in the development and commercialization of biopharmaceuticals and drugs for cancer using angiogenesis. No transaction terms were released.

Diamante Minerals to Acquire Mineracao Batovi

Diamante Minerals, Inc. (OTCPK:DIMN), a Canadian company that acquires and explores mineral properties, has agreed to acquire Mineracao Batovi Ltda., a Brazil-based natural resources company. No transaction terms were released.

Eagle Graphite to Acquire Eurocan Mining

Eagle Graphite Incorporated (TSXV:EGA), a Canadian company that engages in the acquisition, exploration, and development of mineral properties, has agreed to acquire Eurocan Mining GmbH, a Germany-based company that provides mineral exploration services. Total transaction value is estimated to be $3.35 million.

Namaste Technologies to Acquire CannMart

Namaste Technologies Inc. (OTCPK:NXTT.F), a Canadian developer, manufacturer and distributor of aromatherapy vaporizers and accessories worldwide, has agreed to acquire CannMart Inc., a Canadian company that engages in distribution of medical cannabis. No transaction terms were released.

Bearspaw Tree Farm to be Acquired

Bearspaw Tree Farm Inc., a Target Capital (TSXV:TCI) backed Canadian real estate development services provider, will be acquired. No buyer details were released. Total transaction value is estimated to be $448 thousand.

Closed

Secova Metals Acquires 1107136 B.C. Ltd

Secova Metals Corp. (TSXV:SEK), a Canadian exploration stage company that engages in the acquisition, exploration, and evaluation of mineral properties in Canada, has acquired 1107136 B.C. Ltd, an independent Canadian company whose sole asset is 299 claims. Total transaction value is estimated to be $715 thousand.

Complete Innovations Acquires BigRoad

Complete Innovations Inc., a Madison Dearborn Partners and Symmetric Capital backed Canadian developer and provider of mission-critical fleet, asset, and mobile workforce management solutions worldwide, has acquired BigRoad Inc., a Canadian company that develops and delivers mobile trucking applications for fleet operators and drivers. No transaction terms were released.

Pacific West Commercial Acquires Jean Machine

Pacific West Commercial Corporation, a Canadian paper mills owner and operator, has acquired Jean Machine Inc., an independent Ontario-based denim apparel seller. No transaction terms were released.

Paladin Security Group Acquires Criterion Security

Paladin Security Group Ltd., a Canadian security guard services provider, has acquired Criterion Security, an American security company. No transaction terms were released.

Resa Power Solutions Acquires Pro-Con Electrical Testing

Resa Power Solutions, LLC, an Audax Group and First Capital Partners backed American distributor of power distribution and control equipment, has acquired Pro-Con Electrical Testing Ltd., a Canadian company that provides electrical testing and maintenance services. No transaction terms were released.

Huachangda Canada Holdings Acquires Winvalco

Huachangda Canada Holdings Inc., a Canadian company that designs, manufactures, and supplies automated production systems and tooling products, has acquired Winvalco Limited, an independent Canadian manufacturer of automated production systems, tooling, and special machines for the automotive, construction, forestry, mining, and consumer products industries. No transaction terms were released.

XYPRO Technology Acquires Merlon Software

XYPRO Technology Corporation, a American company that develops security software solutions to companies that manage and transport business-critical data, has acquired Merlon Software Corporation, a Canadian company that provides database management software for the HP-NonStop line of servers. No transaction terms were released.

Grupo Rotoplas Acquires Sanzfield Technologies

Grupo Rotoplas, SA B de CV (BMV:AGUA), a Mexico-based leading provider of individual and integrated water solutions in the Americas, has acquired Sanzfield Technologies Inc., an independent Canadian company that develops water treatment and water recycling systems. Total transaction value is estimated to be $3.13 million.

Travelodge Hotel Belleville Acquired

Travelodge Hotel Belleville, a Canadian company that provides accommodation services, has been acquired. No buyer details were released. Total transaction value is estimated to be $7.0 million.

Cushman & Wakefield Acquires Ashlar Urban Realty

Cushman & Wakefield, Inc., a TPG Capital, Ontario Teachers' Pension Plan and PAG Asia Capital backed American company that provides real estate services for owners, tenants, and investors, has acquired Ashlar Urban Realty Inc., an independent Canadian real estate services provider. No transaction terms were released.

Avison Young Acquires Hunter & Associates

Avison Young (Canada) Inc., a Parallel49 Equity backed Canadian company that provides commercial real estate solutions and services to owners and occupiers of office, retail, industrial, and multi-family properties, has acquired Hunter & Associates, LLC, an independent American real estate brokerage services company. No transaction terms were released.

Paladin Security Group Acquires Concord Security

Paladin Security Group Ltd., a Canadian security guard services provider, has acquired Concord Security Corporation, a Canadian company that provides security services in Western Canada. No transaction terms were released.

Good Done Great Acquires Dexterity Ventures

Good Done Great, LLC, an SC Launch backed American company that provides cloud-based technology solutions, has acquired Dexterity Ventures Inc., a Canadian company that sells donation tools to businesses. No transaction terms were released.

Carlyle Group Acquires Arctic Glacier Group Holdings

Carlyle Group, an American private equity firm, has acquired Arctic Glacier Group Holdings Inc, a Canadian company that manufactures and distributes packaged ice in North America. No transaction terms were released.