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The second quarter of 2019 continued to be impacted by headlines reporting economic pessimism or even forecasting a recession. Despite the increasing uncertainty around Canada’s economy, GDP has risen over the last three quarters, indicating a sustained growth trajectory for the economy rather than the start of a downturn.
Amid widespread speculation around a potential recession over the next 12 to 18 months, the 20th edition of EY’s Global Capital Confidence Barometer pointed to a very strong 2019 in its Canadian survey. Canadian executives are bullish on the economy overall — on the domestic front, 92% of Canadian respondents see the local economy improving, compared with only 54% from the survey 24 months ago. Similarly, 93% see the global economy improving compared with 53% when asked 24 months ago. Even more impressively, 78% of Canadian respondents are targeting revenue growth of more than 10% in 2019.
The survey also indicated that 76% of Canadian respondents expect to pursue M&As in the next 12 months. Despite the positive outlook on both the economy and the deal-making environment, the impact of increased economic and political uncertainty is the most prominent item on boardroom agendas and will continue to be so over the next six months.
So, what actually took place in Quebec during Q2-2019?
Transaction volume during the second quarter continued to trend below the rolling eight-quarter average with only 95 transactions closed in Q2-2019, which is 71 transactions less than the peak of 166 recorded in Q2-2018. For the first time in 2 years, reported transaction volume dipped below the 100 transaction threshold — an indication that the M&A environment is starting to slow ahead of an economic downturn? Conversely, despite lower volumes in Q2-2019, reported transaction value increased from $4.1 billion in Q1-2019 to $6.8 billion in Q2-2019, which attests to the sustained appetite for strategic and accretive acquisitions in line with the Canadian findings reported in the current edition of our Global Capital Confidence Barometer.
I hope you enjoy this edition and those that follow.
Second quarter 2019
Quebec Transaction Snapshot
Conflicting signals: growth or downturn?
Todd Caluori, CPA, CA, CBV Editor in Chief and Senior Vice President M&A Lead Advisory Services
2 | Quebec Transaction Snapshot
Mining companies are really delivering on the promises of returns they made during the downturn. Balance sheets are in a much better position and the focus now needs to be on how to stay ahead of the competition:
• Gain competitive advantage
• Be at the lower end of the cost curve
• Win and keep licence to operate
• Focus on strategic risks
Future returns will only be competitive in the long term if the right decisions over capital are made now.
• Buy: Acquisitive growth is preferred but good buys are scarce
• Build: Capital is going into Brownfield projects
• Return: A preference to return capital is a focus
• Invest: Investment in digital and innovation will keep miners competitive
EY’s sector-focused teamsThis edition’s focus: EY’s Mining & Metals Sector Team (“Mining”)
The outlook for the mining industry has improved but companies remain risk averse, particularly in light of a slightly softer economic outlook and ongoing price volatility.
TransactionAdvisoryServices
Plastic & Packaging
Consumer Products & Retail
Technology, Media &
Telecommunications
Real Estate
Mining & Metals
Manufacturing
Food & Beverage
With a wide variety of industry research and market sounding exercises performed over the last decade, EY has gained strong expertise in the Mining & Metals sector, which has been leveraged to best serve our clients worldwide. To benefit from our independence, objectivity, integrated multidisciplinary capabilities, global reach and our unique perspective on the industry, contact:
Recently published EY Mining & Metals thought leadership:
Publication Four steps for transforming mining and metals companies
Publication How do you prepare for tomorrow’s mine today?
Publication Can mining decode the opportunities of the future?
Publication 10 business risks facing mining and metals in 2019-20
In CanadaJay PatelSenior Vice President416 943 [email protected]
In QuebecPatrick Bertrand-Daoust Partner514 879 [email protected]
Second quarter 2019 | 3
Canadian economic indicators
2018 2019
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4Exchange rate (US/CDN) 1 79.1 77.5 76.5 75.7 75.2 74.5 74.9 75.5Real GDP2 1.5 2.5 2.1 0.3 0.4 2.5 1.9 1.4Consumer spending 2 1.3 1.9 1.3 1.0 3.5 1.8 1.6 1.4Business investment 2 7.3 -0.9 -11.8 -9.5 13.5 3.8 2.0 2.3CPI3 2.1 2.3 2.7 2.0 1.6 2.2 2.0 2.3Overnight rate 4 1.25 1.25 1.50 1.75 1.75 1.75 1.75 1.75Three-month T-Bills 4 1.14 1.21 1.47 1.66 1.65 1.65 1.65 1.6510-year bond yield 4 2.24 2.28 2.28 2.32 1.86 1.60 1.45 1.40Unemployment rate 4 5.8 5.9 5.9 5.7 5.8 5.5 5.5 5.5Housing starts ('000s) 5 224 218 197 217 187 215 209 208
1 Quarter average2 Quarter over quarter % change, annual rate3 Year over year % change4 Quarter average in %5 Quarter average, annual rate□ Estimates
Source: BMO Capital Markets Economics as at 11 June 2019.
