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Canadian Private Market Recap: Jan 15

  • Posted By: Anan Sivapalu & Ann Zhang

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Market Update

Last week, the North American equity markets saw their second consecutive – albeit less severe – decline. These declines were driven primarily by continued concerns about a slowing Chinese economy and a slowdown in U.S. industrial output. Oil prices will remain under pressure for the foreseeable future as sanctions on Iranian exports are lifted this week. These factors have driven the Canadian dollar to lows not seen since 2003. Despite the volatility in the equity markets, there has been a limited impact on credit markets.
 

 

 

 

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Change From

Capital Markets

 

This Week

Last Week

Year Ago

 

Last Week

Year Ago

Equity Markets

 

 

 

 

 

 

 

S&P 500 Composite

 

1,880

1,922

1,993

 

-2.2%

-5.6%

 

TEV/Forward EBITDA

 

9.6x

9.6x

9.8x

 

-0.0x

-0.2x

TSX Composite

 

12,073

12,445

14,042

 

-3.0%

-14.0%

 

TEV/Forward EBITDA

 

9.2x

9.2x

9.1x

 

-0.1x

+0.1x

Russell 2000 Index

 

1,008

1,046

1,155

 

-3.7%

-12.7%

 

TEV/Forward EBITDA

 

9.5x

9.7x

9.8x

 

-0.2x

-0.3x

CBOE VIX ("Fear Index")

 

27.0

27.0

22.4

 

+0.0%

+20.7%

USD/CAD

 

0.689

0.707

0.839

 

-0.018

-0.150

 

 

 

 

 

 

 

 

 

Debt Markets

 

 

 

 

 

 

 

U.S. 10-Year Treasury Yield

 

2.0%

2.1%

1.8%

 

-0.1%

+0.3%

U.S. Middle Market Loans

 

 

 

 

 

 

 

 

New Issue Clearing Yield ≤ $50 million

 

6.4%

6.4%

6.6%

 

0.0%

-0.3%

 

Spread to Treasury

 

432 bps

422 bps

487 bps

 

+10 bps

-55 bps

 

Total Debt/EBITDA

 

5.6x

5.7x

4.8x

 

-0.1x

+0.8x

 

In a cyclical context, North American equity markets are well off their all-time highs. 
 

 

Percentage off All-Time High

 

Current

10-year Low

S&P 500

11.8%

68.2%

Russell 2000

22.2%

73.5%

TSX 300 (in CAD)

22.9%

51.7%

TSX 300 (in USD)

46.4%

62.4%


Not surprisingly, the S&P 500 has shown the greatest resilience, with the small-cap Russell 2000 illustrating the predictable flight to quality seen in soft markets.  The TSX has been much more severely impacted, particularly when compared on a common currency basis with the other North American markets.  The weakening Canadian dollar has obscured the true extent to the decline in the TSX versus the U.S. indices.  When the TSX is stated in U.S. dollars, the index is much nearer to its cyclical lows, currently 46.4% off the all-time high, versus approximately 62.4% in early 2009.
 


Despite recent market turmoil, there remains ample capital in the system to support M&A activity. The corporate cash balances remain at approximately $7.1 trillion and the equity overhang at private equity and venture funds is estimated at US$535 billion.
 

 

 

 

Close

 

 

Change From

Private Equity Overhang (US$ in billions)

 

2014  1H

2013 2H

2012 2H

 

2013 2H

2012 2H

North America

 

$535

$486

$519

 

+10.1%

+3.1%

 



Weekly Canadian Private Market M&A Report

Announced Deals

Tricon announces real estate acquisitions

 

Closed Deals

ChemChina buys KraussMaffei
Avison Young buys North Rae Sanders
Harvest Partners sells StormFisher
BLUE Software acquires Viki Solutions
Cubico Sustainable Investments buys Brazilian wind farms
Coupa Software buys Contractually
Zayo closes acquisition of Allstream

 

Announced Deals

Tricon announces real estate acquisitions

Tricon, a Canadian real estate private equity firm with focus on residential real estate, has announced several acquisitions totaling US$150 million. The acquisitions span Phoenix, Indianapolis, Dallas, Atlanta, Charlotte, Columbia and Tampa. Gary Berman, Tricon’s President and Chief Executive Officer commented on his growth strategy: “As highlighted by our recent acquisitions, we continue to execute on our business plan and remain very well positioned for growth. All our business verticals continue to perform well, benefiting from the underlying strength of the U.S. economy and exposure to a strong U.S. dollar. We enter 2016 with approximately 98% of our balance sheet invested in the U.S. and a solid liquidity position.” Tricon is also looking at development opportunity in downtown Toronto as well.

  

Closed Deals

ChemChina buys KraussMaffei

State owned China National Chemical Corp (ChemChina) has acquired KraussMaffei Group, a German manufacturer of machinery for processing plastic and rubber from Onex. The deal is valued at US$1 billion (6.6x EBITDA). This is the latest acquisition by a Chinese firm seeking to bolster its technological expertise in manufacturing. The deal was led by Hentry Cai, the founder of AGCI Capital and the lead investor in the transaction. Mr. Cai, a former banker, reflected on the deal stating, “We see big opportunities in industrial development, particularly in intelligent manufacturing.”

