Value Unleashed

Market Update

The S&P 500 closed for the week at the second highest index value in history. On Friday, the government announced that U.S. GDP grew at a seasonally adjusted rate of 1.2% in the second quarter. Consensus estimates among economists were 2.6%. WTI Crude Oil had its largest one-month decline in a year, falling 14% to $41.60 a barrel.

Despite a fall in oil prices, the TSX closed narrowly shy of a 12-month high on both a CAD and USD basis.

Credit markets remain sluggish as banks continue to increase scrutiny towards new credit issuances.

Valitas Insights:

Mid-market M&A Indicator: June 2016 – More Selective Buyers

Mergers & Acquisitions Magazine has been publishing the M&A Conditions Index (MACI) since the fall of 2013 to gauge general M&A market conditions. Derived from monthly surveys of approximately 250 executives, the MACI is a diffusion index. Readings above 50 indicate expansion in M&A activity, and conversely, readings below 50 indicate contraction.

The index is a composite of multiple components that include several market factors. The chart below focuses on the composite score and the two leading indicators. “Leads” represent the general volume of transactions that potential acquirers are seeing in the marketplace and “Signed Letters” represent the volume of indications of interest (“IOI’s) that acquirers are signing with potential targets and indicate the volume of deals that are in the (pre-announcement) due diligence phase.

June composite signals elude to an expansionary environment, after signals in May pointed to a contractionary environment ahead. Leads remain fairly robust, while LOI volume remained in contraction territory, suggesting buyers are becoming much more selective.

Average Sector Leverage

According to a research report published by The Lead Left, the top three sectors with highest leverage are: Healthcare, Food/Food Services. The chart below illustrates the average sector leverage across 16 different sectors. The Free & Clear Incremental Tranche refers to tranches of debt which allow issuers to tap the market for additional loans unfettered by the restrictions of incurrence tests. The combination of the Pro Forma Gross Total Leverage, along with the Free & Clear Incremental Tranche/ Pro Forma EBITDA, equates to the average pro forma gross total leverage through the Free & Clear Tranches. This acts as a proxy for average sector leverage.

Weekly Canadian Private Market M&A Report

Announced Deals

Cruz Capital to Acquire Cobalt Locaters

Cruz Capital Corporation (TSXV: CUZ), an exploration stage company that engages in the identification, acquisition, and exploration of mineral properties, has agreed to acquire Cobalt Locaters, a Canadian provider of cobalt exploration services. The total transaction value of the deal is estimated to be $0.5 million.

Klondex Holdings to Acquire Carlin Resources

Klondex Holdings (USA) Inc., a subsidiary of a Canada-based gold and silver mining company Klondex Mines Limited, has agreed to acquire Carlin Resources, LLC, a Waterton Global Resource Management backed owner and operator of a gold mine. The total transaction value of the deal is estimated to be $121 million.

Gildan Activewear to Acquire Peds Legwear

Gildan Activewear Inc. (TSX: GIL), a manufacturer and seller of apparel products globally, has agreed to acquire Peds Legwear Inc., a Canadian company that manufactures and markets foot apparel and legwear for women, men, babies, and children. The total transaction value of the deal is estimated to be $72.63 million.

BC Partners and PSP Investment Board to Acquire Keter Plastic

BC Partners, a UK-based private equity firm, and Canada’s Public Sector Pension Investment Board, have agreed to acquire Keter Plastic Limited, an Israeli company that manufactures and markets resin-based household and garden consumer products for customers in Israel and internationally. The deal values Keter Plastic at $1.7 billion.

Fundamental Applications to Acquire Opinit

Fundamental Applications Corporation, a Canadian Nexus Ventures backed business that designs, develops, markets, and acquires applications for Smartphones and tablets in Canada, has agreed to acquire Opinit LLC, a Los Angeles-based technology company that has developed and launched a web content sharing platform and emotions-based content discovery algorithm with approximately 30,000 users in United States and Europe. The total transaction value of the deal is estimated to be $1.25 million.

APA Hotel International to Acquire Okabe North America

APA Hotel International Inc., a Canadian company that engages in shareholding and provides loans, has agreed to acquire Okabe North America, Inc., a Canada-based company that owns, develops and leases real estate properties such as hotels. The total transaction value of the deal is estimated to be $205 million.

Blackbird Energy to Acquire Stage Completions

Blackbird Energy Inc. (TSXV: BBI), a GMT Capital, Vertex One Asset Management, and AlphaNorth Asset Management backed energy company that engages in the exploration, development, and production of crude oil and natural gas in western Canada, has agreed to acquire Stage Completions Inc., a Canadian company that develops fracturing systems for oil and gas industry. The total transaction value of the deal is expected to be $3 million.

Closed Deals

Senneca Holdings Acquires Enershield Industries

Senneca Holdings, an Audax Group, Inc. backed U.S. manufacturer and distributor of doors, has acquired Enershield Industries Limited, a Canadian company that manufactures and sells air barrier equipment. No terms of the transaction were released.

BrightPath Early Learning Acquires The Lawrence Park School

BrightPath Early Learning Inc. (TSXV: BPE), a Network Capital Management, FIAM LLC, and Vision Capital Corporation backed business that provides child care services in Canada, has acquired The Lawrence Park School Limited, a Canadian company that operates a nursery school that offers educational programs for toddlers, and preschool and kindergarten children in North Toronto. The transaction value of the deal was approximately $1.1 million.

Wired Investors Acquires 99 Dollar Social

Wired Investors, a Canadian high-end brokerage offering resources for savvy Internet retail investors, has acquired 99 Dollar Social LLC, a U.S. based company that offers social media services to small business. No terms of the transaction were released.

Blockstream Acquires GreenAddressit

Blockstream Corporation a Canadian company backed by Horizons Ventures, Khosla Ventures, DG Incubation, Real Ventures, Innovation Endeavors, Ribbit Capital, SKVentures, AME Cloud Ventures, FuturePerfect Ventures, Blockchain Capital, Mosaic Ventures, AXA Strategic Ventures, and Seven Seas Partners, that develops new ways to accelerate innovation in crypto currencies, open assets and smart contracts,has acquired GreenAddressit Limited, a Malta-based company that designs and develops a bitcoin wallet. No terms of the transaction were released.

Cognizant Technology Solutions Acquires Idea Couture

Cognizant Technology Solutions Corporation (NasdaqGS: CTSH), a WestBridge Capital Partners backed business that provides IT, consulting, and business process services worldwide, has acquired Idea Couture Inc., a Canadian company that operates as a strategic innovation and experience design company. No terms of the transaction were released.

Keywords Studios Acquires VOLTA

Keywords Studios plc, an Invesco Perpetual, Amati Global Investors, Liontrust Asset Management, BlackRock Investment Management (UK), Legal & General Investment Management, Schroder Investment Management, Old Mutual Global Investors, River and Mercantile Asset Management, Hargreave Hale Limited, Asset Management Arm, Kabouter Management, and Artemis Investment Management backed company that provides technical services to the video game industry globally, has acquired VOLTA, a Canadian company that offers visual development services. The transaction value of the deal was approximately $5.5 million.