4 | Quebec Transaction Snapshot
Transaction snapshot
About Avianor Located in the world’s third largest aerospace cluster, Avianor is a privately held Canadian corporation that over the past 24 years has specialized in commercial aircraft and component maintenance and modifications (airframe MRO, seats, interiors), manufacturing (crew seats, cabin interiors and new aircraft completions) and engineering of cabin interior and in-flight entertainment/connectivity modifications. As such, the Company has positioned itself as a vertical integrator in the marketplace. Avianor occupies over 200,000 square feet of hangars, repair shops, manufacturing facilities and warehouse space at Mirabel Airport (YMX) and employs over 400 people.
The transactionFollowing years of strong growth, Avianor’s desire to further position itself as a one-stop shop for its clients led to the search for a strategic industry partner to enable and accelerate the strategy. Drakkar’s partnership-based philosophy, deep understanding of the market, and ability to fuel Avianor’s next phase of growth makes it, together with Sylvain Savard’s and Earl Diamond’s continuing roles as shareholders and operators, the optimal strategic industry partner moving forward.
EY* is pleased to announce the sale of a partnership interest in Avianor Inc. (“Avianor” or “the Company”) to Drakkar & Partners Inc. (“Drakkar”), on which EY acted as the exclusive financial advisor to Avianor Inc. and its shareholders.
EY* acted as exclusive financial advisor to
Avianor Inc. and its shareholders.
have sold a partnership interest in the
company to
The shareholders of
* Ernst & Young Orenda Corporate Finance Inc.
Second quarter 2019 | 5
To learn more
Ken Brooks514 874 [email protected]
Milad Jawabra514 879 [email protected]
The win-winAvianor’s strong growth profile, healthy financials and room for additional scale provide a sound investment rationale for Drakkar. Meanwhile, the partnership presents Avianor with opportunities to grow its existing volume and create new opportunities by leveraging Drakkar’s financial and operating wherewithal and its network of complementary invested companies.
Through our vast transaction experience working with entrepreneurial mid-market businesses and our deep understanding of key shareholder concerns and objectives, we were able to organize and run a transaction process that led to a successful outcome for all stakeholders.
About Ernst & Young Orenda Corporate Finance Inc. We are one of Canada’s largest mid-market focused corporate finance advisory firms.
We provide sector-specific advice on mergers, acquisitions and divestitures; debt and equity capital markets; and real estate and infrastructure transactions. We bring deep industry knowledge to each transaction to support our clients’ corporate finance strategies and priorities.
We are part of the EY global network, which provides us with direct insights and access to entrepreneurs, companies, private equity firms, capital providers and public sector entities operating around the world.
6 | Quebec Transaction Snapshot
Transaction snapshot
About Transdiff Transdiff is a Québec-based dealer of class 8 Peterbilt trucks. Through an OEM dealership agreement with PACCAR Inc., Transdiff’s core business is the sale of new and used trucks and replacement parts as well as the provision of repair and maintenance services for both Peterbilt and other OEM truck brands.
Having built the foundations of the business over the past four decades, the Company is a top performing dealership operating out of an advantageous geographic territory. Moreover, it has successfully diversified its customer base across various end-markets, including the construction, forestry, transportation, mining and automotive industries.
The Company operates in five distinct locations (55 service bays) with approximately 180 employees. Its Centre de Transmission JDH Inc. business unit (acquired in 2001) is primarily an automotive transmission and differential repair shop located in Lac-St-Jean, Quebec.
9326 is a real estate holding company which owns and leases the land and buildings used by Transdiff to conduct its operations.
The transactionSupporting Transdiff’s growth since 1989, the Company’s shareholders made the decision to monetize their investment while providing management with an experienced partner committed to taking the Company to the next level in its development.
EY* is pleased to announce the sale of Transdiff Inc. and its affiliates, Centre de transmission JDH Inc. (“JDH”) and 9326-0792 Québec Inc. (“9326”) (collectively “Transdiff” or “the Company”) by Centre Agricole Jld a Champlain Financial Corporation (“CFC “) portfolio company. EY acted as the exclusive financial advisor to Transdiff.
and 9326-0792 Québec Inc.
were acquired by Centre Agricole Jlda portfolio company of
EY* acted as exclusive financial advisor to Transdiff Inc., Centre de transmission JDH Inc., and 9326-0792 Québec Inc.
* Ernst & Young Orenda Corporate Finance Inc.
Second quarter 2019 | 7
About Ernst & Young Orenda Corporate Finance Inc. We are one of Canada’s largest mid-market focused corporate finance advisory firms.
