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Canadian M&A Market Recap: Week Ended November 11, 2016

  • Posted By: Karen Fisman, Louis Goldberg, Miranda Li, Michael Mazza and Paris Aden

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Weekly Canadian M&A Report – Week Ended November 11th, 2016

Market Update

Fifty-two Canadian M&A transactions were announced this past week. The TSX 300 underperformed the S&P 500 by 4.4% on a U.S. dollar basis. The Canadian dollar depreciated relative to the U.S. dollar by 0.77 cents, marking a fourth consecutive week of decline.  U.S. 10-year treasury yields rose significantly this week to 2.15%. As a result, U.S. middle market yield spread shrank by 35 bps. New issue clearing yields remained relatively flat compared to last week.

Mid-market M&A Indicator September 2016

Consistent with the August reading, the September 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 in expansionary territory, although down slightly from August’s reading. The strength of these leading indicators signal a robust M&A environment in the second half of 2016.

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.

Valitas Insights:  Experience Breeds Success:  An M&A Strategy that Creates Value

Recent acquisition activity, as set out in Pitchbook’s Global Q3 2016 M&A Report, gives us cause for pessimism.  As we have noted previously, factors relating to negative outcomes are pervasive in current transactions.  This week, however, our focus is on the positive as we consider an M&A strategy that is proven to create value.

The McKinsey article, “Taking a Longer-Term Look at M&A Value Creation”, summarizes a study of M&A activity of the world’s 1000 top non-banking companies over a ten-year period.  The authors classify companies’ M&A strategies into 5 different categories:

  1. Programmatic: Companies that make ongoing acquisitions which, in aggregate, comprise a material level of investment for the company;
  2. Selective: Companies that do an occasional deal, but don’t appear to have a defined M&A strategy;
  3. Tactical: Companies that do numerous small deals, the combined value of which does not represent a significant portion of their market capitalization;
  4. Large: Companies that make single acquisitions exceeding 30% of their market capitalization; and
  5. Organic: Companies that have no acquisition strategy but rely solely on organic growth.

So which strategy creates the greatest shareholder value?

The results of McKinsey’s study are clear.  Across industries, companies generate the most value using the programmatic strategy – that is, engaging, on an ongoing basis, in a series of smaller transactions that, in aggregate, are materially significant. 

Specifically, these “programmatic” value creation champions:

  1. perform better than companies relying solely on organic growth;
  2. generate higher “excess shareholder returns” than companies relying on other M&A strategies; and
  3. are exposed to less risk (variability in returns) than companies that do not engage in M&A activity.

In addition, the authors note a volume effect. Within the programmatic strategy segment, companies that do more deals have an increased probability of generating excess returns.  Organizational competence in M&A is clearly at work here, as management develops and continually refines the infrastructure and capabilities required to identify targets, engage them in strategic dialogue and then manage the transaction and integration processes.

Further support for a programmatic acquisition strategy is found in historical transaction multiples set out in Pitchbook’s PE Multiples and Trends Report.  It is noteworthy that deal multiples are significantly lower for smaller acquisitions than for large acquisitions.  This could account, at least in part, for the greater value realized through a programmatic acquisition strategy.

The McKinsey study’s findings, supported by 10 years of data, suggest that a programmatic acquisition strategy yields greater shareholder value than other M&A strategies or strategies relying entirely on organic growth.  Lower deal multiples for smaller transactions further support a programmatic approach to M&A. Establishing the capability to develop and implement this type of acquisition plan is certainly a worthwhile undertaking for those companies that aspire to consolidate their industries. 

 

Weekly M&A Deal Summary

Announced

VBG Group to Acquire Mobile Climate Control Industries

VBG Group AB (OM:VBG B), a Swedish international engineering group, has agreed to acquire Mobile Climate Control Industries, Inc., a Ratos AB backed Canadian business that designs, engineers, manufactures, and supplies HVAC systems for the off-road and mass-transit market segments. Total transaction value is estimated to be $266.3 million, reflecting a 11.8x EBITDA multiple.

Ag Growth International to Acquire Yargus Manufacturing

Ag Growth International Inc. (TSX:AFN), a Canadian company that manufactures and distributes portable and stationary grain handling, storage, and conditioning equipment domestically and internationally, has agreed to acquire Yargus Manufacturing, Inc., a U.S. based full-service manufacturer in the fertilizer equipment and material handling equipment industry. Total transaction value is estimated to be $58.3 million.

Cineplex Starburst to Acquire Sega Amusement Works

Cineplex Starburst Inc., a Canadian distributor of amusement and vending equipment, has agreed to acquire Sega Amusement Works, LLC, a U.S. based business that provides coin-operated rides, amusement and redemption games, and bulk-vending equipment to big box retailers, shopping centers, and restaurant locations. No transaction terms were released.

Ontario Teachers' Pension Plan and USS Investment Management to Acquire Westerleigh Group

Ontario Teachers' Pension Plan and USS Investment Management Limited have agreed to acquire Westerleigh Group Limited, an Antin Infrastructure Partners backed business that develops and operates crematoria and cemeteries in the United Kingdom. No transaction terms were released.

