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Q2 2020 Canadian M&A Roundup

As the COVID-19 pandemic continues to impact global markets, some firms are looking at an opportune time to buy distressed firms. Whether that be those that are unable to pay their large fixed costs or those suffering from a large drop in demand, many troubled firms will soon be bought up by bigger firms. Nevertheless, overall M&A deals were at their lowest level in North America in over a decade. M&A activity is heavily down due to the implications of the COVID-19 pandemic. Per CapitalIQ, Q2 activity was down 74% from Q1 and down 86% from Q2 2019. This paints a dark picture of the impacts of the global crisis we are in.

Key drivers of Activity

For Q2, Canadian M&A activity was $3.35 Billion, a total of 441 transactions occurred. Mining led the way with $1.1 billion, while IT was in second with $904MM and energy in third with $319MM. The largest deal this quarter in Canada came from Equinix in the IT sector, while many of the subsequent deals were all in mining.

Notable Transactions

Equinix acquires 13 data centers from Bell Canada

  • Value: $750MM
  • Industry: IT/Real Estate
  • Buyer: Equinix Inc. REIT (NASDAQ: EQIX)
  • Seller: Bell Canada Enterprises (TSX:BCE)

Equinix, the global interconnection and data center company recently recorded its 69th consecutive positive quarter. This was sustained through a consistent strategy of acquiring data centers, including the 13 data centers acquired from Bell.

Equinix is paying $750MM for the centers for an estimated $105MM in annualized revenue, calculated by using a 4x multiple of the most recent quarter’s results. This gives the purchase a 7x revenue  multiple. Equinix’ adjusted profit multiple is said to represent a purchase multiple of 15x EV/EBITDA.

Their acquisition of Bell’s data centers isn’t the first time that they have taken data centers off the hands of a telecommunications company. In 2017, Equinox bought 29 centers from Verizon for $3.6 Billion.

China’s Shandong Gold to buy Canadian miner TMAC Resources

  • Value: $288MM
  • Industry: Mining
  • Buyer: Shandong Gold
  • Seller: Newmont Corp & TMAC Resources Inc.

China-controlled gold company Shandong Gold Mining Co. Ltd. is paying 1.75$ a share in cash for TMAC for a total value of $288.86MM. This payment price is more than 70% TMAC’s IPO price. To many, this seems like a bargain deal for a gold company that has been grossly underperforming in recent times. TMAC’s operations consist of Nunavut gold mines, 160km above the Arctic circle. The operational difficulties the company has faced have led to debt obligations that cannot be addressed by TMAC, and this was the best deal on the table that Shandong pounced on.

Shandong Gold is 47% owned by the Chinese government. As a result, the deal is under review under the Competition act and the Investment Canada Act. If Shandong can prove that this deal will provide a net benefit to Canada, then it will successfully go through. As Ottawa tries to limit the amount of foreign ownership of Canadian resources, it will be interesting to see how the deal fares under scrutiny from the Acts. Furthermore, the local Inuit population will also conduct its own due diligence to make sure the deal meets the criteria it sets forth.

China’s Zijin Mining to buy Guyana Goldfields

  • Value: $243.1MM
  • Industry: Mining
  • Buyer: Zijin Mining
  • Seller: Guyana Goldfields

On June 3rd, Guyana announced that it received a binding proposal for Zijin, valuing it around 35% higher than a previously accepted offer from Silvercorp Metals. The purchase from Zijin would be for $1.85 a share. Zijin has been acquiring numerous mines in recent times, spending a total of $1.9 billion in Continental Gold and a Tibetan copper mine. This deal with Guyana is all cash.

As previously mentioned with Shandong Gold, foreign investments into Canadian resources are facing increased scrutiny from the current government. If it is to go through, Guyana will receive a $30 million loan to finance operations and for any liquidity needs.

The previous offer from Silvercorp was $1.30 a share and they turned down the offer to match Zijin’s offer.

Guyana’s flagship asset is its Aurora gold mine in Guyana, South America.

References:

https://techcrunch.com/2020/06/01/equinix-is-buying-13-data-centers-from-bell-canada-for-750m/

https://www.reuters.com/article/us-tmac-m-a-shandong-gold/chinas-shandong-gold-to-buy-canadian-miner-tmac-resources-for-almost-165-million-idUSKBN22K1NI

https://www.theglobeandmail.com/business/industry-news/energy-and-resources/article-chinas-shandong-buys-canadian-gold-miner-tmac-resources-for-us14/

https://www.tmacresources.com/investors/news-releases/Press-Release-Details/2020/TMAC-Announces-971-Vote-to-Approve-Sale-of-Company-to-Shandong-and-Board-Changes/default.aspx

https://www.reuters.com/article/us-guyana-goldfields-zijin-mining/chinas-zijin-mining-to-buy-guyana-goldfields-for-238-million-idUSKBN23J1XF

https://www.mining-technology.com/news/zijin-mining-acquire-guyana-goldfields/

https://www.globenewswire.com/news-release/2020/07/07/2058731/0/en/COVID-19-drags-Q2-North-America-M-A-deals-to-lowest-level-in-over-a-decade.html

Figures taken from CapitalIQ

Rares
Rares
Rares Florea is a fourth-year student currently studying finance and accounting at the UBC Sauder School of Business. Currently working at EY, he hopes to work on Bay Street. In his spare time, he enjoys reading the news, playing sports, and making music.
https://www.linkedin.com/in/rares-florea/

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