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Canadian M&A Market Recap: Week Ended Oct 28, 2016

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

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Market Update

Twenty M&A deals were announced in Canada this past week, while the TSX outperformed the S&P 500 by 0.8% on a U.S. dollar basis. Crude oil prices fell by 3%, yet the Canadian dollar appreciated 0.26 cents relative to the U.S. dollar.

U.S. debt markets remain robust, with strong debt/EBITDA multiples, albeit with higher credit spreads than last year.

Valitas Insights: Three Private Equity Value Creation Principles that Apply to all Business Owners

Fact:    Private Equity (PE) portfolio companies outperform public companies, whether performance is measured by return on investment or EBITDA growth.

Do the value creation principles employed by PE firms also apply to business owners?

The short answer to this question is yes.  While a recent McKinsey article considers how public companies could benefit from utilizing these principles, we believe that value can be derived by all business owners.

There are three universally applicable principles:

  1. Vision
  2. Investment
  3. Management

Adopting a long-term vision: seeking out new opportunities

Private business owners share a critical advantage with private equity firms.  Neither are subject to the short-term constraints of public company quarterly reporting requirements. Private equity firms typically have an 3-7 year investment horizon, and take a long-term view of any newly acquired company. Likewise, to sustain growth and competitive advantage, and to maximize value, private business owners benefit by adopting a similar vision: seeking out new market channels and product innovations that can be exploited in the future.  This principle is consistent with findings in our recent article linking company courage and innovation to higher revenue growth.

Disciplined investment: establishing the metrics to assess investment opportunities

Like PE firms, business owners benefit from considering disciplined investment with a long-term lens. To establish this practice, each investment opportunity should be measured against a set of guiding metrics.  In formulating a decision, management can assess prospective return on invested capital (ROIC) as well as incremental growth in EBITDA and free cash flow, balancing this against the risk associated with each new opportunity.  Whether a business owner’s plan is to build the organization over decades or to eventually sell, a disciplined long-term investment strategy is most likely to maximize value for the company.  

Management: creating meaningful performance incentives

Aligning management interests with the performance of the business is critical in successfully adopting a long-term vision and investment strategy.   Performance metrics are most effective if communicated clearly to management.  Additionally, where a company operates more than a single business unit, useful performance incentives are linked to the success of the manager’s business unit rather than the entire company.  This corresponds with the PE firm approach to incentivizing management based on the value creation in its related portfolio company rather than the success of the fund’s entire investment portfolio.

A framework for courageous business practice…

Last week, we concluded that courageous Canadian businesses drive higher revenue growth and gain on their competitors.  Learning from the successful practices of private equity firms provides a framework for putting business courage to work.


Weekly Canadian Private Market M&A Report

Announced Deals

Parkland Fuel to Acquire PNE Corporation

Parkland Fuel Corporation (TSX:PKI), which operates as an independent marketer and distributor of fuels and lubricants in Canada and the United States, has agreed to acquire PNE Corporation, a Canadian company that provides propane cylinders to retailers. Total transaction value is estimated to be $17 million.

Finore Mining to Acquire Kushtown

Finore Mining Incorporated (OTCPK:FNRE.F),a junior mineral exploration company that engages in the acquisition, exploration, and development of mineral properties in Canada, has agreed to acquire Kushtown USA LLC, a California-based leading liquid edibles company that specializes in cannabis infused medicated water, sodas, hot sauces and barbecue sauces. Total transaction valueis estimated to be $1.6 million.

Northern Vine Canada to Acquire Experion Biotechnologies

Northern Vine Canada Incorporated,which provides testing services and analyses on natural products and materials, has agreed to acquire Experion Biotechnologies Incorporated,which produces, procures, and provides medical products derived from Cannabis for patients across Canada in accordance with Health Canada regulations. No transaction terms were released.

Yonker Environmental Protection to Acquire McMillan-McGee

Yonker Environmental Protection Co., Limited (SZSE:300187), which provides exhaust gas and smoke emission integrated solutions in China, has agreed to acquire McMillan-McGee Corporation,a Canadian company that provides environmental engineering solutions. Total transaction value is estimated to be $31 million.

Celestica to Acquire LORENZ

Celestica Incorporated (TSX:CLS), which provides supply chain solutions internationally to customers in the communications, consumer, aerospace and defense, industrial, healthcare, energy, semiconductor equipment, servers, and storage end markets, has agreed to acquire Lorenz, Inc.,which does business as Karel Manufacturing, manufacturing harness and wiring products, assemblies and sub-assemblies, and sheet metal products for aerospace and commercial applications. No transaction terms were released.   

