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Business confidence in Canada is high among Canadian middle market companies, despite geopolitical uncertainty, demographic change and rapid technological advances. More than one in five plan to exceed the World Bank global GDP growth of 2.7% by a significant margin, ranging from 8%-22% this year. Additionally, 90% believe that uncertainty is a catalyst for growth and plan to grow by focusing on expansion into different markets, investing in technology and talent. These findings come from a new global EY Growth Barometer that explores middle-market leaders’ growth ambitions, strategies and challenges, and their attitudes toward global risks and uncertainties.
Confidence is reflected in the numbers, in both Canada and Quebec. Nationwide, the first three quarters of 2017 witnessed 1,918 Canadian M&A targets, marking a 66% increase from the prior year according to Thomson Reuters. Included in this deal volume was an 8% increase in PE buy-out volumes in Canada to 261, representing a whopping 73% increase in deal value to $23.8 billion compared to the same period last year. In Quebec, there were a total of 93 closed transactions involving Quebec-based companies during the quarter ended September 30, 2017, up from 87 transactions during Q3-2016, but in-line with the rolling eight quarter average. Deal value in Quebec was approximately $7.8 billion, with an average deal size of approximately $88.7 million (excluding mega-deals).
Have a question on valuation or a complex financial modelling challenge? In this edition you will learn how EY’s Valuation & Business Modelling services can be of assistance with a wide spectrum of matters ranging from fairness opinions to equipment appraisals, financial model creation or review, simulation analyses and even climate change impact and social media analyses.
We also profile over 30 Quebec-based transactions closed during Q3-2017 and provide our proprietary analysis of deal activity by transaction value, volume, deal size, industry sector and counterparty geography.
I hope you enjoy this edition and those that follow,
Todd Caluori, CPA, CA, CBV Editor and Senior Vice President M&A Lead Advisory
Third quarter 2017
Quebec Transaction Snapshot
Confidence is Attractive
2 | Quebec Transaction Snapshot
ValuationThere’s an increasing need for transparent and robust valuations to support transactions and satisfy regulatory and accounting requirements. At the same time, the process for assessing assets and liabilities has become more complex and important for most businesses. Our seasoned professionals can provide you with sound advice on valuations, regardless of why they are carried out.
ModellingDesigning an effective business model - whether to evaluate a transaction, penetrate a new market or for other strategic purposes - is a complex and difficult task. Our modelling professionals can help you review, enhance or design your model according to your needs, so you can make key decisions and improve strategic results.
Our professionals offer you their deep knowledge and extensive experience through the following services:• Formal valuations under Multilateral Instrument 61-101 • Fairness opinions• Valuations for financial reporting purposes• Valuations for tax purposes• Valuations for transaction purposes• Equipment valuations• Litigation support• Financial modelling (model creation, review and
simulation)• Climate change impact analysis• Social media analysis
EY’s Transaction Advisory ServicesThis edition’s focus: Valuation & Business Modelling
How can our Valuation & Business Modelling practice help you?
To learn more about our Valuation and Business Modelling practice, contact Mathieu Vaillancourt at 514 874 4648 or [email protected].
LeadAdvisory
TransactionAdvisoryServices
TransactionSupport
TransactionTax
OperationalTransaction
Services
Valuation &BusinessModelling
WorkingCapital
Management
Restructuring
Canadian economic indicators
2017 2018
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Exchange rate (US/CDN)1 75.6 74.4 79.9 80.5 80.5 81.4 82.2 83.0 Real GDP (chain-weighted)2 3.7 4.5 2.0 2.2 2.0 1.8 1.8 2.0 Consumer spending2 4.8 4.6 3.0 2.0 2.0 1.7 1.7 1.8 Government spending2 0.7 2.2 3.3 2.8 2.4 2.1 2.1 2.3 Business investment2 13.7 7.1 5.4 3.4 3.5 3.1 3.0 2.7 Residential construction2 12.3 -4.7 4.0 -2.0 -1.0 -0.5 0.0 0.0 Exports2 1.5 9.6 -9.6 3.4 3.0 2.5 2.4 2.5 Imports2 15.6 7.4 -3.0 2.4 2.3 2.2 2.0 1.9 CPI, all items3 2.6 0.1 1.1 2.1 2.7 1.6 1.8 2.2 Overnight rate4 0.50 0.50 0.83 1.00 1.25 1.50 1.75 2.00 Three-month T-Bill4 0.47 0.54 0.81 1.05 1.25 1.50 1.70 1.95 90-day BAs4 0.94 0.91 1.31 1.45 1.65 1.90 2.10 2.35 10-year bond yield4 1.71 1.51 1.95 2.20 2.30 2.40 2.50 2.65 Unemployment rate4 6.7 6.5 6.2 6.2 6.1 6.0 6.0 5.9 Personal income3 3.4 3.8 3.9 3.7 4.2 3.9 3.8 3.8 Housing starts (’000s)5 223 207 221 210 205 196 190 190
1 Quarter average2 Quarter over quarter % change, annual rate3 Year over year % change4 Quarter average in %5 Quarter average, annual rate□ Estimates
Source: BMO Capital Markets Economics as at 6 October 2017
Third quarter 2017 | 3
4 | Quebec Transaction Snapshot
,
Illustrative Quebec transactions*• □1 July 2017: Canaveral Acquisition Inc., a company held by members of
the Dutil family, American Industrial Partners, Caisse de dépôt et placement du Québec and Fonds de solidarité FTQ, acquired all of the issued and outstanding common shares of Saint-Georges-based Canam Group Inc. which specializes in designing integrated solutions and fabricating customized products for the North American construction industry. The transaction involved all issued and outstanding common shares, for a cash consideration of $12.30 per share (approximately $558 million). Canam Group Inc. operates 23 plants across North America and employs over 4,650 people in Canada, the United States, Romania and India.
