Value Unleashed

Market Updates

Equity markets were taken by surprise after Britain’s decision to leave the EU was announced on Friday. Subsequent sharp global declines occurred and the S&P 500 turned negative for the year-to-date. Oil prices also sank, resurrecting fears of further price volatility. In Foreign Exchange markets, the British Pound plummeted to levels last observed in 1985.

In Canadian markets, Moody’s released an unnerving report stating that a housing crash in Canada, similar to the one experienced by the U.S., would lead to losses of $12 billion for mortgage lenders. The report further states that an unexpected increase in interest rates or an employment shock could spark this scenario. Also, provincial and federal governments reached an agreement to increase Canadian Pension Plan contribution rates to 11.9% of pensionable salary, compared to the current 9.9%. Various groups representing mid-market business are infuriated, as the new regulation will result in increased costs for both employers and employees alike.

Meanwhile in the middle market for U.S. loans, credit spreads continue to creep higher.

Valitas Insights: Increased Buyers for Fewer Quality Companies in the Private Equity Market

According to an article published by PitchBook, Private Equity firms are observing deterioration in the overall quality of deals in the market. While there are still a number of highly attractive firms available for sale, there is a noticeably higher quantity of buyer competition for these select deals. As a result, private equity firms are shifting their focus towards add-on deals as a means of deploying their capital. This has resulted in smaller transactions with markedly lower multiples.

The chart below provides evidence of this phenomenon. The difference between EBITDA multiples for deals under $25 million and for those greater than $250 million has been increasing. In the first quarter of 2016, a 4.1x spread was observed, compared to 3.4x, 1.9x, and 3.0x, in the respective prior years. While multiples for larger deals have been increasing, the multiples on the smaller deals have remained between 5.1x and 5.5x over this period.

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Weekly Canadian Private Market M&A Report

Announced Deals

Alarm.com to Acquire Piper and Connect

Alarm.com, a leading platform solution provider for the connected home and business, has agreed to acquire both Piper, a designer, producer and merchant of Wi-Fi-enabled video and home automation hubs, and, Connect, an interactive security and home automation platform with over 1.6 million subscribers. Alarm.com will purchase the two entities for a combined $140 million, approximately. Steve Trundle, President and CEO of Alarm.com stated, “This acquisition will enhance our research and development scale so that we can continue to deliver long-term value to our partners through innovative technology.”

Kion to Acquire Dematic

Kion (KGX.DE), a German forklift truck and robotics maker, has agreed to acquire Dematic, a designer and manufacturer of fully automated warehouses. The transaction, excluding certain liabilities, will total approximately $2.1 billion. Dematic was previously controlled by AEA investors and Ontario Teacher’s Pension Plan. The combined entity will provide Kion with the infrastructure and wherewithal to become a one-stop supplier for retailers and logistics companies.

Brookfield Global Integrated Solutions (“GIS”) to Acquire McKinstry FMS

Brookfield GIS, a business services and industrial company focused on owning and operating high-quality businesses that benefit from barriers to entry and/or low cost production, has agreed to acquire McKinstry FMS, a full-service, design-build firm specializing in consulting, construction, energy and facility services. No deal terms were announced. Gord Hicks, President and CEO, Americas, Brookfield Global Integrated Solutions stated, “By combining […] we have created one of the largest data center and critical environment facility management companies in North America.”

KingSett to Purchase 50% Stake in Scotia Plaza from Dream Office

KingSett Capital, a Canadian Real Estate Private Equity firm, has agreed to acquire a 50% stake in Scotia Plaza, Canada’s second tallest office building, for $115 million.

Closed Deals

Parkbridge Acquires Willow Park Estates and Jubilee Landing

Parkbridge, a leading owner, operator and developer of residential land lease communities, recreational resorts and marinas, has acquired both Willow Park Estates and Jubilee Landing, two family lifestyle communities in Edmonton, Alberta. No financial terms of the deal were released. Through these acquisitions, Parkbridge’s offering in the camping and RV market will be enhanced for prospective homeowners. Lachlan MacLean, Vice President of Property Operations, Parkbridge Lifestyle Communities stated, “The sense of community at Willow Park Estates and Jubilee Landing will be enhanced by the Parkbridge experience.”

BIOX Acquires Sombra Biodiesel Facility

Birch Hill Equity Partners-backed BIOX, a renewable energy company that owns and operates two biodiesel facilities in Ontario with a combined nameplate capacity of 117 million litres per year, has acquired Sombra Biodiesel, a 50 million litre nameplate capacity biodiesel facility in Sombra, Ontario for US$4.5 million. Alan Rickard, Chief Executive Officer of BIOX stated, “The Sombra acquisition represents a 75% increase in our production capacity and fits our strategy to control and distribute more gallons, leveraging our existing Sales and Marketing capabilities.”

Envirosystems Acquires Victoria Treatment Facility

TorQuest-backed Envirosystems Inc., a leading provider of industrial and environmental services, with a focus on technological innovation, has acquired Victoria Treatment Facility, a handler of waste streams generated by shipyards, cruise ships, freighters, tankers and other marine vessels. No deal terms were announced. Envirosystems’s President and CEO, Mike Ryan, stated, “This acquisition is part of our ongoing initiative to expand our service footprint and provide a wider range of service offerings to our clients.”