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Home > Industry > Consumer & Retail > Canadian M&A Roundup Nov 3, 2017 – Galeria Kaufhof, Equipment Portfolio, Atlantica Yield, Alterra Power

Canadian M&A Roundup Nov 3, 2017 – Galeria Kaufhof, Equipment Portfolio, Atlantica Yield, Alterra Power

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

Target: Galeria Kaufhof

  • Industry: Consumer & Retail
  • Acquirer: Signa Holding GmbH
  • Target: Galeria Kaufhof
  • Size: EUR 3.0 billlion
  • Consideration: Not Disclosed
  • Sourceof Funds: Not Disclosed
  • Sell Side Advisors: Not Disclosed
  • Buy Side Advisors: Not Disclosed
  • Legal Advisors: Not Disclosed
  • Expected Close: Not Disclosed

On November 1, 2017, it was announced that Signa Holding GmbH has put forth a non-binding and unsolicited offer for Galeria Kaufhof for EUR 3 billion, including debt. This valuation is derived almost entirely from its real estate assets.

Galeria Kaufhof is a department store chain owned by retailer Hudson’s Bay Company (TSX:HBC). In recent years, the retailer’s performance has struggled heavily against a shifting consumer appetite for online shopping. Since HBC’s acquisition of Galeria Kaufhof in 2015, operating margins have eroded from its 6 percent baseline on EUR 3 billion in top line sales. This deal is in line with the current retail climate where big box stores are shedding brick and mortar assets in an attempt to pivot with consumer demand.

Signa Holding is an Austrian real estate and retail group looking to box out their market share in the German retail space. One of their prominent financial sponsors owns Karstadt, one of Galeria Kaufof’s main rivals. If the deal goes through, Signa Holdings will have locked down a dominant share in the market.

Target: Equipment Portfolio, ECN Capital Corp.

  • Industry: Financial Institutions
  • Acquirer: Canadian Western Bank (TSX:CWB)
  • Target: Canadian Commercial and Vendor Finance Assets, ECN Capital Corp (TSX:ECN)
  • Size: CAD 900 million
  • Consideration: 100% Cash
  • Source of Funds: Senior Debt
  • Sell Side Advisor: BMO Capital Markets, Macquarie Capital
  • Buy Side Advisors: Not Disclosed
  • Legal Advisors: Blake, Cassels & Graydon LLP
  • Expected Close: Q1 2018

On October 30, 2017, Canadian Western Bank (“CWB”) entered into a definitive agreement with ECN Capital Corp (“ECN”) to acquire the assets from their Commercial and Vendor Financing arm for CAD 900 million in cash consideration. The portfolio of assets is primarily comprised of loans and leases of equipment in transportation, construction, and healthcare industries across Canada.

This supports CWB’s goals of diversifying into the commercial finance industry. The transaction is accretive to EPS and gives them $0.10 of adjusted cash earnings per common shares throughout the next two years. CWB already has an existing client base whose needs can be matched with the new portfolio.

ECN is a finance company in North America that operates in a variety of verticals – Commercial and Vendor Financing being one of them. Other areas include Home Improvement Finance, Rail Finance, and Aviation Finance. By divesting 100% of their Commercial and Vendor Financing arm, they free up approximately CAD 180 million in equity capital to be strategically deployed. They also gain a $2 million premium to book value on the assets which will help support their transition from a balance sheet lender to a more specialty finance business.

Target: Atlantica Yield plc

  • IndustryPower & Utilities
  • Acquirer: Algonquin Power & Utilities Corp (TSX:AQN)
  • Target: Atlantica Yield plc
  • Size: USD 608 million
  • Consideration: 100% Cash
  • Source of Funds: Cash, Equity
  • SellSide Advisors: Lazard, CaixaBank, Banco Santander
  • Buy Side Advisors: Raymond James, Scotia Capital
  • Legal Advisors: Herbert Smith Freehills; Husch Blackwell; Pinsent Masons
  • Expected Close: Q1 2018

On November 1, 2017, Algonquin Power & Utilities Corp (TSX:AQN) (“APUC”) signed a definitive agreement to acquire a 25% stake in Atlantica Yield plc (NasdaqGS:ABY) from Abengoa, S.A. (BME:ABG) for USD 608 million (USD 24.25 per share), partially financed with a CAD 500 million bought deal. APUC also retains the option to acquire the remaining 16.5% interest stake of Abengoa in Atlantica Yield plc at the transaction close, subject to regulatory approval. This gives Atlantica an implied EV of USD 8.33 billion with an implied EB/LTM EBITDA of 11.9x.

The asset itself is a portfolio of fully contracted long-term clean energy and water infrastructure assets. Sold at a premium, the yieldco operates approximately 1.7 GW of clean power generating assets, complete with electric transmission lines and desalination plants. APUC’s buy-in is expected to strengthen Atlantica’s growth opportunities with near-term construction power and long-term exposure on the global stage. Abengoa and APUC will set up a joint venture to develop this asset.

Algonquin Power & Utilities Corp is a diversified energy utilities company with over 1,250 MW of capacity operating in USA and Canada. This deal is expected to be immediately accretive to APUC and provides them and outlet to offload some of their trapped cash. Dividend growth is expected on the horizon and this strengthens APUC’s strategic vision of investing in clean energy.

Target: Alterra Power Corp.

  • IndustryPower & Utilities
  • Acquirer: Innergex Renewable Energy Inc. (TSX:INE)
  • Target: Alterra Power Corp. (TSX:AXY)
  • Size: CAD 1.1 billion
  • Consideration: 25% Cash, 75% Equity
  • Source of Funds: Senior Debt, Mezzanine Debt
  • SellSide Advisors: National Bank Financial, Marathon Capital, Raymond James
  • Buy Side Advisor: BMO Capital Markets
  • Legal Advisors: Borden Ladner Gervais LLP; Cassels & Graydon LLP, McCarthy Tétrault LLP
  • Expected Close: Q1 2018

On October 20, 2017, Innergex Renewable Energy Inc. (TSX:INE) (“Innergex”) entered into an agreement to acquire Alterra Power Corp. (TSX:AXY) (“Alterra”) for CAD 480 million consideration to shareholders, valuing the company at CAD 1.1 billion. Under the agreement, Alterra shareholders may receive either CAD 8.25 per share payable either by $2.06 in cash per share or by 0.4172 of Innergex common share per Alterra share. Aggregate consideration on a pro-rated basis will be 25% cash and 75% Innergex common shares. This gives Alterra an implied EV/LTM EBITDA of 32.5x.

Alterra is a clean energy company with a strong operational history across North America. However, they have long struggled against a high cost of capital which has eroded their share price. The deal will offer capital synergies as well as giving them access to a more diversified asset base. There is a cultural alignment as both companies are relatively pure clean energy plays in their respective geographies. The deal will also give them the financial firepower to fill out the market in Canada while gearing up to expand abroad. Key pockets of opportunity in Saskatchewan and New Brunswick will become financially viable to develop as a result of the acquisition.

This transaction solidifies Innergex’s position as a leading renewable energy power producer by adding multiple projects from Alterra leading to a potential upside of over 2000 MW of energy by 2020 (including projects under construction). This helps protect their path forward to a predictable and strong growth. It also diversifies their portfolio by adding hydro and wind electricity plays.

In order to maintain a strong balance sheet, Innergex has opted to finance through a CAD 150 million subordinated unsecured term loan from Caisse de dépôt et placement du Québec at a competitive interest rate. They also have increased their credit facilities to an aggregate CAD 700 million from two other Canadian banks.

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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