• □3 July 2017: Montreal-based SNC-Lavalin Group Inc. acquired UK-based WS Atkins plc, a major consulting business in design, engineering and project management, with a leadership position across the infrastructure, transportation and energy sectors for a total consideration of approximately $3.6 billion. The acquisition of WS Atkins creates a global fully integrated professional services and project management company including capital investment, consulting, design, engineering, construction, sustaining capital and operations and maintenance. WS Atkins is a geographically diversified global company with approximately 18,000 employees in the US, Middle East and Asia, together with a leading position in the UK and Scandinavia.
• □6 July 2017: KIK Custom Products Inc., a manufacturer of consumer packaged goods in the household and personal care industry acquired Montreal-based Lavo Inc. from Swander Pace Capital and Roynat Equity Partners. Lavo Inc. is a leading manufacturer and marketer of laundry detergent, household cleaners, fabric softeners and bleach, and has been selling high-quality products for more than a century. The company’s brands include La Parisienne, Hertel, Springtime, Old Dutch, Arctic Power and ABC. Terms of the transaction were not disclosed.
• □6 July 2017: Montreal-based Logistec Corporation, a marine and environmental services provider acquired 51% of the shares of Toronto-based FER-PAL Construction Ltd., a trenchless technology company that offers complete water main rehabilitation solutions, for an aggregate purchase price of $49.5 million, subject to adjustments. With this transaction, Logistec cements its relationship with FER-PAL and gains access to its expertise and know-how in the water main rehabilitation business to be better positioned to expand its footprint throughout North America.
• □6 July 2017: Montreal-based global entertainment leader Cirque du Soleil acquired New-York-based Blue Man Productions, a global live entertainment company best known for the award-winning Blue Man Group show, performed in over 20 countries and seen by more than 35 million people worldwide since 1991. The acquisition of Blue Man Group considerably widens Cirque du Soleil’s audience pool, adding to its portfolio six resident productions in the United States and Germany, as well as a North American and a World Tour. The transaction is in line with Cirque du Soleil’s vision for the future, as the creative powerhouse looks to further expand globally and diversify its entertainment offering beyond circus arts. Terms of the transaction were not disclosed.
• □14 July 2017: Longueuil-based Atis Group, a manufacturer and distributer of windows, doors, and products for residential and commercial construction and renovation markets in Canada acquired Fenestration Pro-Tech, a window and door retailer firmly established in Stanbridge Station, QC for more than 25 years. Atis and Pro-Tech join forces to satisfy the growing local market demand for doors and windows in the Eastern Townships. Terms of the transaction were not disclosed.
• □14 July 2017: dormakaba, one of the top three companies in the global market for access and security solutions, acquired Montreal-based Skyfold Investment Inc., a leading premium provider of automated vertical folding wall systems with a strong presence in the North American market for an amount of $109 million. The partition wall systems business is moving increasingly toward automated products. With this transaction, dormakaba is enhancing its product portfolio in line with this trend while simultaneously strengthening its geographical presence in the attractive North American market. EY acted as exclusive financial advisor to Skyfold Investment Inc. and its shareholders.
• □18 July 2017: Quebec-based Transport Guilbault, a provider of transportation services acquired Ideal Logistics Solutions, specialized in warehousing, logistics and transportation in Quebec and in Ontario. Transport Guilbault is adding close to half a million square feet in warehousing capacity, with facilities now in Quebec City and Montréal. With this transaction, Transport Guibault widens its range of services thanks to the know-how and complementary expertise of 150 new employees in order to offer its clients tailor-made solutions to meet the most complex challenges. Terms of the transaction were not disclosed.