We provide sector-specific advice on mergers, acquisitions and divestitures; debt and equity capital markets; and real estate and infrastructure transactions. We bring deep industry knowledge to each transaction to support our clients’ corporate finance strategies and priorities.
We are part of the EY global network, which provides us with direct insights and access to entrepreneurs, companies, private equity firms, capital providers and public sector entities operating around the world.
To learn more
Ken Brooks514 874 [email protected]
Félix Légaré-Côté514 874 [email protected]
Louis-Philippe Côté514 879 [email protected]
The win-winThe transaction allows Transdiff to continue driving profitable growth and strengthening its position as a leading Peterbilt dealer.
This partnership is specifically designed to maintain the culture and stability that have made Transdiff successful.
CFC was attracted to Transdiff because of the Company’s high-quality product offering, future growth initiatives, its multi-location footprint, and its commitment to customers and employees.
Through our vast transaction experience working with entrepreneurial mid-market businesses, our understanding of the key shareholder and OEM concerns and objectives, our approach to deal structuring and our ability to provide creative solutions to deal issues, we were able to structure and execute a transaction process that led to a successful outcome for all stakeholders.
8 | Quebec Transaction Snapshot
F2019 has been a busy and eventful year for Ernst & Young Orenda Corporate Finance Inc. with many closed transactions across Canada. Here’s a sample of what we’ve been up to:
Quebec
Ontario
and 9326-0792 Québec Inc.
were acquired by Centre Agricole Jlda portfolio company of
EY* acted as exclusive financial advisor to Transdiff Inc., Centre de transmission JDH Inc., and 9326-0792 Québec Inc.
* Ernst & Young Orenda Corporate Finance Inc.* Ernst & Young Orenda Corporate Finance Inc.
EY* acted as exclusive financial advisor to R3D Consulting Inc.
and its shareholders.
was acquired by its management team with the
support of a group of investors
AC ATM Fund L.P., a special
purpose limited partnership
has completed the acquisition of
EY* acted as exclusive advisors to the General Partner
of AC ATM Fund L.P.
* Ernst & Young Orenda Corporate Finance Inc.
The Americas operations of Treofan Group were acquired by
CCL Industries Inc.
EY* acted as exclusive financial advisor to
M&C S.p.A. and Treofan Group.
*Ernst & Young Orenda Corporate Finance Inc.
EY* acted as exclusive financial advisor to Groupe
Park Avenue Inc. and its shareholders.
* Conseil en financement Ernst & Young Orenda Inc.
has completed a
Renegotiation of its revolving credit facility and covenant package
A large Quebec-based multi-brand automotive dealership group
has acquired all of the assets of
*Ernst & Young Orenda Corporate Finance Inc.
EY* acted as lead financial advisor to the holding company of an IT solutions company in the healthcare sector in managing, leading and financing the transaction.
The holding company of an IT solutions company in the healthcare sector
has been acquired by
EY* acted as exclusive financial advisor to
Groupe Delom Inc. and its shareholders.
* Ernst & Young Orenda Corporate Finance Inc.
EY* acted as exclusive financial advisor to P.H. Tech Inc. and
its shareholders
* Ernst & Young Orenda Corporate Finance Inc.
was acquired by
*Ernst & Young Orenda Corporate Finance Inc.
EY* acted as exclusive financial advisor to a Québec-based lifting equipment specialist and its shareholders.
has completed an internal recapitalization
A Québec-based lifting equipment specialist
EY* acted as exclusive financial advisor to
Avianor Inc. and its shareholders.
have sold a partnership interest in the
company to
The shareholders of
* Ernst & Young Orenda Corporate Finance Inc.
Second quarter 2019 | 9
Western Canada
• 1 Apr 2019: Finland-based Valmet Oyj, a developer and supplier of technologies, automation and services for the pulp, paper and energy industries, acquired Montreal-based Groupe Laperriere & Verreault Inc., a provider of technologies and services to the pulp and paper industry, for a total consideration of €113.0 million. The acquisition will strengthen Valmet’s global services business further and complement its technology offering for its pulp and paper industry customers.
• 2 Apr 2019: Montreal-based TFI International Inc. (“TFI”), a provider of transportation and logistics services, acquired Nebraska-based Aulick Leasing Corporation (“ALC”) and its Washington-based affiliate, ShirAul, LLC. ALC provides contract hauling services for aggregate materials, dry bulk materials, and hot molasses for feed supplements while ShirAul designs and manufactures trailers. The acquisition will enable TFI to enhance its operations within its specialized truckload business in the US. Terms of the transaction were not disclosed.
• 5 Apr 2019: Montreal-based Garda World Security Corporation (“GardaWorld”), a global provider of security services, acquired Missouri-based Whelan Security Company, Inc., a provider of private security services across many diverse industries. The acquisition will strengthen Garda’s security services footprint in the US. Terms of the transaction were not disclosed.
