Value Unleashed

Market Update

Thirty-Three Canadian M&A transactions were announced this past week. The TSX 300 outperformed the S&P 500 by 1.5% on a U.S. dollar basis. The Canadian dollar appreciated relative to the U.S. dollar by 0.14 cents, marking the first increase after four consecutive weeks of decline.  The expectation of significant U.S. federal deficits caused U.S. 10-year treasury yields to rise significantly this week to 2.4%. The U.S. middle market yield spread also expanded by 11 bps. New issue clearing yields remained relatively flat compared to last week.

Valitas Insights:  Stark Contrast in Private Equity versus Venture Capital Activity, YTD/2016

“It was the best of times, it was the worst of times…”  a reference to Dicken’s Tale of Two Cities, or alternatively, the contrast in year to date activity for Canadian Venture Capital (VC) versus Private Equity (PE). 

The Canadian Venture Capital and Private Equity Association’s recent VC &PE Canadian Market Overview//YTD Q3 2016 reports on VC and PE activity for the first 9 months of 2016.  While the Dickens quote, admittedly, overstates the status of current PE activity, results for VC and PE investors reflect very different trends. 

“Canadian VC is on a much needed upswing.” Mike Woollatt, CEO, CVCA

VC activity showed continued strength in Q3 with total investment of $605 million, an 8% increase over the quarterly average calculated since 2013.  Year to date investment totaled $2.11 billion, just 9% below full year 2015 levels.

Activity for Canadian PE, however, took a different direction. Year to date investment totaled $9 billion, down 55% from the same period last year.  Deal volume dropped as well, with a deal count of 271 versus 311 for 2015. 

What are the factors behind this significant difference? 

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.

Canadian VC investors, with their focus on early stage targets, have the upper hand – at least for the time being.  They face less competition from strategic investors (although we will discuss in an upcoming article why this advantage could erode).  In addition, Canadian government support has been forthcoming with the Venture Capital Action Plan, whereby $400 million of government investment was contributed to four private-sector led VC funds totaling $1.35 billion, with the last fund closing this year.

It is exciting to witness the growing support by VC’s for startups and early stage companies – a trend that should promote entrepreneurial innovation in Canada.  We wonder, however, whether competition for early stage innovators will expand.  Perhaps strategic buyers will look to these companies as targets, in the process of reshaping their own corporate strategies to address an evolving business environment.  More on this to come…

Weekly Deal Summary

Announced

Medicure to Acquire Apicore

Medicure Inc. (TSXV:MPH), a specialty pharmaceutical company that engages in the research, development, and commercialization of human therapeutics in Canada, the United States, and Barbados, has agreed to acquire Apicore, LLC, a Signet Healthcare Partners backed business that provides process R&D and API manufacturing services for the pharmaceutical industry worldwide. Total transaction value is estimated to be $45 million.

Värde Partners and J.C. Flowers to Acquire CitiFinancial Canada

Värde Partners, Inc., a privately-owned investment manager, and J.C. Flowers & Co. LLC, a private equity firm specializing in buyouts, have agreed to acquire CitiFinancial Canada, Inc., a provider of personal and home equity loans. No transaction terms were released.

Coreio to Acquire The Balardo Group

Coreio Inc., an IT services company that provides IT infrastructure and operations solutions for enterprise clients, has agreed to acquire The Balardo Group Inc., a Canadian consulting company that provides information technology (IT) infrastructure management services. No transaction terms were released.

GFL Environmental to Acquire MCL Waste Systems & Environmental

GFL Environmental Inc., a Hawthorn Equity Partners and HPS Investment Partners backed solid and liquid waste management company, has agreed to acquire MCL Waste Systems & Environmental Inc., which operates and manages landfill waste management facilities and systems in Central Alberta. Total transaction value is estimated to be $12 million.

AzEire Petroleum to Acquire Antrim Exploration (Ireland)

AzEire Petroleum Limited, a Seacrest Capital backed oil and gas exploration and production company based in Bermuda, has agreed to acquire Antrim Exploration (Ireland) Limited, which engages in oil and gas exploration. Total transaction value is estimated to be $0.3 million.

EPCOR Utilities to Acquire Natural Resources Gas

EPCOR Utilities, Inc., which builds, owns, and operates electrical transmission and distribution networks, and water and wastewater treatment facilities and infrastructure in Canada and the United States, has agreed to acquire Natural Resources Gas Limited, a Canadian company that distributes natural gas. No transaction terms were released.

EVITRADE Health Systems to Acquire VOH Health Systems

EVITRADE Health Systems Corp. (CNSX:AID), a Canadian company that provides online personal health solutions to customers in the skincare and weight management sectors, has agreed to acquire VOH Health Systems, which represents a platform that provides patients with the ability to take control of their own health. No transaction terms were released.

Bohai Harvest to Acquire Tenke Fungurume Mining

Bohai Harvest RST (Shanghai) Equity Investment Fund Management Co., Ltd., a principal investment firm specializing in cross-border mergers and acquisitions and growth capital, has agreed to acquire Tenke Fungurume Mining S.A.R.L., which owns and operates cobalt-copper mines and produces cathodes. Total transaction value is estimated to be $1.6 billion.

