M&A Activity Overview

Canadian M&A activity finished the year strong with 935 transactions announced in the final quarter of 2020. The fourth quarter M&A announcement numbers are partially higher than “normal” because many deals were put on pause in the earlier part of the year. Despite the ongoing COVID-19 pandemic, there were still 3,136 transactions announced in 2020. As a comparison, there were just over 3,200 transactions announced in 2019. Although M&A activity was up across most sectors, M&A activity was led by informational technology, industrial/materials, and real estate[i].

Intact Insurance & Tryg A/S Acquires RSA Insurance Group’s

• Value: USD$9.8B Total
• Industry: Insurance Services
• Buyer: Intact Insurance (TSX: IFC) / Tryg A/S (CPH: TRYG)
• Seller: RSA Insurance Group (LON: RSA)

Intact Insurance is Canada’s largest property and casualty (P&C) insurer with 15.3% of the overall market. RSA holds 4.4% meaning that upon the closing of the transaction, Intact will hold 19.7% of the overall Canadian P&C market (in addition to shares in the other international markets). Intact has been very active in both Canada and North America. They acquired OneBeacon (Minnesota-based) in 2017 and The Guarantee Company (Toronto) in 2019[ii].

Upon completion of the transaction, Intact will acquire RSA’s Canadian, British, Irish, and Middle Eastern operations. Tryg, on the other hand, will acquire RSA’s Swedish and Norwegian operations. The two groups will then split the Danish operations 50/50. Intact expects to realize more than $250M of pre-tax synergies annually starting within three years of the deal closing. Impact’s expected final cost of the transaction is C$5.2B whereas Tryg’s final expected cost is C$7.3B[iii].

KingSett Capital & Starlight investments Acquire Northview Apartment REIT

• Value: C$4.9 Billion (Including debt)
• Industry: Real Estate
• Buyer: Starlight Group Property Holdings Inc. and KingSett Capital Inc.
• Seller: Northview Real Estate Investment Trust (TSX: NVU.UN)

Northview Real Estate Investment Trust’s (“Northview REIT”) two largest shareholders purchased the REIT’s remaining shares in Fall 2020 at $36.25 per Northview REIT trust unit[iv]. Northview is one of Canada’s largest multi-family REITS with nearly 27,000 residential units and 1.2 million of leasable commercial space. Northview primarily operates in secondary cities across Western Canada (Abbotsford, Fort Nelson, Fort McMurray, etc.). In addition, Northview has a presence in the Territories and has also started targeting new markets in Ontario and Atlantic Canada[v].

The transaction will break Northview’s former portfolio into three groups. Approximately 17% of the portfolio will be held as a joint venture between Starlight and KingSett Canadian Real Estate Income Fund (KSCREIF). The second group will be held as joint venture between Starlight and KingSett Real Estate Growth LP No. 7. The final group will be held by a newly created fund. As part of the transaction Starlight announced the formation of Northview Canadian High Yield Residential- a $430M market cap closed-ended three-year fund (TSX: NHF.UN) (“The Fund”). The fund will “purchase” a large proportion of Northview REIT’s residential units (10,900/27,000) and nearly all the commercial real estate space (1.1M/1.2M square feet)[vi].

Cenovus & Husky Energy (All Stock Merger)

• Value: C$3.8B (All Stock) / C$23.6 Billion (Including debt)
• Industry: Energy
• Buyer: Cenovus Energy (TSX: CVE)
• Seller: Husky Energy (TSX: HSE)

Upon the January 2021 closing of the transaction, Cenovus will begin focusing on integrating the two company’s assets and working towards realizing the $1.2 billion synergies Cenovus has identified Approximately $400M of savings are expected to come from “workforce optimization” and $200M will be realized through sharing technical expertise. The remaining $600M will be realized through more efficient capital placement through focusing on assets with higher return potential[vii].

The merger of the two company’s results in Cenovus becoming Canada’s third largest crude and natural gas producer with nearly 750k BOE/d (barrels of oil equivalent per day) production capability. Although pipeline capacity constraints are still an issue, the company will have access to 265k bbls/d (barrels per day) of pipeline takeaway capacity along with an upcoming 305k bbls/d of committed capacity on future planned pipelines[viii].

Husky shareholders will receive 0.7845 of Cenovus shares and 0.0651 Cenovus share purchase warrants in exchange for each Husky common share. It should be noted that although the transaction was announced at $3.8B in October, the value of the stock transaction increased to $6.07B in December[ix]. Upon completion of merger Cenovus shareholders would own 61% of the combined entity while Husky shareholders would own the remaining 39%. Husky Energy was represented by RBC Capital Markets and TD Securities while Cenovus Energy was represented by Goldman Sachs Canada and CIBC Capital Markets[x].

