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Canadian M&A Roundup Q1 2018

After an active year for Canadian M&A in 2017, the first quarter of 2018 has slowed down slightly. Total value of deals for domestic and cross-border announced transactions fell from CAD $62B in Q1 2017 to $27B in Q1 2018 but has kept pace with last quarters total of $32B.

M&A Drivers

A few drivers of M&A activity in Q1 include

  • Rising interest rates
  • Heavy deal volume in technology
  • Large real estate deals

Interest Rates

Despite the Bank of Canada raising interest rates by 25 basis points in January and 75 basis points since May 2017, interest rates remain near historical lows, keeping debt financing relatively cheap. Although there are disagreements as when the rate hikes will occur, the market is pricing in a 63% chance that rates will end the year another 50 bps higher. With rate hikes on the horizon, companies may be looking to lock in low rates while they last.


Continuing with the trend from 2017, Canada’s tech sector has seen a lot of activity in the first quarter of the year with 124 deals announced. Most of the activity is driven by AI and blockchain technologies, as large companies are buying the technological assets of smaller firms and start-ups to bolster their current operations. An example is TD Canada Trust purchasing Layer 6, an AI company that predicts customer behaviour, for an undisclosed amount. Although the volume of technology deals is high, most tend to be for small or undisclosed amounts.

Real Estate

The two largest deals announced in Canadian M&A since January have been in the real estate sector. One being Choice Properties’ $6B acquisition of CREIT (discussed below) and the other being Blackstone Property Partners purchasing PIRET, a Vancouver-based industrial REIT, for $4B.

Notable Deals

Choice Properties REIT (CHP) Acquires Canadian REIT (CREIT)

  • Industry: Real Estate
  • Date Announced: 02/15/18
  • Size (CAD): $5846M
  • Consideration: 42% Cash 58% Stock
  • Target Advisors: RBC Capital Markets (Advisory, Fairness Opinion), Blake Cassels & Graydon (Legal Counsel)
  • Acquirer Advisors: TD Securities (Advisory, Fairness Opinion, Provided Financing), Torys (Legal Counsel)

On February 15, 2018, it was announced that Choice Properties REIT, a subsidiary of Loblaw Companies and George Weston Limited will acquire 100% of the share capital and take on the outstanding debt of Canadian REIT for CAD $5846M in the largest domestic REIT deal to date. CREIT shareholders will have the option of receiving $53.75 in cash or 4.284 Choice units prorated for a total consideration of 42% cash and 58% stock for each CREIT unit held. The consideration represents a 23.45% premium over the price of CREIT at the time of announcement. The combined company will surpass RioCan as Canada’s largest REIT measured by market cap, EV, NOI and FFO.

The transaction offers CHP the opportunity to diversify both its real estate asset holdings as well as its property tenant mix. CHP currently has 89% of their real estate units in retail with most of their anchor tenants being Loblaws owned grocery retailers, a sector that is facing disruption from e-commerce and rising labour costs. With a large portion of CREIT’s current portfolio invested in distribution and warehouse facilities, the combined company is better positioned within the future e-commerce landscape. The combined REIT will also have over 60 sites located in major Canadian urban centres that it hopes to develop into residential-focused mixed-use communities.

Although the acquisition allows CHP to diversify their assets, the majority (78%) of the portfolio will still be in retail. According to George Weston CFO Richard Dufresne, the deal will generate $10M in annual cost synergies, but is expected to be dilutive to FFO in the short term.

The cash portion of the acquisition was funded by a bridge loan and a term loan totalling CAD $2.1B. The bridge loan was refinanced through a dual-tranche $1.3B private placement of CHP debentures (upsized from $900M), the largest REIT bond offering in Canadian history. Although CHP is taking on more leverage through the deal, they will maintain a Debt/GBV of 45% and maintain their BBB credit rating.

The proforma company will be led by current CREIT CEO Stephen Johnson and current CREIT shareholders will hold 27% of the newly formed company. Shares of CREIT were up 16% following the announcement.