Avison Young buys North Rae Sanders

Avison Young, a portfolio company of Parallel49 Equity (formerly Tricor Pacific Capital) has acquired North Rae Sanders, a commercial real estate service provider based in the United Kingdom. Financial terms of the transaction were not released. North Rae’s key service areas include logistics-warehousing, manufacturing and office space properties. With this acquisition, Toronto-based Avison Young adds its fourth office in the U.K. and its eighth in Europe.  Mark E. Rose, the CEO of Avison Young welcomed the acquisition and stated, “…NRS will enable us to further bolster our service offering and provide us with insight and market knowledge at a local level. The NRS team is a perfect match for us as the members are focused entirely on delivering added value for clients, which mirrors the Avison Young client-centric, Principal-led culture.”

Harvest Partners sells StormFisher

StormFisher Environment Ltd., a portfolio company of a private equity consortium, has acquired London Energy Garden, an anaerobic digester that converts organic waste into clean, renewable energy and natural fertilizers. Financial terms of the transaction were not released. London Energy Garden, a southwestern Ontario based company was a subsidiary of Harvest Power. Chris Guillon, the VP of StormFisher commented on the acquisition: “We are excited to invest new capital and enhance operations at the London Energy Garden. These developments open up even more opportunities to serve the organic waste processing needs of the region.” StormFisher is backed by rue North Venture Partners, Industry Ventures and Generation Investment Management.

BLUE Software acquires Viki Solutions

BLUE Software, a portfolio company of Diversis Capital has acquired Viki Solutions, a British Columbia-based provider of enterprise level collaboration and automation tools. Financial terms of the transaction were not released. The acquisition is part of BLUE Software’s expansion strategy to be the leader in ‘end-to-end artwork and label management’ software platform for the consumer packaged goods, pharmaceutical and retail sectors. Scott Strong, the CEO of BLUE Software commented on the acquisition:  “For more than five years we have worked strategically with Viki Solutions as the industry leader in online proofing and real-time visual collaboration. Since our initial engagement with Viki, our clients have been impressed with how technically advanced their solution is at providing the ability to proof and manage large and complex files.”

Cubico Sustainable Investments buys Brazilian wind farms

London-based Cubico Sustainable Investments has acquired two Brazilian wind farm complexes from Casa dos Ventos for US$494 million. Cubico manages renewable energy assets on behalf of OTPP, PSP Investments and Banco Santander. The deals provides 392 megawatts of capacity to its first ever investment in Brazil.  Ricardo Díaz, Head of the Americas at Cubico outlined their strategic initiatives in Latin America: “We will further analyze opportunities in Brazil and elsewhere on its own merits. Besides Brazil, Cubico is currently focusing its origination efforts in Latin America on investments in Mexico, Uruguay, Peru, Colombia, Panama and Costa Rica.”

Coupa Software buys Contractually

Coupa, a provider of cloud based spend management applications, has acquired Contractually, a Vancouver-based developer of contract process and automation software. Financial terms of the transaction were not released. Along with its invoicing, procurement, expense, sourcing and inventory management capabilities, the addition of automated contract settlement software provides Coupa with a game changing capability. Christine Dover, the research VP of Enterprise Application and Digital Commerce at IDC said, “Coupa’s acquisition of Contractually seems likely to disrupt the contract lifecycle management market by leveraging the power of real-time document collaboration to leapfrog legacy applications and solve age old contract authoring related problems.” Coupa is a portfolio company of Battery Ventures, Crosslink Capital, El Dorado Ventures, Iconiq Capital, Rally Ventures and T. Rowe Price, among others.

Colombia sells Isagen controlling stake to Brookfield

Brookfield Asset Management acquired a 57.6 percent controlling stake in Isagen, a power generator located in Colombia for US$1.99 billion from the Colombian government. This is the largest Colombian privatization deal in nearly 10 years. Sachin, Shah, president of Brookfield Renewable Energy Partners said, “We are extremely pleased to grow our business in Colombia, an attractive market with strong long-term growth fundamentals, a highly skilled labor force and continued need for new investment.”

Audax closes buy of Lifemark Health and Viewpoint Medical

Audax, a U.S. based private equity firm, has acquired Lifemark Health and Viewpoint Medical Assessment for $250 million. Lifmark is a Toronto-based physio therapy, rehabilitation and medical assessment services company. Lifemark also oversees the operation of Viewpoint Medical Assessment. Geoffrey S. Rehnert, Co-CEO of Audax Group remarked on the acquisition, “Lifemark Health is a recognized market leader in the Canadian medical assessments and physiotherapy treatment markets. We look forward to partnering with Peter Stymiest and the entire Lifemark team to continue growing the business organically and through acquisitions.” With this transaction, Lifemark has a partner who has the capability and capacity to help grow it into an even stronger brand.

Zayo closes acquisition of Allstream

Zayo Group Holdings Inc., a Boulder, Colorado-based communications infrastructure services company, has closed its acquisition of Allstream, a Canadian provider of bandwidth and telecommunications services, for $465 million. This deal would give Zayo extensive inter-city and metro fiber assets located throughout Canada. Dan Caruso, chairman and CEO of Zayo said, “Our goal is to unlock the potential of Allstream’s assets to generate value for customers and shareholders. The new structure will enable both business units to better focus on their customers in order to grow and innovate.”

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