• 15 Apr 2019: Montreal-based Caisse de Dépôt et Placement du Québec (“CDPQ”) acquired Colombia-based SURA Asset Management S.A (“SURA”), an asset management company specialized in public equity, fixed income and real estate markets, for a total consideration of US$247.0 million. The acquisition will enable SURA and CDPQ to grow and impart opportunities and strategies to expand and capture market.
• 15 Apr 2019: Montreal-based Saputo Inc., a company that produces, markets, and distributes dairy products, acquired UK-based Dairy Crest Group plc, a manufacturer of cheese, butters, spreads and oils, for a total consideration of £975.0 million. The acquisition will allow Saputo to enter the UK market.
• 16 Apr 2019: Montreal-based CGI Inc., a provider of information technology (“IT”) and business process services, acquired Sweden-based Acando AB, a leading provider of IT management and consulting services in Northern Europe and Germany, for a total consideration of SEK4.3 billion. The acquisition of Acando will add more than 2,100 highly skilled consultants to CGI from five countries across Europe, notably in the major metropolitan markets of Stockholm (Sweden), Oslo (Norway) and Hamburg (Germany).
• 18 Apr 2019: France-based Ipsen SA, a biopharmaceutical group, acquired Montreal-based Clementia Pharmaceuticals Inc. (“Clementia”), a clinical stage biopharmaceutical company, for a total consideration of approximately US$1.31 billion. The combination of Clementia’s expertise and Ipsen’s global commercial footprint will enable the combined company to provide life-altering treatments to patients.
• 23 April 2019: Illinois-based Wynnchurch Capital, LLC, a leading middle-market private equity investment firm, acquired Mirabel-based Alliance Designer Products, Inc. (“Alliance”), a leading manufacturer of polymeric sand and related installation products used in residential and commercial hardscaping projects. The acquisition will allow Alliance to pursue its growth trajectory and market leadership. Terms of the transaction were not disclosed.
• 25 Apr 2019: Montreal-based Aliments Fontaine Santé Inc. (“AFS”), a producer of hummus, dips and spreads, sauces, salads, vegetable pates, and appetizers, acquired Michigan-based Garden Fresh Salsa Company, Inc. (“GFSC”), a producer of refrigerated salsa products. The acquisition of GFSC will allow AFS to develop and diversify its product offering while maintaining its small-scale production quality. Terms of the transaction were not disclosed.
• 29 Apr 2019: Montreal-based Telecon Inc., a leading provider of telecommunications infrastructure solutions, acquired Montreal-based Systemex Communications Inc., a company specialized in residential installation, business connectivity, and managed service provider connectivity services. The acquisition strengthens the presence and scope of Telecon’s existing connectivity services in Canada, particularly in several key secondary markets in Quebec and Ontario. Terms of the transaction were not disclosed.
• 1 May 2019: Montreal-based WSP Global Inc., a professional services consulting firm, acquired UK-based Indigo Planning Ltd., a town planning consultancy. The acquisition will strengthen the combined entity’s position in planning consultancy in the UK. Terms of the transaction were not disclosed.
• 1 May 2019: Montreal-based WSP Global Inc. (“WSP”), a professional services consulting firm, acquired Maryland-based Leach Wallace Associates, Inc., a provider of mechanical, electrical, and energy systems engineering design services. The transaction will enable WSP to expand its geographic presence in the US. Terms of the transaction were not disclosed.
• 1 May 2019: Ontario-based Bell Media Inc., a television, radio, out-of-home advertising, and digital media business conglomerate, acquired Montreal-based NewAd Inc., a provider of indoor and web advertising services. Terms of the transaction were not disclosed.
• 1 May 2019: Montreal-based Richelieu Hardware Ltd., a leading importer, distributor, and manufacturer of specialty hardware and complementary products, acquired Ontario-based Euro Architectural Components (“EAC”), a leader in the railing and fence industries. The acquisition will provide EAC with access to new resources and capabilities that will allow EAC to drive additional value for its customers. Terms of the transaction were not disclosed.
• 3 May 2019: Sherbrooke-based SherWeb, Inc., a provider of business-to-business cloud computing solutions, acquired Texas-based Pulsar360, Inc., a Voice over Internet Protocol (“VoIP”) and digital phone communication company that provides voice, data, and cloud-based solutions. The acquisition will expand SherWeb’s presence in the VoIP market. Terms of the transaction were not disclosed.
• 9 May 2019: France-based Natixis Investment Managers S.A. (“Natixis”), an asset management firm, has entered into a long-term strategic partnership with Montreal-based Fiera Capital Corporation (“Fiera”), an independent asset management firm that provides services to institutional investors, mutual funds, charitable organizations and private clients. Under the agreement, Natixis will acquire 10.68 million Class A shares of Fiera for $128.16 million, Fiera will become Natixis’ preferred Canadian distributor and will acquire Natixis’ Canadian operations. The partnership will allow Natixis to offer its international clients complementary Fiera investment strategies through its Dynamic Solutions platform while providing Fiera with access to Natixis’ highly active investment strategies for its clients.
