Value Unleashed

Market Update

Sixty Canadian M&A transactions were announced this past week. Year to date, M&A deal count is 18.5% higher than the comparable period in 2016. The Canadian dollar depreciated by 1.82 cents, ending the week at 75 cents. The TSX rose by 0.5% and underperformed the S&P 500 by 2.6% in U.S. dollar terms.

The new issue environment for U.S. middle market loans remains robust with average total leverage of 4.9x EBITDA and new issue clearing yields 0.01% lower than last year’s levels. Unitranche structures are losing favor in 2017 as sponsors gravitate towards first/second-lien structures instead. A recent survey of lenders indicated that 27% favored unitranche structures, down from 50% at the same time last year.

Valitas Insights:  The Middle Market – The Deal Engine for Canadian Private Equity in 2016

The past year ended on an interesting note for Canadian Private Equity (PE).  When we last reported on Canadian VC and PE activity (Q3, 2016), there was a divergence in trends: VC surged ahead, while PE deal value plummeted.  But the recently released Canadian Venture Capital and Private Equity Association’s 2016 VC & PE Year in Review paints a different PE picture.   

VC activity sustained its positive momentum in Q4, driving Canadian investment to $3.2 billion for 2016, a 41% increase over 2015.  PE activity, on the other hand, experienced a dramatic shift in direction, recovering from its previous nosedive and rebounding for a nice Q4 recovery. Private equity investment was $4.1 billion across 137 deals in Q4, an increase of 36% over the $3 billion invested in Q3.

For the full year, total PE investment was $13.7 billion, a decline of 40% from 2015.  Deal volume increased, however, with 536 deals completed versus 424 deals in 2015.  The smaller average deal size is, of course, reflective of a decline in oil and gas sector activity with its associated mega deals; investment in oil and gas companies was $4.4 billion in 2016, a 49% year over year decrease.  Cleantech and Information and Communications Technologies (ICT) were the sector beneficiaries of this decline, with investment increases of 200% and 352% respectively.   In addition, investors are looking to mid-market companies in a range of sectors to pick up the slack.  Investment in mid-market ($20-50M) deals increased to $1.5 billion in 2016, reflecting a 41% increase over 2015.

“[Private Equity] activity continues to climb in mid-market deals...” Mike Woollatt, CEO, CVCA

We’ve written previously about current challenges for PE investors, including rising valuations and a shrinking pool of quality investments. The Canadian environment reflects the broader North American trend in this regard, as strategic buyers continue to compete with PE investors for acquisitions. In this context, the middle market offers lower valuations relative to its large company peers, providing a more attractive value proposition for PE investors, particularly in the case of add-on acquisitions.  And with increased investment promoting a healthy Canadian middle market across multiple sectors, there is the added benefit of building a healthy buffer to the ups and downs of oil prices.

M&A Deal Summary

Announced Deals

Oranje-Nassau Energie to Acquire Sterling Resources

Oranje-Nassau Energie B.V., an ONH B.V. and AtlasInvest backed, Netherlands-based oil and gas exploration company with international assets, has agreed to acquire Sterling Resources Ltd. (TSXV:SLG), a Canadian producer of crude oil and natural gas assets in the U.K. Total transaction value is estimated to be $219 million, implying a 6.4x EBITDA multiple and a 3.3x revenue multiple.

Graphitecorp to Acquire Novonix Battery Testing Services

Graphitecorp Ltd. (ASX:GRA), an Australia-based integrated producer and developer of graphite products, has agreed to acquire Novonix Battery Testing Services Inc., an Innovacorp backed, Canadian developer of high-precision chargers that are used to measure the coulombic efficiency of cells. Total transaction value is estimated to be $5.1 million, implying a 3.7x revenue multiple.

The Oppenheimer Group to Acquire Delica North America

The Oppenheimer Group, a Canadian distributor of fresh fruits and vegetables to retail, wholesale, and food service customers globally, has agreed to acquire Delica North America Ltd., a U.S.-based developer of programmes and promotional plans to help customers increase their business. No transaction terms were released.