Energy Operations Argentina to Acquire Energicon

Energy Operations Argentina LLC, an energy company that owns, operates and maintains six power generation facilities in the western United States, has agreed to acquire Energicon S.A., a former GrowMax Resources Corp Argentinian subsidiary providing consulting services to energy, oil, and natural gas companies in Argentina. Total transaction value is estimated to be $6.7 million.

Vantiv to Acquire Moneris Solutions

Vantiv, Inc., a provider of payment processing and technology solutions to merchants and sales organizations in the United States, has agreed to acquire Moneris Solutions Corporation subsidiary, Moneris Solutions, Inc. (Moneris USA), a provider of electronic payments processing solutions to merchants across North America. Total transaction value is estimated to be $573 million.

Mitchell Resources to Acquire Hannan Metals

Mitchell Resources Ltd. (OTCPK:KMNF.F), a Canadian company that sources, explores, and develops unproven mineral interests in Russia, has agreed to acquire Hannan Metals Ltd, a Canadian company that provides mineral exploration services. Total transaction value is estimated to be $0.8 million.

I.C.T.C. Holdings to Acquire Italtinto Srl

I.C.T.C. Holdings Corporation, a Canadian company that designs, develops, manufactures and distributes tinting and mixing equipment for the paint and coatings industry, has agreed to acquire Italtinto Srl, an Italian company that provides integrated tinting systems solutions. No transaction terms were released.

Investcorp Bank, Caisse de dépôt et placement du Québec, and Public Sector Pension Investment Board to Acquire in AlixPartners

Investcorp Bank B.S.C. (BAX:INVCORP), a private equity and venture capital firm, Caisse de dépôt et placement du Québec, a privately owned investment manager, and Public Sector Pension Investment Board, a government owned pension fund management firm, have agreed to acquire ownership stakes in AlixPartners, LLC, a CVC Capital Partners backed business that provides business and financial advisory services. No transaction terms were released.

 

Closed

The Descartes Systems Group Acquires 4Solutions

The Descartes Systems Group Inc. (TSX:DSG), a provider of federated network and logistics technology solutions worldwide, has acquired 4Solutions Pty. Ltd., an Australian company engaging in supply chain integration, outsourced B2B solutions, trading partner enablement programs, business analysis, and EDI consulting. Total transaction value is estimated to be $3.6 million.

Nutritional High International Acquires Aura Healthcare

Nutritional High International Inc. (OTCPK:SPLI.F), which operates in the medical marijuana, retail marijuana, and hemp infused products sectors in the United States, has acquired Aura Healthcare Limited, a UK based company engaging in the design, development, and implementation of healthcare software solutions and information technology (IT) services for healthcare professionals. No transaction terms were released.

Horizon Occupational Health Solutions Acquires Action Industrial First Aid

Horizon Occupational Health Solutions Inc., a provider of occupational health and emergency services in Canada, has acquired Action Industrial First Aid Limited, which offers professional first aid services. No transaction terms were released.

Fiera Capital Acquires Centria Commerce

Fiera Capital Corporation (TSX:FSZ), an employee owned investment manager, has acquired Centria Commerce Inc., a private construction financing entity operating in Quebec. Total transaction value is estimated to be $45.1 million.

Accenture Acquires Nashco Consulting

Accenture plc (NYSE:ACN), a provider of consulting, technology, and outsourcing services worldwide, has acquired Nashco Consulting Ltd., which provides consulting, design, and implementation services for the ServiceNow platform to clients in the United States and Canada. No transaction terms were released.

TeleTech Holdings Acquires Atelka

TeleTech Holdings Inc. (NasdaqGS:TTEC), a provider of customer engagement management solutions internationally, has acquired Atelka Inc., which provides business process outsourcing solutions for customer support, telemarketing, and back office services in Canada. Total transaction value is estimated to be $59 million.

Noble Rents Acquired

Noble Rents (TX), Inc., a U.S. based equipment rental company, has been acquired from Noble Irons by an undisclosed, arm’s length third party. Total transaction value is estimated to be $8.4 million.

Allied Universal Acquires Source Security & Investigations

Allied Universal, a provider of security and janitorial solutions in the United States, has acquired Source Security & Investigations, Inc., which provides security services in Canada and internationally. No transaction terms were released.

Komutel Acquires CVDS

Komutel Inc., an enterprise communication software developer specializing in the development and marketing of software and cloud solutions in the telecommunications sector, has acquired CVDS Inc., a Canadian developer and manufacturer of electronic products. No transaction terms were released.

CiToxLAB Group Acquires AccelLAB

CiToxLAB Group, a French contract research laboratory providing a range of pre-clinical services to pharmaceutical, biotechnology, chemical, cosmetics, medical devices, and food companies worldwide, has acquired AccelLAB Inc., which offers preclinical contract research services to medical devices, biotechnology, and pharmaceutical industries. No transaction terms were released.