• □18 July 2017: GF Piping Systems, a division of Georg Fischer Ltd. which operates in the safe transport of liquids and gases, lightweight casting components in vehicles, and high-precision manufacturing technologies, acquired a stake of 49% of Coteau-du-Lac-based Urecon Ltd., a specialist of pre-insulated piping systems for freeze protection and chilled water. This transaction will allow GF Piping Systems to expand its footprint in North America and accelerate the introduction of its pre-insulated piping system package for cooling and air-conditioning. Terms of the transaction were not disclosed. EY provided due diligence services to GF Piping Systems.
• 20 July 2017: Montreal-based Supremex Inc., a leading North American manufacturer and marketer of a broad range of stock and custom envelopes and growing provider of packaging and specialty products acquired Stuart Packaging Inc., a leading eco-friendly provider of premium quality folding carton packaging for the consumer market. This acquisition brings Supremex’ share of total revenues from packaging and specialty products to more than 22% on an annual pro-forma basis and represents a key building block of the company’s diversification and growth strategy. The transaction was concluded for total cash consideration of $17.5 million on a cash-free and debt-free basis. In addition, an amount of up to $2.1 million will be payable in 24 months subject to meeting certain pre-established financial targets over that period.
• □20 July 2017: Longueuil-based, Novacap Investments, Inc., a leading private equity firm that seeks to invest in middle market companies, acquired Bestar Inc., a leading designer and manufacturer of ready-to-assemble home and office furniture based in Lac-Mégantic. This partnership is an opportunity for Novacap to team up with a group of seasoned operators which has built strong relationships with key customers in the industry. Terms of the transaction were not disclosed. EY provided due diligence services to Novacap.
• □31 July 2017: Montreal-based Osisko Gold Royalties Ltd acquired a high-quality precious metals portfolio of assets consisting of 74 royalties, streams and precious metal offtakes from New-York based Orion Mine Finance Group in exchange for $675 million cash and the issuance of 30,906,594 shares of the corporation worth $450 million. In addition to the shares issued to Orion, the corporation completed a private placement totaling $275 million dollars with the Caisse de dépôt et placement du Québec ($200 million) and the Fonds de solidarité FTQ ($75 million) at a price of $14.56 per share.
• 31 July 2017: Montreal-based Gildan Activewear Inc., a leading manufacturer and marketer of quality branded basic apparel acquired substantially all of the assets of Swift Spinning, Inc., including two mills in Columbus, GA for a consideration of US$13 million. The acquisition will help meet Gildan’s long-term continued yarn capacity growth needs specifically related to strategic specialty ring-spun yarns.
• □1 August 2017: Montreal-based Groupe Park Avenue Inc., an automobile consortium which now owns 19 car dealerships across Canada, acquired Mercedes-Benz de Québec. This is Groupe Park Avenue's second Mercedes-Benz franchise purchase following the acquisition of Silver Star Montréal in 2016. Terms of the transaction were not disclosed.
* All amounts are in Canadian dollars unless otherwise indicated. Sources: S&P Capital IQ and company press releases.
Third quarter 2017 | 5
,• □1 August 2017: Magog-based Camso, a leader in the design,
manufacturing, and distribution of off-road tires, wheels, rubber tracks and undercarriage systems that serves the material handling, construction, agricultural and powersports industries, acquired Omni Industrial Tire, the second largest tire specialist in Texas. This acquisition will enable Camso to make further inroads into the Texas market and consolidate its leadership position in this region. Terms of the transaction were not disclosed.
• □4 August 2017: Quebec-based Industrial Alliance Insurance and Financial Services Inc. (“IA”) acquired HollisWealth, a provider of diversified investment and wealth management services to individuals, families and corporations from 300 locations across Canada from Scotiabank. With the addition of HollisWealth, IA becomes one of the largest non-bank wealth management firms in Canada with assets under administration of close to $80 billion. Terms of the transaction were not disclosed.
• □7 August 2017: Boucherville-based Uni-Select Inc., a leader in the distribution of automotive refinish and industrial paint and related products in Canada, acquired PA Topco Limited doing business as The Parts Alliance, the second largest nationwide independent distributor of automotive aftermarket parts in the United Kingdom for an amount of £205.0 million which was fully funded with debt from available credit facilities.
• 7 August 2017: Rogers Sugar Inc., through a wholly-owned subsidiary of Montreal-based Lantic Inc., acquired L.B. Maple Treat Corporation (“LBMT”) from Champlain Financial Corporation for a purchase price of $160.3 million, subject to post-closing adjustments. LBMT is one of the world’s largest branded and private label maple syrup bottling and distribution companies. Lantic Inc. is acquiring LBMT to build a new natural sweetener growth platform that joins their 125-plus year heritage business operated and headquartered in Montreal, Quebec.
• □22 August 2017: NAMAKOR Holdings, Caisse de dépôt et placement du Québec and the Quebec Manufacturing Fund announced the acquisition of Gelpac Inc., a Québec manufacturer specialized in packaging solutions for industrial products and consumer goods. Terms of the transaction were not disclosed.