Canarc Resource to Acquire American Innovative Minerals

Canarc Resource Corp. (TSX:CCM), a MineralFields Group backed, Canadian gold exploration and mining company with international assets has agreed to acquire American Innovative Minerals LLC, a U.S.-based exploration company specializing in mineral discovery and development. Total transaction value is estimated to be $2.7 million.

Hyduke Energy Services to Acquire Western Manufacturing

Hyduke Energy Services Inc. (TSX:HYD), a BMO Capital Partners, PenderFund Capital Management, and MM Asset Management backed, Canadian manufacturer and distributor of oilfield equipment worldwide, has agreed to acquire Western Manufacturing Ltd., a Canadian manufacturer of stainless steel tanks, vessels, and other related products. Total transaction value is estimated to be $5.5 million.

Xineoh to Acquire Golden Raven Resources

Xineoh, Inc., a U.S.-based developer of marketing and client relationship management software for affiliate marketing and Internet retailing, has agreed to acquire Golden Raven Resources Ltd., a Canadian company that engages in the exploration and development of natural resource properties. No transaction terms were released.

Tango Mining to Acquire African Star Minerals

Tango Mining Ltd. (TSXV:TGV), a Canadian processor of coal in South Africa, has agreed to acquire African Star Minerals Limited, a developer and acquirer of diamond exploration and mining projects in South Africa. Total transaction value is estimated to be $265 thousand.

Mitsui & Co. to Acquire Chemtrade Aglobis

Mitsui & Co., Ltd. (TSE:8031), a Japan-based general trading company that operates worldwide, has agreed to acquire Chemtrade Aglobis AG, a company engaged in sulphur and sulphuric acid supply balancing and distribution, as well as inter-continental deep sea logistics, procurement, and sales. No transaction terms were released.

Magnificent Hotel Investments to Acquire Rosewood Hotel Georgia

Magnificent Hotel Investments Ltd., a China-based company that owns and operates hotels globally, has agreed to acquire Rosewood Hotel Georgia, a Canadian owner and operator of a hotel in Vancouver. Total transaction value is estimated to be $145 million, implying a 4.6x revenue multiple.

Microgen Financial Systems to Acquire Primacy

Microgen Financial Systems Ltd, a U.K.-based provider of financial services technology systems that focus on wealth management and payments for blue-chip companies and public sector organizations globally, has agreed to acquire Primacy Corporation, a Pinetree Capital Ltd. backed, Canadian developer of offshore trust administration, trust accounting, and private banking software. Total transaction value is estimated to be $5.6 million, implying a 2.8x revenue multiple.

Quadron Capital to Acquire Cybernetics Control Systems

Quadron Capital Corporation, an Emprise Capital-backed, Canadian provider of research, analytical, and laboratory services to the biotech and bioceutical industries in Canada, has agreed to acquire Cybernetics Control Systems Inc., a Canadian developer of electronic automation systems. Total transaction value is estimated to be $2.6 million.

Saba Software to Acquire Halogen Software

Saba Software, Inc., a Vector Capital backed, Canadian provider of cloud-based human resource management software internationally, has agreed to acquire Halogen Software Inc. (TSX:HGN), a Canadian developer of software-as-a-service talent management software used globally. Total transaction value is estimated to be $278.3 million, implying a 27.5x EBITDA multiple and a 2.4x revenue multiple.

Closed Deals

Stingray Digital Acquires NatureVision TV

Stingray Digital Group Inc. (TSX:RAY.A), a Canadian media provider of business-to-business multi-platform music and in-store media solutions to businesses and individuals worldwide, has acquired NatureVision TV, a U.S.-based provider of television channels. No transaction terms were released.

Total Produce Acquires The Oppenheimer Group

Total Produce Plc (ISE:T7O), an Ireland-based grower and distributor of fresh fruits, vegetables, and flowers internationally, has acquired The Oppenheimer Group, a Canadian distributor of fresh fruits and vegetables to retail, wholesale, and food service customers globally. Total transaction value is estimated to be $39.5 million.

