Value Unleashed

Market Update

Fifty-one Canadian M&A transactions closed this past week. Year to date, M&A closed deal count is 6.7% higher than the comparable period in 2016. The Canadian dollar appreciated by 1.14 cents, ending the week at 76 cents. The TSX underperformed the S&P 500 by 0.4% in U.S. dollar terms. WTI Crude oil fell by 2.4%, ending the week at $44.97 per barrel.

The new issue environment for U.S. middle market loans became slightly less favourable as yields rose by 2 basis points from last week but remained 49 basis points lower than a year ago. Leverage multiples increased slightly from 5.5x last week to 5.6x this week. According to The Lead Left, one key trend in middle market loans is the proliferation of covenant-lite structures. Before the Great Recession, covenant-lite structures were only available to the best and most liquid corporate credits. In recent years, however, increased competition among investors has led to a decrease in covenant requirements for new issues. For example, 75% of loans lacked a maintenance covenant in 2016, compared to 60% in 2013 and 25% in 2007, the height of the last boom in middle market loans.

Valitas Insights:   CETA: Sparking an Increase in Cross-Border M&A

The subject of trade agreements has been grabbing plenty of media space in recent months, with NAFTA (and its related uncertainty) occupying the lion’s share.  BUT…

This week, our focus is on the Canadian - European Union Comprehensive Economic and Trade Agreement (CETA).  CETA received Royal Assent on May 16, 2017, and opens a gateway to increased cross-border trade and investment, including, of course, M&A activity.  On implementation, the agreement will immediately eliminate 98% of EU tariffs, as well as many non-tariff barriers, yielding significant cost savings and competitive advantage for Canadian exporters of goods and services.

A recent article by Mario Nigro and Eric Bremermann, of leading law firm, Stikeman Elliott, describes CETA as a catalyst for cross-border M&A.  We were fortunate to speak directly with Mr. Nigro, who is a partner in Stikeman’s M&A and Private Equity & Venture Capital Groups. 

Read our full interview with Mario Nigro here.

Canadian M&A Transactions[i]

Energy (Announced)

Emerald Bay Energy to Acquire Production Resources

Emerald Bay Energy Inc. (TSXV:EBY), a Canadian oil and gas exploration and development company, has agreed to acquire Production Resources Inc., a U.S.-based oil and natural gas exploration company with operations in Texas. Total transaction value is estimated to be $2.3 million.

Energy (Closed)

Rubicon Oilfield has Acquired World Oil Tools

Rubicon Oilfield International Holdings L.P., a Warburg Pincus backed U.S.-based provider of oilfield services and related equipment, has acquired World Oil Tools Inc., a Canadian manufacturer of specialty inflatable products and technology for the oil and gas industry. No transaction terms were released.

Materials (Announced)

Desert Star Resources to Acquire Kutcho Copper

Desert Star Resources Ltd. (TSXV:DSR), a Canadian mineral exploration and development company focused on projects in the southwestern United States, has agreed to acquire Kutcho Copper Corp., a Canadian mineral exploration and development company. Total transaction value is estimated to be $29.5 million.

CD Capital UK to Acquire Los Calatos Holding

CD Capital UK Limited, a U.K.-based venture capital firm, has agreed to acquire Los Calatos Holding Limited, a Canadian copper mining company. Total transaction value is estimated to be $6.6 million.

Materials (Announced)

Goldcorp has Acquired Compañía Minera Casale 

Goldcorp Inc., a Canadian mineral exploration and development company with international operations, has acquired Compañía Minera Casale Limitada, a Chile-based company that mines gold, copper and porphyry minerals.  Compañía Minera Casale Limitada was a subsidiary of Barrick Gold Corporation. Total transaction value is estimated to be $53.4 million.

Industrials (Closed)

Flair Airlines has Acquired NewLeaf

Flair Airlines Ltd., a Canadian chartered airline company, has acquired NewLeaf Travel Company Inc., a Canadian company that provides airline ticket re-selling services. No transaction terms were released.

Consumer Discretionary (Closed)

Uni-Select has Acquired KC Distributing

Uni-Select Inc. (TSX:UNS), a Canadian distributor of automotive refinish, industrial paint and other related products, has acquired KC Distributing Inc., a Canadian distributor of automotive products including chemicals, electrical equipment, tools and accessories. No transaction terms were released.

Canada Yoga has Acquired Movarie Capital

Canada Yoga Inc., a company that operates a yoga, health and wellness studio in Vancouver, has acquired Movarie Capital Ltd., a former Canadian capital pool company which acquired a U.S.-based manufacturer of yoga apparel and accessories. No transaction terms were released.

Consumer Staples (Closed)

Estée Lauder has Acquired DECIEM

The Estée Lauder Companies Inc. (NYSE:EL), a U.S.-based manufacturer and supplier of prestige skin care, makeup, fragrance, and hair care products with operations in Canada, has acquired DECIEM Inc., a Canadian manufacturer of skin care and beauty products. No transaction terms were released.

Brookdale Treeland Nurseries has Acquired Valleybrook Gardens Ontario

Brookdale Treeland Nurseries Limited, a Canadian company that grows and sells garden plants, has acquired Valleybrook Gardens Ontario Ltd., a Canadian company that also grows and sells garden plants. No transaction terms were released.

Mastronardi Produce has Acquired Backyard Farms

Mastronardi Produce Ltd., a Canadian company that grows and sells gourmet greenhouse-grown vegetables, has acquired Backyard Farms, LLC, a U.S.-based company that grows and sells greenhouse-grown tomatoes. No transaction terms were released.