• □23 August 2017: Transcontinental Inc.’s Media Sector, TC Media, sold six of its publications, namely Le Journal Saint-François, Le Soleil de Châteauguay, Brossard Éclair, Le Courrier du Sud, L’information d’Affaires Rive-Sud and Le Reflet (Delson), as well as their related web properties, to Gravité Média, a group that includes Julie Voyer, former general manager at TC Media for the Montérégie region. This transaction is part of the process for the sale of TC Media’s local and regional newspapers in Quebec and Ontario. Terms of the transaction were not disclosed.
• □23 August 2017: Montreal-based CGI Group Inc., the fifth largest independent information technology and business process services firm in the world, acquired Pittsburgh-based Summa Technologies, Inc., a high-end IT consulting agency with expertise in digital experience and agile software development. The transaction strengthens CGI’s position in high-growth, in-demand IT services. The transaction represents CGI’s fourth strategic consulting acquisition in the US in the 2017 fiscal year. Terms of the transaction were not disclosed.
• □31 August 2017: C.H. Robinson, a leading global third party logistics company, acquired Montreal-based Milgram & Company Ltd., a provider of freight forwarding, customs brokerage, and surface transportation in Canada for approximately $62 million in cash. This acquisition continues C.H. Robinson’s global expansion and marks their third global forwarding acquisition in the past five years.
• □1 September 2017: Montreal-based WSP Global Inc., a provider of technical expertise and strategic advice in the Property & Buildings, Transportation & Infrastructure, Environment, Industry, Resources and Power & Energy sectors, acquired Leggette, Brashears and Graham, Inc. (“LBG”), a groundwater and environmental engineering services firm based in the United States with 150 employees. LBG brings seven decades of wide-ranging expertise in hydrogeology, groundwater and surface water modeling, dewatering and depressurization, environmental investigation and remediation. Terms of the transaction were not disclosed.
• □4 September 2017: Toronto-based Birch Hill Equity Partners acquired Montreal-based CCM Hockey for US$110 million. Birch Hill is committed to advancing CCM’s industry leadership in design and product innovation, to maintaining its deep roots in Quebec, and to invest in a company with world-class employees and athlete partners.
• □6 September 2017: Montreal-based McKesson Canada, a leading international health care services and information technology company acquired all outstanding shares of Uniprix Inc., one of the largest groups of independent pharmacists in Quebec. McKesson Canada, Uniprix and PROXIM will leverage their shared expertise to deliver better care and value to patients across the province and strengthen independent pharmacy in Quebec. Terms of the transaction were not disclosed.
• □6 September 2017: A European frozen food producer of a full range of fresh frozen vegetables, herbs and fruit for retail and foodservice, acquired a majority stake in Montreal-based VLM Foods Inc., a well-established supplier of processed food in North America. The transaction will allow VLM Foods to accelerate its market penetration, and provide Ardo with a strong North American platform. Terms of the transaction were not disclosed.
• □18 September 2017: Boucherville-based Uni-Select Inc., a leader in the distribution of automotive refinish and industrial paint and related products in Canada, acquired substantially all the assets of Dash Distributors Inc. an independent distributor of automotive products based in Edmonton, Alberta, previously a member of a non-affiliated buying group. With this acquisition, Uni-Select Inc. now has 54 corporate stores under the Bumper to Bumper banner complementing their solid network of independent jobber customers. Terms of the transaction were not disclosed.
• □21 September 2017: Montreal-based M3 Mortgage Group, the parent company of Multi-Prêts Mortgages, Mortgage Alliance, Invis and Mortgage Intelligence, acquired Verico Financial Group Inc., a network of independent brokers across the country to become the largest mortgage brokerage firm in Canada. This acquisition positions the group for accelerated investment in those critical success levers like branding, technology and marketing in support of brokers across the country. Terms of the transaction were not disclosed.
• □29 September 2017: Montreal-based Groupe Renaud-Bray inc., the largest chain of French-language bookstores in North America, acquired Boisbriand-based Prologue, the largest independent book distributor and dealer in Québec. This acquisition affords Groupe Renaud-Bray inc. greater scale to compete in the distribution sector, which has been the target of significant concentration in recent years. Terms of the transaction were not disclosed.
• □29 September 2017: Montreal-based Saputo Inc. a producer and distributor of dairy products, acquired the extended shelf-life (“ESL”) dairy product activities of Southeast Milk, Inc. The ESL processing activities are conducted at one manufacturing facility located in Florida, and employs 75 people. This acquisition adds to and complements the activities of Saputo’s Dairy Foods Division, USA. Terms of the transaction were not disclosed.