* All amounts are in Canadian dollars unless otherwise indicated. Sources: S&P Capital IQ and company press releases.
10 | Quebec Transaction Snapshot
Illustrative Quebec transactions*
• 13 May 2019: Longueuil-based GTI Transport Solutions Inc. (“GTI”), a leading transportation company and portfolio company of Novacap Investments Inc., acquired Texas-based Jetco, a transporter offering flatbed, heavy-haul, intermodal, logistics, and specialized loads. The acquisition will allow GTI to establish a strong operational platform in the United States, providing GTI with the ability to further strengthen and widen its offering to its customers throughout North America. Terms of the transaction were not disclosed.
• 15 May 2019: Montreal-based Caisse de Dépôt et Placement du Québec (“CDPQ”) acquired a 45.0% stake in Chile-based DP World Chile (“DP World”), a provider of commercial port services in Chile, for a total consideration of US$502.0 million. The acquisition was completed through CDPQ’s investment platform, DP World, and is in line with DP World’s strategy to expand its global footprint with a major entry into Chile, Latin America’s most developed economy.
• 21 May 2019: Montreal-based Hopem Inc., a leading developer and designer of management software for residential and commercial property owners, acquired Quebec City-based Abak Software Inc., a developer of business management software for accounting, engineering, environmental, IT consulting, and architecture companies. The acquisition will enable both companies to leverage each others’ products and solutions to further drive growth. Terms of the transaction were not disclosed.
• 22 May 2019: California-based Zendesk, Inc., a software development company that provides SaaS products for organizations, acquired Montreal-based Smooch Technologies Inc., a platform connecting businesses with customers to power more personalized and human conversations. The acquisition marks Zendesk’s next step in delivering the best omnichannel experiences by connecting conversations between businesses and customers on any messaging channel — from websites and mobile apps to the world’s leading messaging apps like WhatsApp and Facebook Messenger. Terms of the transaction were not disclosed.
• 23 May 2019: Ontario-based CCL Industries Inc. (“CCL”), a world leader in specialty label, security and packaging solutions, acquired Quebec City-based Colle à Moi Inc., a leading manufacturer of personalized kids’ labels for a total consideration of approximately $3.0 million. The acquisition represents the eighth bolt-on acquisition CCL has made since acquiring Avery in 2013 as it continues to build its rapidly growing portfolio of web-to-print technologies and brands using software and related supplies.
• 24 May 2019: Gatineau-based HEXO Corp., which produces, markets, and sells cannabis, acquired Ontario-based Newstrike Brands Ltd., a producer of medical marijuana, for a total consideration of $263.0 million. The acquisition will accelerate HEXO’s vision of creating the best cannabis technology company.
• 30 May 2019: Montreal-based Lightspeed POS Inc. (“Lightspeed”), a leading provider of software, solutions and support systems, acquired Montreal-based Chronogolf Inc., a provider of cloud-based CRM software that facilitates interactions between golf courses and golf players, for a total consideration of $14.0 million. The acquisition will enable Lightspeed to offer its customers Chronogolf software, a fully-integrated point of sale and golf course management solution, giving them the opportunity to streamline their business, from pro shop to restaurant to tee sheet — all in one system.
• 10 Jun 2019: Longueuil-based Héroux-Devtek Inc., the world’s third-largest landing gear manufacturer, acquired Montreal-based Alta Precision Inc., a manufacturer of high-precision landing gear components, for a total consideration of $23.0 million. The acquisition will expand Héroux-Devtek’s portfolio of commercial products by providing both access to new programs and additional content on existing platforms.
• 10 Jun 2019: Ontario-based Clearspring Capital Partners, a private equity firm, acquired Laval-based Voyages Traditours Inc., an operator of curated cultural circuits. The transaction will allow Voyages Traditours to further expand its operations by offering its customers superior services, thereby accelerating the growth of the business. Terms of the transaction were not disclosed.
• 10 Jun 2019: Montreal-based Foodtastic Inc., a franchisor of multiple restaurant concepts in Canada, acquired Ontario-based Big Rig Brewery and Big Rig Restaurants, premier locations for beer and food in Ottawa. The acquisition is consistent with Foodtastic’s strategy of acquiring quality brands with the growth potential to complement its existing brand portfolio. Terms of the transaction were not disclosed.