Ironbridge Equity Partners has Acquired Avena Foods

Ironbridge Equity Partners Limited, a Canadian private equity firm, has acquired Avena Foods Limited, a Canadian producer and supplier of gluten-free oats. No transaction terms were released.

Healthcare (Closed)

Eurofins Scientific SE has Acquired Alphora Research

Eurofins Scientific SE (ENXTPA:ERF), a Luxemburg-based company that provides food, pharma and environmental laboratory testing services internationally, has acquired Alphora Research Inc., a Canadian company that provides drug manufacturing and testing services. No transaction terms were released.

Audax Group has Acquired Altasciences Company

Audax Group Inc., a U.S.-based investment firm, has acquired Altasciences Company Inc., a Canadian company that provides early stage research and clinical testing services and was a portfolio company of Kilmer Capital Partners. No transaction terms were released.

Premier Diversified Holdings has Acquired MyCare MedTech

Premier Diversified Holdings Inc. (OTCPK:PRDG.F), a Canadian company that develops and operates medical diagnostic imaging centers, has acquired MyCare MedTech Inc., a Canadian company that provides virtual healthcare solutions. Total transaction value is estimated to be $501 thousand.

Information Technology (Announced)

IoT Labs to Acquire Weather Telematics

IoT Labs Inc., a Canadian company that provides on-demand studio and production services, has agreed to acquire Weather Telematics Inc., a Canadian company that develops road weather safety data platforms and customized solutions. Total transaction value is estimated to be $3.0 million.

Uniserve Communications to Acquire Xanity Cloud Solutions

Uniserve Communications Corporation (TSXV:USS), a Canadian telecommunications company that provides internet and communications services in Western Canada, has agreed to acquire Xanity Cloud Solutions Inc., a Canadian company that provides IT management services. No transaction terms were released.

Information Technology (Closed)

eStruxture has Acquired Netelligent Hosting Services

Struxture Data Centers Inc., a Canadian company that provides data center management solutions, has acquired Netelligent Hosting Services Inc., a Canadian company that provides web hosting services. No transaction terms were released.

Communauto has Acquired ETL Electronics

Communauto Inc., a Canadian company that provides car sharing services in Quebec, has acquired ETL Electronics Ltd, a Canadian manufacturer of electronic anti-auto theft products. No transaction terms were released.

Utilities (Closed)

Energy Developments has Acquired Lidya Energy

Energy Developments Limited., an Australian company that engages in the development and operation of power generation projects, has acquired Lidya Energy L.P., a Canadian company that converts biogas into clean electricity at a landfill site in Lachute, Quebec. Lidya Energy L.P. was a subsidiary of Kruger Inc. No transaction terms were released.

Other (Announced)

iAnthus Capital to Acquire Gloucester Street Capital

iAnthus Capital Holdings Inc. (OTCPK:ITHU.F), a Canadian investment company focused on the cannabis industry in the United States, has agreed to acquire Gloucester Street Capital LLC, a U.S.-based company with licensed cannabis operations in New York state. Total transaction value is estimated to be $36.3 million.

Mark Anthony Wine and Spirits to Acquire Bacchus Group

Mark Anthony Group Inc., a Canadian producer and distributor of fine wine, premium beer and other specialty alcoholic beverages globally, has agreed to acquire The Bacchus Group Inc., a Canadian company that imports and distributes alcohol beverages in Western Canada. No transaction terms were released.

Midwest Surveys to Acquire Boundary Technical Group

Midwest Surveys Inc., a Canadian company that provides oil and gas land surveying services, has agreed to acquire Boundary Technical Group Inc., a Canadian company that provides utility surveying services. No transaction terms were released.

Other (Closed)

Sintra has Acquired La Compagnie Meloche

Sintra Inc., a Canadian company focused on civil infrastructure development, has acquired La Compagnie Meloche Inc, a Canadian highway and street construction company. No transaction terms were released.

Arctic Hunter Energy has Acquired Real de Rebeico Gold S.A. 

Arctic Hunter Energy Inc. (TSXV:AHU), a Canadian oil and gas exploration and development company, has acquired Real de Rebeico Gold S.A. de C.V., a Mexico-based company that operates the San Javier flotation mill for mineral exploration and development purposes.  Total transaction value is estimated to be $331 thousand.

Second City Capital Partners and Tower Realty Partners have Jointly Acquired DRA/CLP 901 Maitland Orlando

Second City Capital Partners, a Canadian real estate investment firm, and Tower Realty Partners Inc, a U.S.-based real estate investment firm, have jointly acquired DRA/CLP 901 Maitland Orlando LLC, a U.S.-based company. DRA/CLP 901 Maitland Orlando was owned by DRA Advisors. Total transaction value is estimated to be $18.4 million.

Nutrinor and Capital croissance PME have Jointly Acquired Fromagerie Champêtre

Nutrinor Coopérative, a Canadian co-operative firm that manufactures and sells dairy products, and Capital croissance PME, have jointly acquired Fromagerie Champêtre Inc, a Canadian cheesemaking company. No transaction terms were released.

Gold Star Foods has Acquired A&R Wholesale Distributors

Gold Star Foods Inc., a Castle Harlan backed Canadian company that distributes nutritional food and supplies to schools in the United States, has acquired A&R Wholesale Distributors Inc., a U.S.-based company that supplies nutritional foods to schools in Southern California. No transaction terms were released.