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Home > Career > Investment Banking > Canadian M&A Roundup Sep 29, 2017 – Cenovus Energy Assets, Jean Coutu Group, Polaris Materials

Canadian M&A Roundup Sep 29, 2017 – Cenovus Energy Assets, Jean Coutu Group, Polaris Materials

Our previous Canadian Mergers & Acquisitions roundups can be found here. Our previous global M&A roundups can be found here.

Target: Cenovus Energy Inc., Suffield and Alderson Assets

  • Industry: Energy
  • Acquirer: International Petroleum Corporation  (TSX:IPCO)
  • Target: Cenovus Energy Inc., Suffield and Alderson Assets
  • Size: $512 million
  • Consideration: 100% Cash
  • Sourceof Funds: Debt
  • Sell Side Advisors: BMO Capital Markets
  • Buy Side Advisor: Not Disclosed
  • Legal Advisors: Not Disclosed
  • Expected Close: Q4 2017

On September 25th, 2017, International Petroleum Corporation (IPC) entered into a definitive agreement to acquire all of Cenovus’ interests in the conventional oil and natural gas assets in the Suffield and Alderson areas of Southern Alberta for $512 million. In addition, Cenovus will also receive deferred payments of up to $36 million USD for the next two years if the WTI rises above USD $55.00 or Henry Hub above USD $3.50.

The assets are forecasted to produce 24,000 BOE/d (6,900 barrels of oil per day and 102 M standard cubic feet of natural gas per day) in 2017. Production costs currently come in under $10 CAD/boe. However the asset has been undercapitalized for the past 12 years as Cenovus focuses on allocating to other priorities.

This deal is in line with IPC’s strategy of leveraging proven assets that are value accretive, low – declining, and tax favorable. They have also not invested any growth capital for many years and are looking to pursue growth by M&A.

For Cenovus this gives them the opportunity to streamline their operations and focus on its oil sands and Deep Basin assets.

Target: The Jean Coutu Group (PJC) INC. (TSX: PJC.A)

  • Industry: Consumer & Retail
  • Acquirer: Metro Inc. (TSX:MRU)
  • Target: The Jean Coutu Group (PJC) Inc. (TSX:PJC.A)
  • Size: USD $4.5 billion
  • Consideration: 75% Cash, 25% Equity
  • Source of Funds: Cash, Debt
  • Sell Side Advisors: National Bank Financial, TD Securities
  • Buy Side Advisors: BMO Capital Markets, CIBC World Markets
  • Legal Advisors: Fulbright Canada LLP, Stikeman Elliott LLP, Fasken Martineau DuMoulin LLP
  • Expected Close: H1 2018

Metro Inc. (Metro) has entered into a definitive combination agreement to acquire The Jean Coutu group (PJC) for consideration of 75% cash and 25% Metro Common shares. PJC shareholders can elect to receive either $24.50 in cash or 0.61006 of a Metro common share.

This values PJC at an implied EV/ EBITDA of 14.0x (11.3x adjusted for synergies) and an implied PE multiple of 23.11x.

The theme of this deal is to combine two leading brands in both grocery and pharmacy to establish a dominant retail competitor. It will consolidate Metro’s position as a top destination for professional services, health, beauty and wellness with a network comprised of more than 675 independent stores.

Metro’s existing pharmacy distribution and franchising will be combined with those of Jean Coutu Group’s, and will operate as a stand-alone division of the former. This strengthens Metro’s strategic diversification into the pharmacy industry with a stable business and a low-capex franchise model.

Jean Coutu’s existing network holds 419 stores with over $12 million in sales per store. Combined, the deal will create a business with over 1,300 stores in Canada with an expected $16 billion in revenue, $1.3 billion in EBITDA, and $500 million in FCF.

The deal is expected to generate $75 million in annual run-rate cost synergies within 3 years. It is accretive to adjusted EPS and FCF per share.

Target: Polaris Materials Corporation (TSX:PLS)

  • Industry: Basic Materials
  • Acquirer: S. Concrete (NasdaqCM:USCR)
  • Target: Polaris Materials Corporation (TSX:PLS)
  • Size: $309 million
  • Consideration: 100% Cash
  • Source of Funds: Not Disclosed
  • SellSide Advisor: Canaccord Genuity Corp.
  • Buy Side Advisors: RBC Capital Markets, NMB Advisory
  • Legal Advisors: Fasken Martineau DuMoulin LLP; Osler, Hoskin & Harcourt LLP; Dorsey & Whitney LLP; Akin Gump Strauss Hauer & Feld LLP; Cassels Brock & Blackwell, LLP
  • Expected Close: Q4 2017

On September 29th, 2017, U.S. Concrete, Inc. announced that it has entered into an arrangement agreement with Polaris Materials Corporation (Polaris) to acquire all outstanding common shares for CAD $3.50 per share in cash. Polaris has now reneged on a previous bid by Vulcan Materials for a CAD $2.79 per share offer with the $10 million termination fee being advanced by U.S. Concrete. This deal gives Polaris an Implied TEV/Revenue of 5.0x.

The theme of this deal is vertical integration on U.S. Concrete’s part to strengthen their supply chain in the Californian markets. They have previously executed this model in New York with success and management is now looking to replicate this on the West Coast. Taking Polaris under their wing would allow them to have a protected dedicated supplier, helping them take advantage of the booming LA construction market.

From Polaris’ viewpoint, there will be cost synergies from U.S. Concrete’s operational expertise. However, the main value driver will be increasing production volume to supply U.S. Concrete’s internal needs versus selling on the open market.

To better understand our M&A write-ups, please refer to the following:

Mergers & Acquisitions
Cash or Stock Consideration for M&A
Accretion/Dilution Part I: EPS, Earnings Yield & All-Stock Transactions

Accretion/Dilution Part II: Math and Breakeven Premiums

Accretion/Dilution Part III: Using Debt for Acquisitions
Accretion/Dilution Part IV: Synergies & Sources of Funds

Will is an economics and accounting student from UBC. He is currently a corporate finance intern at Dassault Systemes and has previously worked in equity research for Canalyst. Outside of school, he is an alpine ski racer in the winter and a triathlete in the summer.

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