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Canadian M&A Roundup Oct 27, 2017 – Equis Energy, TransCanada, Murray Goulburn, Aecon Group, Trayport,

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

Target: Equis Energy Pte. Ltd

  • Industry: Power & Utilities
  • Acquirer: Global Infrastructure Partners, Public Sector Pension Investment Board, CIC Capital Corporation
  • Target: Equis Energy
  • Size: USD 5.0 billion
  • Consideration: 100% Cash
  • Sourceof Funds: Cash
  • Sell Side Advisors: Credit Suisse, J.P. Morgan
  • Buy Side Advisors: Not Disclosed
  • Legal Advisors: Skadden, Arps, Slate, Meagher & Flom LLP; Clifford Chance LLP
  • Expected Close: Q1 2018

On October 24, 2017, It was announced that Global Infrastructure Partners (“GIP”) agreed to acquire a 100% equity interest in the renewable energy portfolio of Equis Funds Group (“Equis Energy”) for USD 5.0 billion and assumed liabilities of USD 1.3 billion. Public Sector Pension Investment Board, one of Canada’s largest fund managers, was also included in the deal.

Equis Energy is the largest independent renewables power producer in the Asia Pacific region. Their portfolio includes 1.9 GW of ready-to-go energy producing assets. The transaction size makes this deal the largest renewable energy acquisition in history, coming at a time when many Asian governments are growing their renewables sector.

Global Infrastructure Partners is a private equity fund having approximately USD 40 billion AUM at the beginning of 2017. The acquisition was made through their equity fund, Global Infrastructure Partners III, which invests primarily in energy, transportation, and water/waste. Coming in with a strong record of growing infrastructure businesses, GIP has deep industry expertise and is a strong industrial operator. This deal positions them as one of the dominant renewables developers in the Asia Pacific region.

Target: TransCanada Corporation, Ontario Solar Portfolio

  • Industry: Energy
  • Acquirer: Axium Infinity Solar LP
  • Target: TransCanada Corporation (TSX:TRP; NYSE:TRP)
  • Size: CAD 540 million
  • Consideration: 100% Cash
  • Source of Funds: Cash
  • Sell Side Advisors: Not Disclosed
  • Buy Side Advisors: Not Disclosed
  • Legal Advisors: Not Disclosed
  • Expected Close: Q4 2017

On October 25, 2017, Axium Infinity Solar LP entered into an agreement to acquire the Ontario Solar Portfolio from TransCanada Corporation for CAD 540 million in cash. The asset consists of 8 solar facilities producing approximately 76 MW of energy per annum.

As one of North America’s leading pipeline companies, this move comes amidst a backdrop of overcapacity and tariff erosion. The deal is part of a push for TransCanada to offload non-core assets in an attempt to streamline operations and deliver consistent shareholder value. The proceeds from the deal are earmarked for their $24 billion capital investments program.

Axium Infinity Solar is a subsidiary of Axium Infrastructure, an independent investment firm focused on assets in energy, transportation, and social infrastructure. They have approximately CAD 2.6 billion AUM and are looking to build their renewable energy portfolio in North America.

Target: Murray Goulburn Co-Operative Co. Limited

  • IndustryConsumer & Retail
  • Acquirer: Saputo Inc. (TSX:SAP)
  • Target: Murray Goulburn Co-Operative Co. Limited
  • Size: USD $1.3 billion
  • Consideration: 100% Debt
  • Source of Funds: Debt
  • Sell Side Advisor: Moelis & Company
  • Buy Side Advisors: Not Disclosed
  • Legal Advisors: Ash St. Partners Pty Ltd; Clayton Utz
  • Expected Close: H1 2018

On October 26, 2017, Saputo Inc. agreed to acquire Murray Goulburn Co-Operative Co. Limited (“MG”) for CAD 1.3 billion financed by a new debt loan. This gives MG an implied EV/Revenue of 0.7x and an implied Equity Value/Book of 1.8x.

With recognizable brands such as Cracker Barrel, Dairyland, Stella, and Milk2Go, Saputo is one of North America’s largest dairy products companies. They have a strong balance sheet with high cash levels from operations and low debt.