Dualex Energy International to Acquire Bredal Energy and Murelle Enterprises

Dualex Energy International, Incorporated (TSXV:DXE), which acquires, explores for, develops, and produces oil and gas properties in Tunisia and North America, has agreed to acquire Bredal Energy Corporation, a Canadian company, and Murelle Enterprises Incorporated, which owns and operates oil and gas propertiesin Canada.Total transaction value is estimated to be $0.5 million and $0.1 million respectively.        

OmniTRAX to Acquire Terracor Group

OmniTRAX, Incorporated, a The Broe Group, Investment Arm backed U.S. business that provides railroad transportation services, has agreed to acquire Terracor Group Limited, which offers frac sand logistics and transloading services. No transaction terms were released.   

Archway Insurance to Acquire H.S. Terris Insurance

Archway Insurance Incorporated, which offers insurance brokerage services for individuals, organizations, and entrepreneurs in Atlantic Canada, has agreed to acquire H.S. Terris Insurance, a Canadian insurance brokerage agency. No transaction terms were released.            

Closed Deals

TorQuest Acquires McKeil Marine

TorQuest Partners, a Canadian private equity firm, has invested inMcKeil Marine, a Canadian provider of marine transportation and project services across the Great Lakes, East Coast, St. Lawrence Seaway and Canadian Arctic. The investment was made in partnership with existing management and shareholders.No transaction terms were released.        

Enghouse Systems Acquires Presence Technology

Enghouse Systems Limited (TSX:ESL), which develops and sells enterprise oriented applications and software solutions worldwide, has acquired Presence Technology, S.L., a Spanish company that provides on premise/hosted multi-channel contact center software and professional services to the contact center industry worldwide. Total transaction value is estimated to be $17.4 million.

Gilbarco Acquires Global Traffic Technologies

Gilbarco Incorporated, a Source Capital Corporation backed company that does business as Gilbarco Veeder-Root Incorporated, manufacturing and selling fueling and convenience store (C-store) equipment and site management systems, has acquired Global Traffic Technologies, LLC., which designs, manufactures, and delivers traffic signal priority control solutions worldwide. No transaction terms were released.                   

Straumann Holding AG Acquires V2R Biomédical

Straumann Holding AG (SWX:STMN), a Switzerland-based company that provides tooth replacement solutions, has acquired V2R Biomédical Incorporated, which manufactures dental prosthetics and implants. No transaction terms were released.              

B.I.G. Capital Acquires Help Desk Technology

B.I.G. Capital LLC, a private equity firm specializing in turnarounds and corporate divestitures, has acquired Help Desk Technology Corporation, a Canadian software company.No transaction terms were released.    

X-Change Technologies Acquires Nirvana IT

X-Change Technologies Corporation, which provides IT asset and technology lifecycle management solutions to technology vendors, service providers, and corporations in Canada and internationally, has acquired Nirvana IT, Incorporated, a U.S. based company that provides IT infrastructure and solutions. No transaction terms were released.        

Mexichem Acquires Gravenhurst Plastics

Mexichem, S.A.B. de C.V. (BMV:MEXCHEM *), a Mexican company that produces and sells chemicals and petrochemical products worldwide, has acquired Gravenhurst Plastics Limited, which manufactures polyethylene pipes and tubing products for land drainage, farm drainage, plumbing, electrical datacomm, and building supply industries. No transaction terms were released.         

Manulife Acquires Taumata Plantations

Manulife Financial Corporation (TSX:MFC), which provides financial advice, insurance, and wealth and asset management solutions for individuals, groups, and institutions in Asia, Canada, and the United States, has acquired Taumata Plantations Limited, a New Zealand based company that invests in commercial forestry activities. No transaction terms were released.

AIR Worldwide Acquires Analyze Re

AIR Worldwide Corporation, a U.S. based company that develops and provides Web-based risk modeling software and consulting services, has acquired Analyze Re Incorporated, which develops and delivers SAAS–based portfolio risk management and pricing optimization solutions to the reinsurance industry worldwide. No transaction terms were released.            

SS&C Technologies Holdings Acquires Salentica

SS&C Technologies Holdings, Incorporated (NasdaqGS:SSNC), which provides software products and software-enabled services to financial services providers internationally, has acquired Salentica Incorporated, which provides client relationship management (CRM) and document management solutions for registered investment advisors, broker dealers, family offices, private and institutional wealth managers, trust companies, and private banks. No transaction terms were released.    

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