• □29 September 2017: Montreal-based MTY Food Group Inc., a franchisor and operator of quick service restaurants, acquired the totality of the assets of Dagwoods Sandwiches and Salads for a total consideration of approximately $3.0 million, of which $2.6 million was paid on closing, $0.3 million was retained as holdback and $0.1M in net liabilities were assumed. At closing, the Dagwoods network operated twenty franchised restaurants and two corporately-operated kiosks. MTY expects to move the Dagwoods operations to its headquarters in St-Laurent, Quebec.
A leading telecommunications infrastructure service provider
has closed $70 million in financing
EY provided transaction assistance services in connection with private financing for a telecommunications infrastructure service provider
A European frozen food processor
has acquired
EY provided financial and tax due diligence services in connection with the investment in VLM Foods
has acquired
EY provided financial and tax due diligence services in connection with Novacap’s investment in Bestar
has acquired
A Montreal-based frozen food producer
EY provided financial and tax due diligence services in connection with C.H. Guenter’s acquisition.
invested in
EY provided financial and tax due diligence and equipment valuation services in connection with Georg Fischer’s investment in Urecon
Selected transaction credentials closed in Q3-2017
6 | Quebec Transaction Snapshot
Third quarter 2017 | 7
All values reported in Canadian dollars unless otherwise stated 1 Closed transactions only. Due to the existence of private transactions, not all deals have reported values.
Historical M&A activity(Source: S&P Capital IQ)
In terms of transaction mix for Q3-2017:• There were a total of 93 closed transactions involving Quebec-based companies during the quarter ended 30 September 2017. This is below the 105 transactions closed during the previous quarter, and up from the Q3-2016 level of 87 transactions. In addition, the total is in line with the rolling eight-quarter average of approximately 93 transactions. However, past experience has shown that the number of identified transactions at quarter-end tends to underestimate the actual number of deals closed during the quarter, as announcements are sometimes deferred.
• There were a total of 8 acquisitions completed by a financial sponsor in Q3-2017, representing a ratio of 11 to 1 for transactions completed by strategic buyers versus financial buyers, which is above the 9 to 1 ratio recorded for the last eight quarters.
• In terms of transaction size, total reported value was $7.8 billion, below the $16.1 billion recorded in the previous quarter, and below the average of $9.4 billion for the last eight quarters. From a total of 31 deals with reported values, there were three deals in excess of $500 million and six between $100 and $500 million. The number of transactions below $100 million stood at 22, below the eight-quarter average of 26.
• There were two mega-transactions completed during the quarter which included the $4.1 billion acquisition of WS Atkins plc by SNC Lavalin, as well as the Osisko Gold Royalties Ltd. acquisition of a high-quality precious metals portfolio of assets consisting of 74 royalties, streams and precious metal offtakes for $1.1 billion.
• The average transaction size based on deals with reported values (excluding mega-deals) decreased from approximately $103.8 million to $88.7 million, and is above the rolling eight-quarter average of $75.2 million.
• The most active sectors in terms of deal volume in Q3-2017 were Metals & Mining, IT Products and Services, and Commercial & Professional Services. Over the last eight quarters, Metals & Mining, IT Products and Services, and Commercial & Professional Services were also the most active sectors.
• In terms of targets, out of 68 acquisitions closed by Quebec-based companies during the quarter, 13 targets were based in Quebec (18%), below the eight-quarter average of 30%. 48 targets were based in the rest of Canada, four in the US and three in the rest of the world.
• In terms of acquirers, out of the 37 Quebec-based companies acquired during the quarter, 13 were acquired by Quebec-based acquirers (33%), below the eight-quarter average of 41%. Five acquirers were based in the rest of Canada, eight in the US and 11 in the rest of the world.