• 11 Jun 2019: Laval-based Centre Agricole Jld (“JLD”), a John Deere equipment dealer and portfolio company of Champlain Financial Corporation, acquired Quebec City-based Transdiff Inc., and its affiliates Centre de transmission JDH Inc. and 9326-0792 Québec Inc., a dealer of class 8 Peterbilt trucks and a real estate holding company which owns and leases the land and building used by Transdiff. The transaction will allow JLD to continue to develop its solid foundations consisting of great expertise in diesel mechanics, OEM sales and aftermarket support. Terms of the transaction were not disclosed.
• 13 Jun 2019: Montreal-based Solotech Inc., a global leader in audiovisual and entertainment technology, acquired the assets of Tennessee-based J Sound Services, a leader in audio visual systems, acoustic treatment, entertainment and LED lighting, and integrated solutions. The transaction will strengthen Solotech’s positioning in Nashville, Tennessee, and will bring systems integration offerings to the company. Terms of the transactions were not disclosed.
• 17 Jun 2019: Rivière-du-Loup-based Premier Tech Ltd. (“PT”), a manufacturer of horticultural and agricultural products, flexible packaging equipment, and water treatment systems, acquired Mexico-based IDTec Automatización, an integrator of robotic systems specialized in end-of-line applications and material handling solutions. The acquisition will allow PT to offer expanded local client solutions support for its Mexican and Latin American clients. Terms of the transactions were not disclosed.
Second quarter 2019 | 11
12 | Quebec Transaction Snapshot
All values reported in Canadian dollars unless otherwise stated. 1 Closed transactions only. Due to the existence of private transactions, not all deals have reported values.
Historical M&A activity(Source: S&P Capital IQ)
In terms of transaction mix for Q2-2019:
• There were a total of 95 closed transactions involving Quebec-based companies during the quarter ended 30 June 2019. This is less than the 119 transactions closed during the previous quarter, and also lower than the Q2-2018 level of 166 transactions. The total is below the rolling eight-quarter average of approximately 128 transactions. Note, however, that past experience has shown that the number of identified transactions at quarter-end tends to underestimate the actual number of deals closed during the quarter, as announcements are sometimes deferred.
• There were a total of 17 acquisitions completed by a financial sponsor in Q2-2019, representing a ratio of 5 to 1 for transactions completed by strategic buyers versus financial buyers, which is lower than the 9 to 1 ratio recorded for the last eight quarters.
• In terms of transaction size, total reported value was $6.8 billion, above the $4.1 billion recorded in the previous quarter, but below the average of $7.2 billion for the last eight quarters. From a total of 35 deals with reported values, there were 2 deals in excess of $500 million and 10 between $100 and $500 million. The number of transactions below $100 million stood at 23, below the eight-quarter average of 38.
• The average transaction size based on deals with reported values (excluding mega-deals) increased from approximately $45.5 million to $87.3 million, and is above the rolling eight-quarter average of $60.0 million.
• The most active sectors in terms of deal volume in Q2 2019 were IT Products & Services, Healthcare and Industrials. Over the last eight quarters, IT Products and Services, Metals & Mining and Commercial & Professional Services were the most active sectors.
•In terms of targets, out of 75 acquisitions closed by Quebec-based companies during the quarter, 22 targets were based in Quebec (29.3%), above the eight-quarter average of 20.2%, 21 targets were based in the rest of Canada, 16 in the US and 16 in the rest of the world.
• In terms of acquirers, out of the 42 Quebec-based companies acquired during the quarter, 22 were acquired by Quebec-based acquirers (52.4%), above the eight-quarter average of 36.7%, 6 acquirers were based in the rest of Canada, 7 in the US and 7 in the rest of the world.