Bank of Nova Scotia (Scotiabank) Acquires Jarislowsky Fraser

  • Industry: Financials
  • Date Announced: 02/12/18
  • Size (CAD): $1006M
  • Consideration: 94.43% Stock 5.57% Other
  • Target Advisors: Blake Cassels & Graydon (Legal Counsel)
  • Acquirer Advisors: Scotiabank GBM (Advisory), Torys (Legal Counsel), Sullivan & Cromwell (Legal Counsel)

On February 12, 2018 it was announced that the Bank of Nova Scotia will acquire 100% of Jarislowsky Fraser Ltd., a private investment manager based in Montreal, for an estimated $1006M, $950M of which is guaranteed with another $56 contingent on profit targets. The entire consideration will consist of common shares issued by Bank of Nova Scotia. Following the acquisition, Scotiabank’s wealth management arm will have $166B in AUM making it Canada’s third largest active asset manager.

The transaction is in line with Scotiabank’s initiative to bolster its wealth management division, which according to Moody’s, lags behind the other big five Canadian banks. The acquisition allows Scotiabank to cross-sell its other financial services to new Jarislowsky clients and provides some economies of scale by consolidating the two companies’ wealth management operations.

In order to fund the acquisition Scotiabank will issue $950M of common stock. To offset the dilutive effects of the large equity offering, the bank will gradually buy back shares over the 12 to 18 months following the transaction. After the share buybacks, Scotiabank expects the deal to be accretive to EPS by November 2020.

Jarislowsky Fraser will continue to have autonomy over its investment strategies after the deal closes.

Motorola Solutions (MSI) Acquires Avigilon Corporation (AVO)

  • Industry: Technology
  • Date Announced: 02/01/18
  • Size (CAD): $1264M
  • Consideration: 100% Cash
  • Target Advisors: Morgan Stanley (Advisory), Osler Hoskin & Harcourt (Legal Counsel), Paul Weiss (Legal Counsel)
  • Acquirer Advisors: Goldman Sachs (Advisory), Baker & McKenzie (Legal Counsel), Sullivan & Cromwell (Legal Counsel)

On February 1, 2018, Motorola Solutions announced that it will acquire 100% of the outstanding shares of Avigilon Corporation, a Vancouver based video surveillance manufacturer for CAD $1263.87M. Shareholders of Avigilon will receive $27 in cash for each share, representing an 18% premium over the price of Avigilon on the announcement date. The transaction closed for the agreed upon amount on March 28, 2018.

With the purchase of Avigilon, Motorola will be able to expand their product offering to include surveillance and video analytics services. By integrating AVO’s platform and patents with MSI’s public and private sector safety services the company hopes to unlock revenue synergies and expand its market share in the safety and surveillance space, both in the U.S. and abroad.

A portion of MSI’s planned 2018 share buybacks will be earmarked to fund the acquisition.  The rest of the funding for the acquisition will be drawn from their existing revolver as well as a short term loan. The revolver and loan will provide around $500M each with the revolver expected to be repaid by the end of 2018.

Avigilon will continue to operate in its current form, but as a wholly owned subsidiary rather than a public company.

Related Readings for M&A

Mergers & AcquisitionsUnderstanding a Merger and Understanding a Merger Model · Introduction to Hostile Takeovers and Unsolicited Bids · Sale and Leaseback Transactions in Investment Banking · Compiling a Buyers List in Investment Banking · Interview With A Mergers & Acquisitions Investment Banker – Part II · Interview with a Mergers & Acquisitions Investment Banker – Part I · Bid Pricing Strategy: Part II · Bid Pricing Strategy: Part I · Deal Protection in Mergers & Acquisitions · Investment Banking Bake-Off or Beauty Contest · Acquisition Finance: Equity Consideration · Acquisition Finance: Bullet Debt · Acquisition Finance: Bank Debt · M&A Process Walkthrough · Types of M&A Sell Side Processes · Investment Banking Teaser · Accretion/Dilution Analysis – Part IV: Synergies and Source of Funds for M&A · Accretion/Dilution Analysis – Part III: Using Debt for Acquisitions · Accretion/Dilution Analysis – Part II: Accretion/Dilution Math and Breakeven Premium · Accretion/Dilution Analysis – Part I: EPS, Earnings Yield and All-Stock Transactions · Purchasing a Company via Cash or Stock ·
Chris is a second year Math/BBA double degree student at the University of Waterloo. He is currently interning as a Fixed Income Research Analyst at a DCM startup. Outside of school and work Chris is an avid basketball player.

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