Transactions involving Quebec-based companies over the last eight quarters1
Counterparty mix over the last eight quarters
Counterparty mix over the last quarter
Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017$0
150
100
50
0
# of transactions by a financial sponsor
# of transactions by a strategic buyer
Reported values (C$, millions)
# of
tran
sact
ions
C$, m
illio
ns
$30,000
$20,000
$10,000
106
96
10
93
84
9
90
79
11
87
79
8
84
79
5
83
71
12
105
94
11
93
85
8
Counterparty mix over the last eight quarters
Counterparty mix over the last quarter
Quebec with USQuebec with rest of world
Quebec with Quebec Quebec with rest of Canada
153
272161
15513
3821
21
Transactions involving Quebec-based companies over the last eight quarters, by deal size (in C$, millions)
100
50
0Q Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 20174 2015
# of
tran
sact
ions
Undisclosed value $0-$20 million $20-$100 million $100 - $500 million $500 - $1,000 million >$1,000 million
1065 93
50
9
16
61
81
2
9087 84 83
10593
15
2
62
7
2
6
14
77
3
8
20
48
1
13
16
50
03
24
54
1
8
24
55
02 2 4 2 2 1
3
24 1 611
24
57
Number of Quebec transactions by industry over the last eight quarters
Constr
uctio
n & Eng
ineeri
ng
Consu
mer Goo
ds
Energy
& Utilitie
s
Finan
cials
Food
& Bevera
ge
Health
care
Indus
trials
IT prod
ucts
& Service
s
Materia
ls
Media
&
Teleco
mmunica
tions
Metals &
Mini
ng
Real E
state
Retail &
Distrib
ution
Transp
ort
Commerc
ial &
Profes
siona
l Serv
ices
120
100
80
60
40
20
0
39
22
4236
5262
73
3325
107
90
52
23
63
22
Number of Quebec transactions by industry over the last quarter
Constr
uctio
n & Eng
ineeri
ng
Consu
mer Goo
ds
Energy
& Utilitie
s
Finan
cials
Food
& Bevera
ge
Health
Care
Indus
trials
IT Produc
ts & Serv
ices
Materia
ls
Media
&
Teleco
mmunica
tions
Metals &
Mini
ng
Real E
state
Retail &
Distrib
ution
Transp
ort
Commerc
ial &
Profes
siona
l Serv
ices
18
16
14
12
10
8
6
4
2
0
76
1
6
16
3
9
4 4 4 43
6
10 10
8 | Quebec Transaction Snapshot
EY’s Quebec public company review1
(Source: S&P Capital IQ)
1. Ernst & Young Orenda’s Quebec public company indices are capitalization-weighted, while multiples by industry are based on an arithmetic average. Indices and trading multiples are updated periodically to reflect new entrants/exits. Current data may not correspond with those shown in previous editions.
2. For the purposes of this analysis, small caps include companies with a market capitalization between $5 and $250 million, mid-caps include companies between $250 and $2.5 billion, and large caps include companies with a market capitalization above $2.5 billion.
Quebec TEV/EBITDA trading multiples by industry30 September 201730 June 2017
Energy
and U
tilitie
s
Finan
cials
Health
Care
Mater
ials
Media
and
Teleco
mmunica
tions
Metals
and M
ining
Indus
trials
Consu
mer G
oods
Food
and B
ever
age
Real E
state
Retail
and D
istrib
ution
Trans
port
Commer
cial a
nd
Profe
ssion
al Ser
vices
Constru
ction
and
Enginee
ring
and S
ervic
es
IT Produ
cts
19
.7x
17
.6x
17
.1x
14
.5x
14
.2x
12
.8x
12
.0x
11
.3x
10
.1x
9.9
x
10
.2x
9.4
x
9.1
x
9.0
x
6.2
x
20
.4x
17
.0x
16
.5x
14
.1x
13
.9x
13
.1x
12
.9x
11
.4x
10
.6x
10
.2x
9.8
x
9.3
x
9.2
x
8.1
x
6.4
x
150
140
130
120
110
100
90
80Sep-15 Dec Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17-15
Stock price evolution over the last eight quarters2
S&P TSX Quebec large caps Quebec mid caps Quebec small caps
Quebec large caps Quebec mid caps Quebec small caps
Sep-15 Dec Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17-15
TEV/EBITDA evolution over the last eight quarters2
18.0x
16.0x
14.0x
12.0x
10.0x
8.0x
6.0x
Third quarter 2017 | 9
EY Growth Barometer 2017Canada highlights
How Canadian businesses are driving their growth agenda
Can shifting sands be a solid foundation for growth?
Business confidence is high among Canadian middle-market companies, despite geopolitical uncertainty, demographic change and rapid technological advances. More than one in five (21%) plan to exceed World Bank global GDP growth forecasts of 2.7% by a significant margin, ranging from 8%–22% this year. Additionally 90% believe that uncertainty is a catalyst for growth. To pursue their growth ambitions, the country’s business leaders are focusing on expansion in different markets, new technology and talent.
These findings come from a new EY longitudinal global survey of middle-market companies, which represent 99% of all enterprises and contribute
almost half of global GDP. In Canada, as elsewhere, the middle market drives economic success, high-impact entrepreneurship and innovation. What is it about middle-market companies that enable them to accelerate growth? Are there lessons for all corporate leaders, whatever their business size?
The EY Growth Barometer explores middle-market leaders’ growth ambitions, strategies and challenges, and their attitudes to global risks and uncertainties. The survey includes 2,340 C-suite executives, in businesses with revenues of US$1m to US$3b, and selected high-growth companies less than five years old.
Executive summary
EY Growth Markets commissioned Euromoney Institutional Investor to undertake an online survey of 100% C-suite (60% CEOs, founders or managing directors) in companies from 30 countries and with annual revenues of $1m–$3b. The survey was conducted from 31 March 2017–12 May 2017. The 2,340 respondents are geographically
representative of global GDP (as per World Bank 2016 data). EY further invited its global network of Entrepreneur of the YearTM alumni to take the survey. The survey was available in English, French and five other languages. Further in-depth, follow-up interviews were conducted during May 2017 to provide additional specific insights.
