Q2 2018

DEALS WEST

WESTERN CANADA’S CORPORATE TRANSACTION QUARTERLY

Capital West Continues to be Active in the Market

  • Imprint is one of North America’s leading manufacturers and distributors of name badge systems, signage systems, accessories and other related products
  • CCL Industries is the largest label company in the world
  • Capital West Partners acted as exclusive financial advisor to Imprint

  • Rye Patch Gold Corp is a gold and silver exploration and mining company with all of its assets located in Nevada, USA
  • Alio Gold is a growth oriented gold mining company focused on exploration, development and production in Mexico
  • Capital West Partners acted as exclusive financial advisor to Rye Patch
Q2 2018

DEALS WEST

WESTERN CANADA’S CORPORATE TRANSACTION QUARTERLY

Q2 2018 Mid-Market M&A Review

Overview of Mid-Market M&A Transactions in North America

  • Average EV/EBITDA multiples increased in Q2 2018 to 7.5x from 6.9x in Q1
  • Q2 2018 transaction volume was the highest quarter in two years, nearing 850 deals
  • The Real Estate and Natural Resources sectors continue to be the most active in North America and accounted for 51% of total transaction volumes in Q2
  • According to Mergermarket, 2018 has been the strongest first half for M&A activity since 2001

Average Debt/EBITDA Multiples and Bankers’ Acceptance Rates in Canada

  • Leverage multiples increased to 4.4x in Q2 2018, up from 4.0x in Q1
  • Due to recent hikes, the Bankers’ Acceptance rate has reached its highest point since the downturn in 2009
  • The Bank of Canada recently implemented its fourth interest rate hike since 2017, with the possibility of more to come this year
  • Despite recent increases, the cost of borrowing is low and continues to drive healthy M&A activity

Equity and Debt Contribution in North America

  • Traditional banks and financial institutions continue to be aggressive as they compete to deploy capital to finance M&A transactions
  • As the Bank of Canada continues to hint at additional rate hikes, transaction capital structures have shifted slightly to higher levels of equity

Top Ten M&A Deals in Western Canada

The top ten M&A deals in Western Canada during Q2 2018 involved several industry sectors, with Energy, Mining & Utilities making up more than half the transactions. The most notable deal in Vancouver was the acquisition of Hyperwallet by PayPal. Hyperwallet is a global payout platform providing a fast and efficient way to distribute funds to payees almost anywhere in the world. This transaction represents continued interest in the Canadian fintech sector, which is one of the fastest growing industries in Canada.

Q2 2018

DEALS WEST

WESTERN CANADA’S CORPORATE TRANSACTION QUARTERLY

US Tax Reform Adds Firepower to North American M&A Market

In December 2017, US President Donald Trump followed through on his campaign promise of tax reform and signed into law the Tax Cuts and Jobs Act (“TCJA”). Although the tax reform aimed to increase investment in the US, the overall Canadian M&A landscape has remained highly active and is expected to be further stimulated by the TJCA’s impact on US dry powder and on the attractiveness of asset (vs. stock) deals.

Increased Liquidity and Cash Levels
The TCJA has given US multinational corporations a tax break on profits earned in foreign countries, allowing repatriated cash to be taxed at 15.5% versus the current 35%. Significant amounts of cash is expected to flow back into the US (Forbes estimates US$2.6 trillion in foreign bank accounts), to be used for stock repurchases, deleveraging, and M&A.

Bonus Depreciation
Although it is uncertain how much repatriated cash will be deployed on M&A, asset-heavy target companies will see an uptick in interest as US buyers are now allowed to immediately expense the entire cost in the year of purchase of qualified property. This bonus depreciation (to be stepped down in 2023 and phased out in 2026) is expected to provide US buyers with added liquidity and flexibility while driving M&A activity in asset-heavy industries across North America.

Results
Canada is just starting to feel the impact of the TCJA, and the factors outlined above only partially explain the potential implications of the US tax reform on Canadian M&A. Regardless of US tax reforms, Canadian businesses with consistent earnings, strong management teams, and growth opportunities will continue to garner significant interest from both strategic and financial US buyers.