Transactions involvingQuebec-based companies over the last eight quarters1
Q3-2017 Q4-2017 Q1-2018 Q2-2018 Q3-2018 Q4-2018 Q1-2019 Q2-2019
# of transactions by a financial sponsor
# of transactions by a strategic buyer
Reported values (C$, millions)
# of
tran
sact
ions
C$, m
illio
ns
$15,000
$10,000
$5,000
$0
200
150
100
50
0
117
141153
166
106123 119
95
106
11
132
9
144
9
147
19
97
9
102
21
112
7
78
17
Counterparty mix over the last eight quarters
Counterparty mix over the last quarterCounterparty mix over the last
eight quartersCounterparty mix over the last quarter
Quebec with USQuebec with rest of world
Quebec with Quebec Quebec with rest of Canada
22
2723
23153180
242
445
Transactions involving Quebec-based companies over the last eight quarters, by deal size (in C$, millions)
Q3-2017 Q4-2017 Q1-2018 Q2-2018 Q3-2018 Q4-2018 Q1-2019 Q2-2019
# of
tran
sact
ions
Undisclosed value $0-$20 million $20-$100 million $100 - $500 million $500 - $1,000 million >$1,000 million
200
150
100
50
0
1171 3
6
2410
73
141153
166
511 1
2
37
20
76
862 4
41
10
92
931
114
106
15
160
63
21
12312 4
1417
85
1191
1 36
27
81
95
10205
18
60
Number of Quebec transactions by industry over the last eight quarters
Energy
& Utilitie
s
Consu
mer Goo
ds
Health
care
Indus
trials
Food
& Bevera
ge
Constr
uctio
n & Eng
ineeri
ng
Retail &
Distrib
ution
IT prod
ucts
& Service
s
Materia
ls
Media
&
Teleco
mmunica
tions
Metals &
Mini
ng
Real E
state
Finan
cials
Transp
ort
Commerc
ial &
Profes
siona
l Serv
ices
180
160
140
120
100
80
60
40
20
0
163
121
9989 82
62 58 56 54 53 5237 34 30 30
Retail &
Distrib
ution
Real E
state
Constr
uctio
n & Eng
ineeri
ng
Food
& Bevera
ge
Transp
ort
Metals &
Mini
ng
Materia
ls
Consu
mer Goo
ds
Health
care
Energy
& Utilitie
s
Indus
trials
Finan
cials
IT Produc
ts & Serv
ices
25
20
15
10
5
0
Commerc
ial &
Profes
siona
l Serv
ices
Media
&
Teleco
mmunica
tions
6 5 54
6
23
76
1223
11
7 7
Number of Quebec transactions by industry over the last quarter
Second quarter 2019 | 13
EY’s Quebec public company review1
(Source: S&P Capital IQ)
1. Ernst & Young Orenda’s Quebec public company indices are capitalization-weighted, while multiples by industry are based on an arithmetic average. Indices and trading multiples are updated periodically to reflect new entrants/exits. Current data may not correspond with those shown in previous editions.
2. For the purposes of this analysis, small caps include companies with market capitalization between $5.0 and $250.0 million, mid-caps include companies between $250.0 million and $2.5 billion, and large caps include companies with a market capitalization above $2.5 billion.
Stock price evolution over the last eight quarters2
130
120
110
100
90
80
70Jun-18Jun-17 Sep-18 Dec-18 Mar-19 Jun-19Sep-17 Dec-17 Mar-18
S&P TSX Quebec large caps Quebec mid caps Quebec small caps
Large Cap Mid Cap Small Cap
June-17 Jun-18 Sept-18 Dec-18 Mar-19 June-19Sept-17 Dec-17 Mar-18
TEV/EBITDA evolution over the last eight quarters2
14.0x
13.0x
12.0x
11.0x
10.0x
9.0x
8.0x
7.0x
Quebec TEV/EBITDA trading multiples by industry
31 March 2019 30 June 2019
13.5x
18.7x
17.0x
12.5x
11.1x
16.9x
12.0x
10.4x
16.8x
8.7x
8.1x9.7
x
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14 | Quebec Transaction Snapshot
About the surveyThe Global Capital Confidence Barometer gauges corporate confidence in the economic outlook and identifies boardroom trends and practices in the way companies manage their Capital Agenda — the EY framework for strategically managing capital. It is a regular survey of senior executives from large companies around the world conducted by Thought Leadership Consulting, a Euromoney Institutional Investor company. Our panel comprises select global EY clients and contacts and regular Thought Leadership Consulting contributors.
• In February and March 2019, we surveyed a panel of more than 2,900 executives in 47 countries, including 79 from Canada; 68% were CEOs, CFOs and other C-level executives.
• Respondents represented 14 sectors, including financial services, consumer products and retail, technology, life sciences, automotive and transportation, oil and gas, power and utilities, mining and metals, advanced manufacturing, and real estate, hospitality and construction.
• Surveyed companies’ annual global revenues were as follows: less than US$500m (25%); US$500m–US$999.9m (24%); US$1b–US$2.9b (21%); US$3b–US$4.9b (9%); and greater than US$5b (21%).
• Global company ownership was as follows: publicly listed (54%), privately owned (40%), family owned (4%) and government or state owned (2%).
Second quarter 2019 | 15
May 2019 | 20th edition | ey.com/CCB | Canada highlights
Global Capital Confidence Barometer
How can you reshape your future before it reshapes you?Companies look to safeguard growth by reinventing their M&A strategy beyond tomorrow.
16 | Quebec Transaction Snapshot
Canadian executives are focused on growth, with more than 78% targeting revenue growth greater than 10% in the coming year. This is a strong indicator of a positive economy, but more important are the metrics demonstrating the desire to keep businesses competitive and resilient amid disruption. The top two capital allocation and strategy issues cited by Canadian executives include making a transformational investment in digital and technology, and restructuring and improving existing operations. Workforce trends also signal growth, with only 3% looking to reduce headcount and 30% considering investment in AI, automation and technology to increase workforce productivity.