Murray Goulburn is a dairy producer operating primarily in Australia, with a broad spectrum of products ranging from milk fats to infant formula. This deal comes to a beleaguered MG after a tumultuous Asian expansion and a weakening customer base at home after farmers were switching to rival due to lowered milk payments.

The deal delivers an estimated net value per share of $1.10 to $1.15 after working capital adjustments, capturing a 76-84% premium over unit prices. When the deal closes, there is an expected payout of $0.75 per share. In addition, Saputo is contracted to take on all of MG’s milk supply commitments 5 years from FY19 – totaling CAD $114 million.

Target: Aecon Group Inc. (TSX:ARE)

  • IndustryIndustrials
  • Acquirer: CCCC International Holding Limited
  • Target: Aecon group Inc. (TSX:ARE)
  • Size: CAD 1.3 billion
  • Consideration: 100% Cash
  • Source of Funds: Cash
  • SellSide Advisors: Bank of Montreal, TD Securities
  • Buy Side Advisor: Barclays
  • Legal Advisors: Davies Ward Phillips & Vineberg LLP; Blake, Cassels & Graydon LLP
  • Expected Close: Q1 2018

On October 26, 2017, CCCC International (CCCI) agreed to acquire Aecon Group for CAD 20.37 per share, or CAD 1.3 billion in total cash consideration. This represents a 42% premium over unaffected share price giving the company an implied EV of 1.8 billion and an EV/LTM EBITDA of 9.2x.

CCCI is the foreign investment arm of CCCC (China Communications Construction Company Limited). This deal comes amidst a backdrop of growing appetites by Chinese firms for Canadian targets. In 2012, another Chinese state-owned firm purchased Nexen Energy for CAD 17.9 billion. Last week’s deal was brokered despite political misgivings and regulatory pressure from the Investment Canada Act. However, Trudeau’s government has backed the deal amidst suggestions that such a move could put them at odds with the Trump administration during NAFTA renegotiations.

Aecon is a leading construction company in Canada, having been behind projects such as Toronto’s CN Tower and Vancouver’s SkyTrain. Under the terms of the deal, CCCI will preserve the brand by keeping headquarters in Canada and retaining its Canadian Aecon employees.

Target: Trayport Limited

  • IndustryTechnology
  • Acquirer: TMX Group Limited (TSX:X)
  • Target: Trayport Limited
  • Size: CAD 931 million
  • Consideration: 64% Cash, 36% Equity
  • Source of Funds: Senior Debt, Mezzanine Debt, Equity
  • SellSide Advisors: Citigroup, Goldman Sachs
  • Buy Side Advisor: Barclays
  • Legal Advisor: Shearman & Sterling LLP
  • Expected Close: Q1 2018

On October 27, 2017, TMX Group Limited entered into an agreement to acquire Trayport Limited from Intercontinental Exchange, Inc (“ICE”) for CAD 931 million. As part of the price, TMX will sell Natural Gas Exchange Inc (NGX) and Shorcan Energy Brokers Inc to ICE for CAD 339 million alongside the rest of the CAD 592 million in cash. This gives Trayport an implied EV of EUR 550 million and an implied EV/LTM EBITDA of 18.3x.

TMX and ICE are both regulated operators of exchanges, markets, and clearing houses in Canada and the UK respectively. Trayport is an energy trading platform in the UK with a strong core base in Europe. In June of 2017, ICE was forced to sell Trayport under decision by the Competition and Markets Authority in the UK – citing antitrust issues from high barriers of entry and weak alternatives.

NGX is a clearing house for energy markets in North America; Shorcan Brokers is a fixed-income bond dealer specializing in crude oil products. Essentially the deal trades assets between TMX and ICE with the latter receiving additional cash to make up for value discrepancies.

Still analysts predict this will be a large win for TMX. The deal will add an estimated 6% to TMX’s EBITDA and a great deal of diversification value from gaining access to European trading data. The platform has a strong user base in the UK with low attrition rates, evidenced by the decision earlier by CMA. After the news broke, TMX shares rose 1.5% while ICE fell by 0.3%.

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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