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Canadian M&A Roundup – Q1 2019

The first quarter of 2019 yielded a total announced Canadian M&A deal volume of CAD $112.5B. Though total volume saw a slight 7.7% decline from $121.9B in Q4 2018, Q1 2019 is up from Q1 2018 by 28.1%, or approximately $24.7B.

M&A Drivers

Key drivers of M&A activity in Q1 include:

  • Consolidation in the mining and metals industry
  • Further increase in consumer sector M&A driven by the legalization of cannabis
  • Rising volumes of private equity deals in the financial, consumer, and energy sectors

Mining and Metals Consolidation

With special interest towards gold, the mining and metals sector has seen a series of consolidations over the past two quarters. With an increase in expected demand for gold largely driven by economic outlooks and demand for gold in technology sectors, as well as dwindling reserves globally – gold companies are looking to further consolidate their operations in order to benefit from economies of scales and lock down reserves in preparation. The acquisition of Vancouver-based Goldcorp Inc. by Newmont Mining Corp. in a cash and stock transaction for $16,713MM CAD serves as the largest mining and metals transaction this quarter.

Legalization of Cannabis

The race to capitalize on the growing recreational market in Canada continues into Q1 of 2019. Specifically, cannabis producers are trending towards more and more vertical integration in their supply chains from cultivation to retail in a battle capture a further competitive advantage. A primary example includes Green Growth Brands Inc.’s announcement to file an Offer to Purchase and Circular for all of the issued and outstanding common shares of Aphria Inc. Other announced cannabis sector deals in Q1 2019 include Aleafia Health Inc.’s $201MM CAD acquisition of CannaPacific Pty Ltd. and Aurora Cannabis Inc.’s $177MM CAD acquisition of Whistler Medical Marijuana Corp.

Private Equity Deals

Private equity buyout activity served as a key driver in M&A transactions for the past quarter. With large volumes of assets available to be deployed, Brookfield served as a major player in driving M&A transaction deal volume. Specifically, Brookfield Business Partners LP’s acquisition of Healthscope Ltd. for $5,194MM CAD reflects a large portion of deal volume attributed to private equity acquisitions this past quarter.

Notable Deals

Newmont Mining Corp. Acquires Goldcorp Inc.

  • Industry: Metals & Mining
  • Date Announced: 1/14/2019
  • Deal Enterprise Value (CAD): $16,713MM
  • Consideration: Cash and Stock
  • Target Financial Advisors: TD Securities, Bank of America Merrill Lynch
  • Acquirer Financial Advisors: BMO Capital Markets, Citi, Goldman Sachs

On Monday January 14, it was announced that Goldcorp Inc. will be acquired by Newmont Mining Corporation. In a deal consisting of a combination of primarily stock and an additional sum of dividends, Newmont will acquire Goldcorp in offering 0.3280 of its share and $0.02 USD for each of Goldcorp’s outstanding common shares. This represents an approximately 17% premium and the transaction is expected to be immediately accretive upon close of the transaction to the tune of 27% for Newmont’s NAV per share, and 34% accretive to the organization’s projected 2020 cash flow per share.

Newmont Mining Corp.’s acquisition of Goldcorp Inc. follows after a series of mergers and acquisitions in the mining and metals industry. Driven by supply constraints in the form of dwindling gold reserves globally, as well as bullish market projections for the precious metals industry in the near future.

In finalizing the merger, the newly consolidated Newmont Goldcorp Corporation will be led by Newmont President, CEO, and Director, Gary Goldberg until the end of the year, upon which Newmont Mining’s former COO Tom Palmer will then take over. The company will immediately begin realizing an estimated $365MM in annual pre-tax synergies, supply chain efficiencies, and other improvements. The mining giant will also be expected to sell $1-1.5B in assets over the next two years.

Brookfield Asset Management Inc. Acquires Oaktree Capital Group LLC

  • Industry: Financial Services
  • Date Announced: 3/13/2019
  • Deal Enterprise Value (CAD): $6,339MM
  • Consideration: 50% Cash 50% Stock
  • Target Financial Advisors: Perella Weinberg, Sandler O’Neill
  • Acquirer Financial Advisors: N/A

Brookfield Asset Management, one of Canada’s largest alternative investment firms announced on March 19th, 2019 that the organization would be acquiring Los-Angeles based Oaktree Capital Group LLC. 62% of Oaktree Capital will be acquired for per unit consideration of either $49.00 USD in cash, or 1.0770 class A shares of Brookfield for every share of OAK. The remaining 38% will be held by Oaktree founders, as well as certain employees and members of management. The deal is expected to result in the creation of one of the world’s largest alternative money managers.

Though both parties will continue to operate independently, the acquisition will provide synergistic benefits. With Brookfield having primarily focused on private equity, real estate, infrastructure and renewable power, and Oaktree being a specialist in distressed debt, the two organizations provide one another with a wider portfolio of offerings as well as additional avenues to bolster investment opportunities.

The combined firm will have approximately $637B CAD of assets under management and over $3.35B CAD of annual fee related revenues. The transaction is expected create one of the world’s largest alternative asset managers and is anticipated to be immediately accretive on a per share basis. In the near term, the two organizations are expected to continue operating independently – in terms of both brand and existing leadership. In the long-term, Brookfield could take over full ownership of Oaktree by 2029.

Saputo Inc. Acquires Dairy Crest Group PLC

  • Industry: Consumer, Non-Cyclical
  • Date Announced: 2/22/2019
  • Deal Enterprise Value (CAD): $2,099MM
  • Consideration: 100% Cash
  • Target Financial Advisors: Greenhill & Co
  • Acquirer Financial Advisors: Lazard Ltd.

Canada’s Saputo Inc. announced on February 22nd that it will be acquiring 100% of UK-based Dairy Crest Group PLC. In an all cash transaction of approximately $2,099MM CAD, Saputo will be paying approximately $10.79 CAD for each of Dairy Crest Group’s common shares outstanding. The deal represents about a 11.7% premium to Dairy Crest’s closing share price at the time of announcement.

Both dairy product manufacturers, Saputo’s acquisition of Dairy Crest will allow the company to make an entrance into the United Kingdom – expanding the company’s international presence. The growth strategy is supported by the fact that Dairy Crest is a key industry player in its current market, along with its possession of a solid asset base and an experienced management team.

Competition in the dairy industry is intensifying – specifically due to market conditions, rising operating costs, and labour shortages. Saputo intends to compete through a series of consolidations. This transaction follows Kraft Heinz’s recent decision to offload its Canadian natural cheese business to Parmalat SpA earlier in the year. The acquisition also follows Saputo’s international expansion efforts into the Asia-Pacific region, where it purchased Australia’s Murray Goulburn for over 1 billion dollars and took full ownership of Warrnabool Cheese & Butter Factory Co.

League Table

Sources

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 ·
Katherine
Katherine
Katherine Pan is currently a fourth year student studying Commerce at the UBC Sauder School of Business. She has spent the last year working as an analyst in the gaming and entertainment industry. In her spare time, she enjoys learning about corporate finance, reading, and participating in recreational sports.

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