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Mergers & Acquisitions Update |
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The True North Strong and Free (and Prosperous) |
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Profile: Headwater Equity Partners |
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Selling Your Business: The Process |
Mergers & Acquisitions Update
Despite the fact that BRIC economies are slowing in their growth, the overall consumption of resources has remained robust. We can see evidence of the global demand for energy and metals by the continuing surge in M&A transactions in the resource dominated provinces of Western Canada. That is why Western Canada bucked the downward trend in global M&A transactions in Q1 of 2012.
According to mergermarket, the number of M&A transactions globally was down 25% from Q1 2011 to Q1 2012 and decreased 31% in total value over the same time period. In comparison, M&A activity in Canada’s Western provinces nearly doubled from 49 deals in Q1 2011 to 86 completed transactions in Q1 2012. The average deal value was slightly higher over the same time period. Mergermarket called Energy & Materials the hottest sector globally, despite the overall reduction in transactions.
Foreign buyers continue to be active in larger deals such as Mistubishi Corp’s acquisition of the Cutback Ridge partnership from Encana for $1.45 billion and Cretaceous Oilsands Partnership (PetroChina) buying the MacKay River project from Athabasca Oil Sands for $673 million. In addition, there were several large transactions completed in Q1 2012 among Canadian based mining companies including Eldorado Gold’s purchase of European Goldfields for $2.4 billion. Dominance of mining and energy in M&A is further evidenced by the fact that of the 89 deals closed in Q1 2012 over $5 million, there were very few real estate, financial or technology transactions. In the mid-market (between $15 million and $150 million), 40% of closed transactions were not Energy or Materials related, such as Hootsuite Media’s partial sale to OMERS Ventures for $20 million or the Elephant & Castle restaurant group selling to Franworks Growth for $23 million. By comparison, 13 of 14 deals above $250 million were Energy & Materials transactions.
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Overall, M&A across Canada as a whole did not fluctuate much quarter over quarter, but was up 37% year on year from its activity levels in Q1 2011. Tempering Western Canada’s resource driven growth in M&A, Eastern Canada’s “older economy” reflected the global tightening of non-resource markets. For example, financial services transactions in Canada were almost non-existent in Q1 2012. However, a positive sign for Canadian M&A is the steadily rising average value of transactions over the past three quarters after an anomaly in Q2 2011, driven by several very large transactions that skewed the results that quarter.
Of particular note in Eastern Canada during Q1 was a successful biotechnology exit in Quebec. Enobia Pharma, a development stage biotech company working on therapeutics for genetic bone disorders was bought by Nasdaq listed Alexion Pharmaceuticals for $1.145 billion. Enobia had a classic venture backed existence, spinning out of a university in 1997 and receiving $60 million in venture funding over the past 15 years. The biotech industry has struggled in Canada over the past decade, making this transaction a hopeful beacon for many other life sciences companies across the country.
The number of financing transactions in Western Canada has been rather
moribund since Q1 2011. Venture capital investments in early stage companies and minority investments by private equity funds in growth or expansion stage companies have not increased materially in six quarters. That said, Western Canada has been 40%-50% higher than eastern provinces over the same time period.
Across North America, private placements have been lower through the end of 2011 and beginning of 2012 after a surge in the previous four quarters. From the last half of 2010 through the fi rst quarter of 2011, private placement values in North America were driven by large, later stage financings of technology companies like Facebook, Zynga, Twitter and a raft of e-Commerce companies. Financing of consumer goods, hospitality, manufacturing and fi nancial services sectors has remained steady as has capital raising for resource companies. The bottoming out of the cycle for investment had a lot to do with the global market uncertainty in late 2011. The upward part of the cycle should return as investors (primarily private
equity funds) are still sitting on a large amount of un-committed capital they need to invest before the time horizon on their funds closes.