ABE Resources to Acquire Pioneer Resources

ABE Resources Inc. (TSXV:ABE), which engages in the acquisition and exploration of mineral properties in Quebec, has agreed to acquire Pioneer Resources Inc., a mineral exploration company. Total transaction value is estimated to be $0.3 million.

Closed

Tricor Founders Acquires Fresh Selections

Tricor Pacific Founders Capital Inc., a private equity fund formed by certain founders of Tricor Pacific, has acquired Fresh Selections, Inc., a market leader in the Canadian home meal replacement industry that manufactures premium, ready-to-eat entrees and appetizers. No transaction terms were released.

NIBE Industrier Acquires FPI Fireplace Products International

NIBE Industrier AB (OM:NIBE B), a Swedish heating technology company operating in Europe, North America, Australia, and Asia, has acquired FPI Fireplace Products International Ltd., which designs, manufactures, and markets fireplace and woodstove products. No transaction terms were released.

Keywords Studios Acquires Enzyme Testing Labs

Keywords Studios PLC (AIM:KWS), an Ireland-based company that provides technical services internationally to the video game industry, has acquired Enzyme Testing Labs Inc., a Canadian provider of testing services for applications and video games. Total transaction value is estimated to be $5.4 million.

Power Factors Acquires EKHOSOFT

Power Factors, LLC, a U.S. based company that develops and delivers data platforms and software tools for the energy industry, has acquired EKHOSOFT Inc., a Canadian company that develops and markets operational management software solutions. No transaction terms were released.

Knowlton Development Corporation Acquires Thibiant International

Knowlton Development Corporation, a Novacap, Caisse de dépôt et placement du Québec, Fondaction, Fonds de solidarité FTQ, EDC Equity, Fonds régional de solidarité FTQ Montérégie, and Investissement Quebec backed business, and a contract manufacturer and custom formulator for the consumer goods industry in Canada and internationally, has acquired Thibiant International, Inc., a U.S. based contract manufacturer for the personal care industry. No transaction terms were released.

Mettrum Health Acquires Apollo Applied Research

Mettrum Health Corp. (TSXV:MT), which engages in the research, development, production, and distribution of medical cannabis and cannabis products in Canada, has acquired Apollo Applied Research Inc., a Canadian company that provides cannabis-based research services with a primary focus on chronic pain. Total transaction value is estimated to be $4.6 million.

Samsung Electronics Canada Acquires NewNet Communication Technologies (Canada)

Samsung Electronics Canada Inc., which engages in the sale and marketing of a range of electronics, has acquired NewNet Communication Technologies (Canada), Inc., a provider of innovative solutions for contact centers, next generation mobile and fixed line networks, mobile communications, secure transaction transport and enterprise file sharing and storage. No transaction terms were released.

Lawson Products Acquires Mattic Industries

Lawson Products Inc. (NasdaqGS:LAWS), a distributor of products and services to the maintenance, repair, and operations (MRO) marketplace in North America, has acquired Mattic Industries Ltd., a Canadian company that supplies fasteners, MRO equipment, and tooling products. No transaction terms were released.

Ritchie Bros Acquires Kramer Auctions

Ritchie Bros. Inc. (NYSE:RBA), the world's largest industrial auctioneer, has acquired Kramer Auctions Ltd., a leading provider of agricultural auction services in Central Canada. No transaction terms were released.

GE Digital Acquires Bit Stew Systems

GE Digital, which provides industrial companies with insights to manage assets and operations more efficiently by connecting machine data to powerful analytics and people, has acquired Bit Stew Systems Inc., which provides a platform that solves the data integration needs of utilities, oil and gas, aviation, and manufacturing industries. Total transaction value is estimated to be $206.2 million.

GE Digital Acquires Wise.io

GE Digital has also acquired Wise.io, Inc., which builds machine learning applications for the customer experience market. No transaction terms were released.

CREW Marketing Partners Acquires GOODSIR Creative

CREW Marketing Partners Inc., a Canadian strategic marketing agency, has acquired GOODSIR Creative Inc., which provides digital marketing services based in Canada. No transaction terms were released.

Rubicon Oilfield Acquires Top-Co

Rubicon Oilfield International Holdings, L.P., a Warburg Pincus backed business that provides oilfield services and related equipment, has acquired Top-Co Inc., which designs, manufactures, and distributes float equipment, casing cementing equipment and casing accessories for the oil and gas industry. No transaction terms were released.

Desktop Alert Acquires Metis Secure Solutions

Desktop Alert Inc., a developer of alert software products and services, has acquired Metis Secure Solutions, LLC, a U.S. developer of advanced emergency communications and notification systems. No transaction terms were released.

SJS Tomorrow Acquires Dove Canyon Country Club

SJS Tomorrow, LLC, an owner and operator of golf courses and clubs, has acquired Dove Canyon Country Club, Inc., a golf and lifestyle club in California. No transaction terms were released.