As the COVID-19 pandemic swept across the world in Q1 2020, volatility in the markets increased, which affected M&A deal flows. While the beginning of Q1 was relatively normal, the tail end of the quarter saw shutdowns across the world. The impact of these shutdowns will likely not be fully understood until the end of Q2, when the impacts of the shutdown start to affect firm’s liquidity and their balance sheets. Overall, M&A activity was down 54% from Q1 2019 and down 69% from Q4 2019. However, M&A deal activity will likely start picking up in the following months, when firms that are hard hit will “need to sell”, while other entities, such as PE firms, will be looking for bargain buys (Langton, 2020).
Canadian M&A Deal Value by Sector
Key Drivers of M&A Activity
With the extensive impact of COVID on the economy, balance sheets have been hard hit. As a result, many firms have lowered projections and seen their share price decline as a result. Plenty of larger firms are looking for an opportune time to acquire smaller ones at a discount price. M&A deals often take 6-12 months to materialize, therefore discussions that may have begun during the pandemic will take time to be announced. Nevertheless, the M&A activity that did occur this quarter was led by the real estate and mining sectors. The Canadian mining sector saw $3.29 billion in announced transactions, a significant 56.7% decrease from Q4 2019. The industry saw deals from Stone Canyon and Endeavour carrying the bulk of the activity. The real estate sector’s $3.84 billion deal flow was primarily led by the enormous Kingsett Capital acquisition of the Northview Apartment REIT.
Kingsett Capital and Starlight Investment acquires Northview Apartment Real Estate Investment Trust (TSX:NVU.UN)
- Value: $3.8 Billion
- Industry: Real Estate
- Announce date: February 20th, 2020
- Buyer’s advisor: CIBC World Markets, RBC Capital Markets, TD Securities
- Seller’s advisor: Scotiabank
KingSett Capital (KingSett) and Starlight Investments (Starlight) announced that they entered into an agreement with unitholders of the Northview Apartment Real Estate Investment Trust (Northview) where the unitholders will receive a cash consideration of $36.25, representing a 12% premium above Northview’s ATH price on the TSX. This value is considered a 25% premium to what Northview’s analysts had determined the current net asset value is per unit. This all cash deal comes from Northview’s top shareholder, Starlight, and is valued at roughly $3.4 billion.
The cash consideration offers Northview unitholders the option to remain invested in the Calgary-based REIT in some capacity, by investing in a new, publicly listed , closed-end High Yield Fund. The new High Yield Fund is targeting a 10% yield.
The deal allows KingSett and Starlight to add approximately 11,000 of Northview’s multi-residential suites to their portfolio. It will add 1.1 million square feet of Northview’s current commercial portfolio, which will both be added to the new High Yield Fund.
Starlight and KingSett will acquire certain key properties that account for about 17% of Northview’s portfolio. The rest of the assets, excluding those in the new High Yield Fund, will be acquired by the two purchasers in a joint venture.
Starlight will assume operations of the Northview properties and stated that it aims to essentially keep all of Northview’s employees, as well as its offices in Calgary in Toronto.
Stone Canyon Industries Holdings Inc acquires Kissner Group Holdings LP
- Value: $2 billion
- Industry: Materials
- Announce date: February 3rd, 2020
- Buyer’s advisers: BMO Capital Markets and Morgan Stanley
- Seller’s advisers: Harris Williams LLC
Stone Canyon Industries Holdings Inc. (Stone Canyon), a global industrial holding company, announced a plan to acquire Kissner Group Holdings LP, a leading pure-play producer and supplier of salt for $2 billion. The deal was funded with three sources of funding, the first being a $900 million first lien loan from Morgan Stanley, BofA, BMO capital Markets, KKR, and Goldman Sachs. The second was a second lien $200 million loan secured from Canyon Partners, LLC and the final $900 million from equity sold by Kissner Management and their affiliates.
Stone Canyon is now able to add one of the largest salt producers in North America to its portfolio. Kissner also operates two mines in Detroit and Lyons and numerous processing and delivery facilities around the United States.
Stone Canyon’s CEO, James Fordyce expressed his excitement at integrating Kissner’s employees into their operations. “This acquisition represents another important step in our plan to build a diversified industrial conglomerate”, he said during his press release.
Endeavour Mining (TSX:EDV) merges with SEMAFO (TSX:SMF)
- Value: $1 billion
- Industry: Mining/Materials
- Announced: March 23rd, 2020
- Buyer’s advisor: Gleacher Shacklock LLP
- Seller’s advisor: Marxit Capital LLP
Endeavour Mining announced that it would be purchasing fellow Montreal mining company SEMAFO for $1 billion. Both boards unanimously agreed to the all stock transaction. Endeavour shareholders will own about 70% of the combined entity, while SEMAFO shareholders will hold the rest. SEMAFO shares will be exchanged at a 0.1422 ratio with respect to Endeavour shares. This merger creates a top 15 global gold producer with over 1 million ounces of gold production a year. Together, these firms will create a leading West African gold producer through the strategic positioning of both companies Côte d’Ivoire and Burkina Faso.
The benefits for Endeavour shareholders are that it instantly adds two cornerstone mines with roughly half a million ounces of gold production being added. Furthermore, the combined entity will continue to have influence in the area, leveraging its strong cash flow profile and access to liquidity to work with local stakeholders to open new mines and continue to leverage their distribution system in West Africa. The new entity will also receive a $100 million investment from Endeavour’s cornerstone investor, La Mancha, which will hold a 25% stake in the new entity. La Mancha’s was previously an investor in Endeavour, holding 31% of it.
The merger will also include an integration of SEMAFO executives into the Endeavour team. The headquarters will remain in London and Sebastien de Montessus (Endeavour’s CEO) will remain the CEO of the combined entity.