About the survey
10 | Quebec Transaction Snapshot
The growth predictions of the Canadian middle market extend from cautious to buoyant. In the middle of the range, nearly one-third (33%) expect to grow between 6% and 15%, compared with 51% globally. At the higher end, 7% are intent on growing from 26% upwards, compared to 6% globally. And more conservatively, 48% anticipate growing from 0% to 5%, compared to 30% of our global respondents.
Growing ambitions
What revenue growth rates do you expect your company to achieve in the coming year?
Rest of world
Canada
0% 10% 20% 30% 40% 50%
6%4%Negative growth
0–5% 30%48%
12%16%
21%
7%8%
6–10%
11–15%
16–25%
4%26–50%
More than 50%
4%
2%3%
35%
Third quarter 2017 | 11
The top-ranked strategy for Canada’s middle-market businesses is expansion into new geographical markets: 29% identify this as a growth lever, compared with 24% globally. This international emphasis is reflected by the 37% of Canadian respondents who ranked globalization as the No.1 megatrend impacting their businesses, compared to 24% of global respondents. This global outlook is natural in a huge country with a sparse population, says Francois Tellier, Canada Growth Markets Leader, EY. “We’re spread thinly across six time zones, and this lack of concentration forces companies to become global faster — certainly compared to the US, where it’s easier to grow regionally,” he says. “So Canadian businesses tend to face more complexity, and more challenges, at an earlier stage of growth.”
Canada has historically depended heavily on the US for trade: exports to the US reached C$392b in 2016, making up 75% of Canada’s exports overall.1 This is reflected in Canadian middle-market leaders’ ranking of geographical expansion as their top-voted growth priority (accounting for over a third of responses).
Canadian respondents’ second-ranked growth lever is expanding into adjacent business activities — at 25%, above the global figure of 19%. While this again reflects a willingness to diversify, this focus demonstrates the dynamism of the sector. As new technology has enabled sector boundaries to erode and form subsectors, such as FinTech and agritech, middle-market businesses are showing the flexibility to exploit the changing environment.
Expanding into new territories
37% of Canadian respondents ranked globalization as the No.1 megatrend impacting their businesses.
Technology: threat and opportunityCanada’s middle-market leaders cite technology disruption as their greatest challenge (ranked by 20% of respondents), but they also recognize its potential, voting new technology the number one contributor to their growth strategy, in contrast to their global peers who rank it third.
Technology is also the key to improved productivity for 30% of the Canadian middle market, compared to 22% elsewhere.
Prime Minister Justin Trudeau, recognizing the importance of technology to Canadian business prosperity, has been instrumental in easing pressures by issuing special fast-track visas for tech workers and providing support for investment in new technologies such as artificial intelligence (AI). While venture capital investment across the world fell 23% in 2016 against the previous year, Canada bucked the trend, attracting more or less the same levels at C$2.2b with deal volume up 7%.2
EY’s Tellier suggests that a need to keep up with rivals may explain companies’ tech focus. “Companies may feel they’re falling behind on areas such as digital and e-commerce, and want to spend more time on them,” he says. “The fact that Toronto and Montreal are trying to establish themselves as AI hubs may also be creating a sense that technological disruption is gathering pace”. One example of the activity around such nascent hubs was the 2017 launch of the Vector Institute for Artificial Intelligence in Toronto. The Institute is set to attract C$80m of private funding over the next 10 years, with public cash injections including a share of the Canadian Government’s C$125m national AI fund.3
Technology is also the key to improved productivity for 30% of the Canadian middle market, compared to 22% elsewhere.
1 “Imports, exports and trade balance of goods on a balance-of-payments basis, by country or country grouping”, Statistics Canada website, http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/gblec02a-eng.htm (accessed 17 July 2017).
2 https://www.pehub.com/canada/2017/1/3432343/#3 “Toronto’s Vector Institute Officially Launched”, University of Toronto website, https://www.utoronto.ca/news/toronto-s-vector-
institute-officially-launched, 30 March 2017.
12 | Quebec Transaction Snapshot
Which factor will most contribute to improved productivity in your business in the next 12 months?
Rest of world
Canada
0% 10% 20% 40%30%
30%Technology22%
Supply chain efficiencies 24%21%
Economies of scale16%
20%
Improved organizational culture19%
13%
Workforce efficiencies11%11%
Instilling purpose at thecore of our company 8%
6%
Third quarter 2017 | 13
Alongside the two dominant megatrends of globalization and technology disruption come competitive threats — so it is no surprise that Canada’s middle market sees rising competition as its top risk to growth (22%), compared with 20% of global respondents.
Geopolitical instability is the second-ranked risk for Canadian respondents at 15%, slightly below the global figure (17%). That the nation’s middle-market companies focus more on what they can shape — their place in the market — than on affairs outside their control reflects the resilience of the sector.