EXFO Acquires Ontology-Partners

EXFO Inc (TSX:EXF), a Canadian manufacturer and marketer of service assurance and analytics solutions for fixed and mobile network operators, communications service providers, Web-scale operators, and network equipment manufacturers in the telecommunications industry worldwide, has acquired Ontology-Partners Ltd., a U.K.-based application developer for the telecommunication industry. Total transaction value is estimated to be $10.2 million, implying a 1.9x revenue multiple.

Mill Street & Co Acquires tuque

Mill Street & Co Inc, a Canadian private equity investor, has acquired tuque inc., a Canadian personal insurance company. No transaction terms were released.

Altus Group Acquires EstateMaster Group

Altus Group Limited (TSX:AIF), a Canadian provider of independent advisory services, software, and data solutions to the commercial real estate industry, has acquired EstateMaster Group Holdings PTY Limited, an Australia-based software developer for real estate developers. No transaction terms were released.

Cogeco Connexion Acquires Briand et Moreau Cable

Cogeco Connexion Inc., a Canadian provider of cable services, has acquired Briand et Moreau Cable Inc., a Canadian cable television and Internet subscription services company. No transaction terms were released.

Nucor Acquires Vulcraft-Omega

Nucor Corporation (NYSE:NUE), a U.S.-based manufacturer and distributor of steel products internationally, has acquired Vulcraft-Omega, a Canadian producer of open web steel joists. No transaction terms were released.

GESCO Group of Companies Acquires Savoia Canada

GESCO Group of Companies, a Blue Point Capital Partners backed, Canadian distributor and marketer of interior flooring materials, has acquired Savoia Canada Inc., a Canadian distributor of flooring and wall tiles. No transaction terms were released.

University of Fredericton Acquires Don Sayers & Associates

University of Fredericton, a Canadian post-secondary education institution offering certificates, diplomas, and degree programs, has acquired Don Sayers & Associates Ltd, a Canadian professional training and development company. Total transaction value is estimated to be $5.0 million.

CSW Industrials Acquires Greco Aluminum Railings

CSW Industrials, Inc. (NasdaqGS:CSWI), a U.S.-based diversified industrial company which operates internationally, has acquired Greco Aluminum Railings Ltd., a Canadian manufacturer of aluminum railings. Total transaction value is estimated to be $37.0 million, implying a 7.5x EBITDA multiple and a 2.1x revenue multiple.

Digi117 Acquires ComboApp

Digi117 Ltd., a Canadian provider of IT consulting and software development services, has acquired ComboApp, Inc., a Canadian firm that owns and operates a mobile advertising platform. No transaction terms were released.

Uni-Select Acquires Impact Auto Parts

Uni-Select Inc. (TSX:UNS), a Canadian distributor of automotive refinish, industrial paint and related products in North America, has acquired Impact Auto Parts Inc., a Canadian supplier of auto parts in Canada. No transaction terms were released.

ITG Software Acquires Monkey Box App

ITG Software Inc., a Canadian provider of software-as-a-service IT documentation applications for managed service providers and IT service providers worldwide, has acquired Monkey Box App Inc., a Canadian developer of IT-asset management applications. No transaction terms were released.

Gardium Securité Acquires Avant-Garde Securite

Gardium Securité, a Canadian provider of security, investigation, and labour management dispute services, has acquired Avant-Garde Securite Inc, a Canadian security, surveillance, and consulting services specialist. No transaction terms were released.

Eclipse Acquires OF Software

Eclipse Corporation, a U.S.-based developer of enterprise document generation software solutions, has acquired OF Software Ltd., a Canadian developer of enterprise software used to design, present, and deliver business forms, documents, labels, and checks. No transaction terms were released.

Subsea Global Solutions Acquires All-Sea Underwater Solutions

Subsea Global Solutions, a Lariat Partners-backed, U.S.-based provider of underwater vessel repair, maintenance, and offshore services, has acquired All-Sea Underwater Solutions, a Canadian provider of underwater ship maintenance, repair, and marine construction solutions. No transaction terms were released.