The impact of increased economic and political uncertainty is the most prominent item on boardroom agendas over the next six months, so caution and discipline remain key. For now, with 2019 continuing to be a strong year for dealmaking, Canadian executives are focused on becoming smarter, stronger and focused on evaluating all aspects of their capital agenda.
Doug JenkinsonPartner, EY Transaction Advisory Services
Survey tracks a decade of Canadian dealmaking and points to a very strong 2019The 20th edition of the EY Capital Confidence Barometer marks a decade of tracking Canadian corporate confidence and dealmaking — from the wake of the global financial crisis and the relative quiet of the early 2010s, through catching the global M&A wave in 2013 and 2014, to then enduring resource economy choppiness in 2016. Today, the survey indicates that 76% of Canadian respondents expect to pursue M&A in the next 12 months, the second-highest ever (behind April 2018) and the fifth consecutive year above the historical average of 50%.
Despite attention-grabbing headlines forecasting economic pessimism or even recession, Canadian executives are bullish on the economy overall. On the domestic front, 92% of Canadian respondents see the local economy improving, compared with only 54% from our survey 24 months ago. Similarly, 93% see the global economy improving, compared with 53% when we asked 24 months ago. Canadian respondents are also confident we will see improvements in corporate earnings, credit availability and the stock market over the next 12 months.
Canada highlights
Second quarter 2019 | 17
April 2010 April 2011 April 2012 April 2013 April 2014 April 2015 April 2016 April 2017 April 2018 April 2019
Canada Global
Canada respondents’ average since 2010 is 50%
Canadian companies planning to actively pursue M&A in the next 12 months
59%
52%
30%31%
29%
56%
50%
57%
38%
56%
76%
80%
48%
33%
41%
71%
56%
64%
32%
62%
92% see the local economy improving.
76%expect to actively pursue acquisitions in the next year.
Top five investment destinations:
1 US
2 Canada
3 UK
4 China
5 Germany
Canada key findingsSpotlight
18 | Quebec Transaction Snapshot
Second quarter 2019 | 19
Canada Global
of respondents are focused on reducing costs to free up investment capital.
of respondents are reviewing their portfolio at least every six months.
of private companies plan to use private debt financing to fund growth strategies in next 12 months.
of respondents are targeting revenue growth greater than 10% in the next year.100+Y78+M78%
100+Y77+M77%
100+Y73+M73%
100+Y67+M67%
100+Y55+M55%
100+Y66+M66%
100+Y77+M77%
100+Y49+M49%
Canada key findings
François Tellier*, CPA, CA, CBV Senior Vice President M&A Lead Advisory Services 514 874 4351 [email protected]
Ken Brooks*, MBA Senior Vice President M&A Lead Advisory Services 514 874 4412 [email protected]
Todd Caluori*, CPA, CA, CBV Senior Vice President M&A Lead Advisory Services 514 879 2793 [email protected]
Walid Safi, MBA Senior Vice President M&A Lead Advisory Services 514 879 8029 [email protected]
Eric Cassir*, CFA, CBV Vice President M&A Lead Advisory Services 514 879 8228 [email protected]
Milad Jawabra*, CFA Vice President M&A Lead Advisory Services 514 879 8148 [email protected]
Félix Côté, CFA Senior Associate M&A Lead Advisory Services 514 874 4682 [email protected]
Adam Forlini* Senior Associate M&A Lead Advisory Services 514 874 4634 [email protected]
Jenny Bradley, CPA Associate M&A Lead Advisory Services 514 879 6540 [email protected]
Louis-Philippe Côté, CPA Associate M&A Lead Advisory Services 514 879 6396 [email protected]
Justin Morin Analyst M&A Lead Advisory Services 514 879 6506 [email protected]
Omar Mourad Analyst M&A Lead Advisory Services 514 879 8045 [email protected]
EY | Assurance | Tax | Transactions | Advisory
About EYEY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.EY refers to the global organization and may refer to one or more of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com.
Ernst & Young Orenda Corporate Finance Inc. is registered as an exempt market dealer in Alberta, British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Quebec and Saskatchewan.
Ernst & Young Corporate Finance (Canada) Inc., an affiliate of Ernst & Young Orenda Corporate Finance Inc., is an US registered broker-dealer. Any inquiries regarding transactional services by US persons should be directed to Ernst & Young Corporate Finance (Canada) Inc. through one of the contacts identified.
© 2019 Ernst & Young Orenda Corporate Finance Inc. © 2019 Ernst & Young Corporate Finance (Canada) Inc.
3207779ED None
This publication contains information in summary form, current as of the date of publication, and is intended for general guidance only. It should not be regarded as comprehensive or a substitute for professional advice. Before taking any particular course of action, contact Ernst & Young or another professional advisor to discuss these matters in the context of your particular circumstances. We accept no responsibility for any loss or damage occasioned by your reliance on information contained in this publication.
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*A registered exempt market Dealing Representative.