CP Rail Purchases Remaining 83.5% Stake in the Detroit River Rail Tunnel

• Value: USD$312M
• Industry: Transportation/Infrastructure
• Buyer: CP Rail (TSX: CP) / (NYSE: CP)
• Seller: OMERS (Ontario Municipal Employees Retirement System)

The 110-year-old 2.6 km Detroit River Rail Tunnel connects Detroit, Michigan with Windsor, Ontario through the (you guessed it) the Detroit River. The tunnel is a vital commercial freight transportation link offering access between the Port of Montreal and Chicago. Although the tunnel is quite old, it has remained in good condition. With that said, however, the tunnel is too small for modern double-stacked rail cars. As a result, CP Rail has been paying CN Rail for access to their Sarnia rail tunnel to move their larger train cars across the Canada-US border. Prior to the CP Rail/OMERS transaction, the two firms had been lobbying for construction of a new tunnel to accommodate larger cars. Unfortunately, a lack of government support/funding (both USA and Canada) prevented further exploration of that project[xi].

CP Rail, which previously owned 16.5% of the asset, completed the acquisition of the remaining stake in December 2020. The tunnel is expected to reduce CP Rail’s operating costs in movements throughout the tunnel. In addition, the new acquisition follows CP Rail’s 2019 purchase of Central Maine & Quebec[xii] (CMQ) Railway and thereby offers synergies which will be realized through further integration throughout the eastern part of CP Rail’s network[xiii].

The Lion Electric Company & Northern Genesis SPAC Deal

2020 was the year for a lot of things: it was the year that the COVID-19 pandemic spread globally, the year everyone became a baker, and the year everyone and their mother started a Special Purpose Acquisition Company (SPAC). Now a SPAC may not be a merger in the transitional sense of the term, however with its popularity over the past year, a 2020 M&A roundup is not complete without at least one SPAC mention.

• Value: USD$520M Investment ($1.9 Billion valuation)
• Industry: Transportation
• Buyer: Northern Genesis Acquisition (NYSE: NGA)
• “Seller”: The Lion Electric Company

The Lion Electric Company is a Quebec-based manufacture of electric commercial vehicles. The company initially planned on raising capital and going public through a traditional IPO (Initial Public Offering), but chose to instead skip the conventual IPO process when “numerous SPACs came calling”. The $520M capital infusion ($320M investment capital and $200M private placement in common shares) by Northern Genesis will be used to expand Lion Electric’s vehicle manufacturing capabilities as well as develop new a battery assembly system and factory. CEO Marc Bédard has stated that with the additional capital now available Lion Electric will be developing a United States-based vehicle production facility as well as a battery factory North of the border.[xiv]

Northern Genesis is a Kansas City based SPAC focusing on climate solutions infrastructure. has started their second SPAC (Northern Genesis II) with a $360M IPO on January 13^th, 2021.

[i] https://www.crosbieco.com/who-we-are/m-a-publications/publication/crosbie-company-canadian-mergers-acquisitions-report-for-q4-2020

[ii] https://www.insurancejournal.com/news/national/2020/10/14/586496.htm

[iii] https://www.canadianunderwriter.ca/insurance/where-intact-sits-with-the-rsa-acquisition-1004203632/

[iv] https://www.newswire.ca/news-releases/starlight-investments-and-kingsett-capital-to-acquire-northview-apartment-reit-in-a-transaction-valued-at-approximately-4-8-billion-or-36-25-per-trust-unit-809338280.html

[v]https://www.google.com/search?q=northview+apartmentreit&rlz=1C1CHBF_enCA761CA761&oq=northview+apartmentreit&aqs=chrome..69i57j0i13j46i13i175i199j0i13j46i13i175i199j0i13l5.3220j0j7&sourceid=chrome&ie=UTF-8

[vi] https://www.wealthprofessional.ca/investments/alternative-investments/starlight-completes-historic-multi-residential-deal/334791

[vii] https://financialpost.com/pmn/press-releases-pmn/globe-newswire-releases/cenovus-and-husky-combine-to-create-a-resilient-integrated-energy-leader-combination-of-complementary-businesses-will-result-in-1-2-billion-in-cost-and-capital-synergies-enhance-free-funds-flow-gene

[viii] https://www.cbc.ca/news/canada/calgary/cenovus-husky-energy-deal-1.5776221

[ix] https://financialpost.com/commodities/energy/husky-cenovus-shareholders-approve-4-78-bln-merger-deal

[x] https://www.bnnbloomberg.ca/cenovus-energy-to-combine-with-husky-in-23-6-billion-stock-deal-1.1512773

[xi] https://windsorstar.com/news/local-news/cp-rail-purchases-full-control-of-detroit-river-rail-tunnel

[xii] https://www.progressiverailroading.com/canadian_pacific/news/Canadian-Pacific-acquires-Central-Maine-Quebec-Railway–59391

[xiii] https://www.cpr.ca/en/media/cp-to-acquire-full-ownership-of-the-detroit-river-rail-tunnel

[xiv] https://financialpost.com/technology/how-lion-electric-scrapped-plans-for-a-solo-ipo-jumped-on-the-spac-bandwagon-and-ended-up-with-a-us1-9b-valuation