For a further 13% of Canada’s middle market, foreign exchange volatility is the greatest risk, compared to just 8% elsewhere. The volatility of the C$–US$ exchange rate — which broadly reflects the rise and fall of commodity markets — helps explain this emphasis.
“A lot of companies purchase goods and equipment in US dollars, so as the rate varies, so do costs,” says Tellier. “And as the US dollar has strengthened, we’ve seen a lot more US companies coming to Canada to compete in the middle market.”
Rising competition is the top risk to growth.
Fighting competitive threats
When it comes to delivering on its strategy, Canada’s middle market understands the critical importance of attracting the right type of people.
Finding talent with the right skills is respondents’ second most important contributor to growth and the third most significant challenge to that growth. In particular, the top-ranked talent need in Canada — as in the rest of the world — is more people with specialist skills. This shows the link between talent and technology disruption, suggests Tellier. “Companies need different skillsets to address the digital world.”
Despite this, Canada’s middle market seems to favor stability over flexibility in its hiring plans. More than half of Canadian respondents (51%) say they plan to keep current staffing levels in the next year, against 31% in the rest of the world.
More than a quarter (26%), however, will seek more full-time staff, reflecting their high-growth ambitions. Yet Canada’s middle market is behind the rest of the world in embracing the gig economy: just 11% intend to hire more contractors and freelancers, compared to 18% elsewhere.
When it comes to their supply chain, Canadian middle-market executives feel it is in good shape. Almost one-quarter (23%) claim their “flexible operations and supply chain” enables them to respond to both opportunities and threats, against the global figure of 18%. They also give improved supply chain and operations efficiency as their third-highest contributing factor to growth.
Seeking specialist skills
Finding talent with the right skills is respondents’ second most important contributor to growth and the third most significant challenge to that growth.
14 | Quebec Transaction Snapshot
As the world changes, strong leadership requires forward planning — and Canadian middle-market leaders recognize they should be more focused on their long-term vision. Nearly two-thirds of the country’s respondents (66%) say they split their time 80/20 between the current business and future strategy — but nearly half (48%) believe they should be working to a 60/40 split, investing more time in the future.
Despite their strong focus on technology and supply chain efficiency, Canada’s middle-market companies show relative caution in adopting robotic
process automation (RPA). Just 4% of companies have adopted it, compared to 6% elsewhere, although 18% have plans to do so in the next 2–5 years, as opposed to 15% in the rest of the world. That Canada is not leading on RPA, despite its technology strengths, may be a symptom of the fact that leaders are spending less time on future strategy than they could be. “Canada’s middle-market leaders need to spend less time working “in the business” and more time “on the business,’” says Tellier.
Focusing on the future
Despite their strong focus on technology and supply chain efficiency, Canada’s middle-market companies show relative caution in adopting robotic process automation.
Third quarter 2017 | 15
Successful growth depends on the strength of a company’s wider network more than its internal capabilities
0% 10% 20% 30% 40% 50% 80%60% 70%
2%
13%7%
Strongly disagree
Disagree
Rest of world
Canada
55%Agree
71%
30%Strongly agree22%
Networking innovationMiddle-market leaders in Canada are, however, ahead of the curve in embracing the wider, collaborative network. A broad 93% agree that success depends on the strength of a company’s network, against 85% elsewhere. This advocacy reflects a changing world where customers become co-creators, products become platforms and corporate value is not limited to what’s inside a company’s walls. “This focus on alliances is becoming more and more common in Canada,” says Tellier. “A lot of innovation is happening through different forms of partnership with other companies; widening the network is helping fuel growth.”
93% agree that success depends on the strength of a company’s network.
EY | Assurance | Tax | Transactions | Advisory
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For more information
François Tellier, CPA, CA, CBV Canadian Strategic Growth Markets/ Middle Market Leader Transaction Advisory Services 514 874 4351 [email protected]
Ken Brooks, MBA Senior Vice President M&A Lead Advisory Services 514 874 4412 [email protected]
Todd Caluori, CPA, CA, CBV Senior Vice President M&A Lead Advisory Services 514 879 2793 [email protected]
Bernard Cormier, CFA Senior Vice President M&A Lead Advisory Services 514 874 4305 [email protected]
Eric Cassir, CFA, CBV Vice President M&A Lead Advisory Services 514 879 8228 [email protected]
Milad Jawabra, CFA Senior Associate M&A Lead Advisory Services 514 879 8148 [email protected]
Adam Forlini Associate M&A Lead Advisory Services 514 874 4634 [email protected]
Charles-Antoine Dénommée, CPA, CA, CBV Associate M&A Lead Advisory Services 514 874 4325 [email protected]
Félix Morin, CPA, CA Associate M&A Lead Advisory Services 514 879 8237 [email protected]
Félix Côté, CFA Associate M&A Lead Advisory Services 514 874 4682 [email protected]