IPL Acquires Encore Industries

IPL Inc., a Caisse de dépôt et placement du Québec, Fonds de solidarité FTQ, and One51 plc backed manufacturer and supplier of injection-molded plastic products for North American industrial and agri-food markets, has acquired Encore Industries, Inc., a U.S. producer of rigid plastic packaging products. Total transaction value is estimated to be $47 million.

Alliance Franchise Brands Acquires KKP Canada

Alliance Franchise Brands LLC, a provider of marketing and visual communications franchisee services, has acquired KKP Canada Corporation, which provides print, copy, design and sign making services. No transaction terms were released.

Naborly Acquires LRANK.com

Naborly Inc., the developer of a software platform for residential tenant screening by landlords and home owners in Canada and internationally, has acquired LRANK.com, an operator of a real estate location intelligence search engine. No transaction terms were released.

M Pharmaceutical Acquires ToConceive

M Pharmaceutical Inc. (DB:T3F2), a Canadian clinical-stage biomedical technology company, has acquired ToConceive, LLC, a company that develops a natural conception lubrication product. Total transaction value is estimated to be $1.4 million.

Vertical Insurance Group Acquires Insurance Managers

Vertical Insurance Group Ltd., a holding company for various retail insurance brokerage businesses, has acquired Axis Insurance Managers Inc., a specialty lines insurance brokerage. No transaction terms were released.

Canada House Wellness Group Acquires Marijuana for Trauma

Canada House Wellness Group Inc. (CNSX:ABA), a Belair Capital Partners backed owner and operator of wellness centers and clinics in Canada, has acquired Marijuana for Trauma Inc., a company offering medical marijuana consulting services for post-traumatic stress disorder, chronic pain, and/or other medical conditions. No transaction terms were released.

FLIR Integrated Imaging Solutions Acquires Point Grey Research

FLIR Integrated Imaging Solutions Inc., a U.S. based manufacturer and marketer of advanced visible imaging cameras and solutions for industrial automation and medical diagnostics, has acquired Point Grey Research Inc., a Canadian company that designs and manufactures digital cameras for industrial, medical and life science, traffic, biometric, GIS, and people counting applications. Total transaction value is estimated to be $335.7 million.

Han's Laser Technology Acquires CorActive High-Tech

Han's Laser Technology Co., Ltd., a Chinese developer and manufacturer of specialty optical fiber products, has acquired CorActive High-Tech Inc., a Canadian developer and manufacturer of specialty optical fiber products. Total transaction value is estimated to be $32.8 million.

Neopharm Labs Acquires Averica Discovery Services

Neopharm Labs Inc., a Canadian provider of analytical testing laboratory services, has acquired Averica Discovery Services Inc., a U.S. based analytical development contract research organization specializing in small molecule analysis and purification. No transaction terms were released.

Inbound Retargeting Technologies Acquires Primeloop

Inbound Retargeting Technologies Inc., a Canadian company that develops and delivers short link tools enabling advertisers, media agencies, and marketers to distribute banner advertisements to social media, email, and blog followers, has acquired Primeloop, Inc., a U.S. business offering an online platform that allows registered users to clip and track press releases based on the level of social engagement. No transaction terms were released.

GROWMARK Acquires UPI Energy LP

GROWMARK, Inc., an agricultural cooperative engaging in the wholesale and retail supply of agricultural products, primarily in the Northeastern and Midwestern United States, and the Province of Ontario, Canada, has acquired UPI Energy LP, a retailer of energy and lubricant products for commercial, industrial, agricultural, and residential customers in rural Ontario. No transaction terms were released.

Lumina Gold Acquires Ecuador Gold and Copper

Lumina Gold Corp. (TSXV:LUM), a resource exploration company engaging in the acquisition, exploration, and development of mineral properties in Ecuador, has acquired Ecuador Gold and Copper Corp. (TSXV:EGX), which engages in exploration and mining of gold and copper mineral properties primarily in Canada. Total transaction value is estimated to be $33.7 million.

Penn West Petroleum Acquires Cordova Gas Resources

Penn West Petroleum Ltd. (TSX:PWT), which explores for, develops, and produces oil and natural gas properties in western Canada, has acquired Cordova Gas Resources Ltd., a provider of oil and gas exploration services in Canada. No transaction terms were released.

Attraction Média Acquires CMJ Productions II

Attraction Média Inc., a Desjardins Business Capital régional et coopératif, Caisse de dépôt et placement du Québec, Fonds d'investissement de la culture et des communications, and Fonds Régional de Solidarité FTQ Montréal backed business engaging in the businesses of television, film, advertising, radio broadcasting, distribution, and emerging media, has acquired CMJ Productions II Inc., which produces and sells factual series to customers in Canada and internationally. No transaction terms were released.

Cherishome Living Acquires VR Mandarin

Cherishome Living Inc., a provider of asset management services in the United States and Canada, has acquired VR Mandarin Limited Partnership, a U.S. private company. Total transaction value is estimated to be $61.4 million.

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