CROSBIE & COMPANY CANADIAN M&A REPORT Q1 2016

CROSBIE & COMPANY CANADIAN M&A REPORT Q1 2016

CROSBIE & COMPANY CANADIAN M&A REPORT Q1 2016 The year over year decline in activity was concentrated in three key sectors: Real Estate, Consumer Disc...

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CROSBIE & COMPANY CANADIAN M&A REPORT Q1 2016 The year over year decline in activity was concentrated in three key sectors: Real Estate, Consumer Discretionary and Industrials. From a deal-size perspective, most of the decline in activity can be attributed to the middle market (under $250M) category.

Overview The Canadian M&A activity (which we define as all M&A deals involving a Canadian company as a material counterparty) was fueled by multibillion dollar deals even though the number of deals declined to the lowest since 2012. Figures developed by Crosbie & Company using Capital IQ and other sources indicated 602 announcements in Q1, down 6% from the previous quarter and down 8% from the same quarter last year. This was the sixth decline in activity in the last seven quarters.

81% of the total value of M&A activity for the quarter. The largest transaction of the quarter saw TransCanada make an $18.2B acquisition of Columbia Pipeline Group, a Texas-based company operating approximately 24,000 km network of interstate natural gas pipelines.

Domestic M&A Transactions Figure 2 illustrates that Canadian domestic M&A activity declined in Q1. There were 408 transactions involving Canadian targets (including both those with domestic or foreign buyers) in Q1, down 5% from 428 transactions in the same quarter last year.

Due to continued strength in mega-deal activity (transactions in excess of $1B in value), the value of announced transactions increased 32% from last quarter to $101B in this quarter, the second highest level observed in recent years.

The second largest transaction of the quarter saw Fortis diversify its business and extend its reach into the US with the $15.8B acquisition of ITC Holdings, the largest independent pure-play electric transmission company in the US.

Mega-Deals

Another notable mega-deal of the quarter ended a nine-month takeover battle as rival bidders Qube Holdings and Brookfield Infrastructure Partners teamed up for $12.7B acquisition of

There were 16 mega-deals announced in Q1, representing an aggregate value of $82.4B. Mega-deals accounted for over

Figure 1

M&A Quarterly Announcements 2012 Q1 to 2016 Q1 Value of Announcements ($ Billions) $140 $130 $120 $110 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $-

Number of Announcements 1000

734

724

768

727 619

636

626 643

659

733

660

705

800 656 652

672

641

602 600 $82

$90 $31

$21

$44

$55

$48

$27

$21

$28 $10

$38

$59

400

$58

$41

$26

$15

200

$20

$25

$19

$26

$20

$22

$20

$25

$22

$20

$20

$25

$19

$20

$21

$19

$19

Q1' 12

Q2' 12

Q3' 12

Q4' 12

Q1' 13

Q2' 13

Q3' 13

Q4' 13

Q1' 14

Q2' 14

Q3' 14

Q4' 14

Q1' 15

Q2' 15

Q3' 15

Q4' 15

Q1' 16

0

Value of Announcements <$1B

Value of Announcements >$1B

1

Total Number of Announcements

Asciano, an Australian rail and ports logistics company. Both the bidders intend to split Asciano into three parts, with separate consortiums (including CPPIB and bcIMC) acquiring its rail, ports, and bulk and automotive ports services businesses.

Figure 2

DOMESTIC VS FOREIGN M&A: 2016 Q1

Financial Sponsors Financial sponsors remained active in the first quarter of 2016 on both the buy-side and sell-side with 15 transactions (in excess of $100M) valued in aggregate at $34.3B. Four of the ten largest transactions in the quarter involved a financial sponsor, including several infrastructure transactions such as the Asciano transaction mentioned above and a consortium consisting of AIMCO, OTPP and OMERS acquiring London City Airport Ltd. for $3.8B. Canadian pension funds continue to purchase global infrastructure assets as they seek to generate stable inflation-protected returns. However, a number of pension funds have started to raise concerns that intense competition for these assets has driven valuations too high.

Figure Figure 33

ACTIVITY GROUPED BY INDUSTRY: 2016 Q1

Industry Sector Activity The most active sector by number of announced transactions was Information Technology with 92 deals valued at $1.7B, a 16% increase in activity from Q1 2015. The sector’s largest transaction involved CCL Industries’ acquisition of Checkpoint Systems, a leading global supplier of merchandise availability solutions, for $750M. Real Estate, historically one of the most active sectors, declined 30% from Q1 2015 to 73 transactions worth $7.7B. The largest deal in the sector involved Brookfield Asset Management’s $3.5B acquisition of Rouse Properties, a US publicly-traded real estate investment trust. The most active sector by deal value was Industrials with 72 deals valued at $23.7B, largely due to the Asciano and London City Airport transactions mentioned above. Another key transaction in the sector was the $3.9B merger of Progressive Waste Solutions with US-based Waste Connections. The transaction will enable the US garbage hauling company to move its tax domicile to Canada and take advantage of the lower corporate tax rate.

Notes: 1. Transaction value is not disclosed for all deals 2. Captures Consumer, Industrial, and Oil and Gas Services (included in respective industry sector counts above) Figure 4

Consumer Discretionary was also active from a deal value perspective with over $17B in announced transactions. Significant transactions included the privatization of Amaya, an online gambling company, for $6.5B and Lowe’s $3.1B deal to acquire Quebec-based Rona. Lowe’s previous attempt to acquire Rona in 2012 was opposed by the Quebec government.

ACTIVITY BY SIZE OF DEAL: 2016 Q1

Breakdown by Transaction Size While the aggregate transaction value for the quarter was largely driven by mega-deals, the bulk of the activity is driven from transactions with deal values under $250 million.

Note: 1. Transaction value is not disclosed for all deals

2

As shown in Figure 4, the middle market continues to be the foundation of Canadian M&A transaction volume with deals under $250 million representing 85% of all the transactions with disclosed values. This is consistent with past trends in activity. In aggregate, the mid-market transactions were valued at $6.1B or approximately 6% of total M&A value. In the first quarter of 2016, transaction size was not disclosed for 54% of the transactions, consistent with 55% in 2015. While this limits the precision of inferences we can make about the size distribution of transactions, it is reasonable to assume most of the undisclosed deals are within the middle market as we define it here.

Figure 5

CANADIAN TARGETS BY PROVINCE: 2016 Q1

Target by Province As shown in Figure 5, domestic M&A activity varies considerably by province. In Q1 2016, the provinces with the most announcements (in declining order of activity) were Ontario, British Columbia, Alberta and Quebec. These four provinces represent 87% of activity in the quarter. The decline in domestic activity year over year (408 announcements in Q1 2016 vs 428 in Q1 2015), was attributable to declines in activity in Ontario, British Columbia and Alberta. In Ontario, M&A activity declined 7% (154 versus 167 in Q1 2015); British Columbia declined 22% to 73 transactions; and Alberta declined 10% to 56 transactions.

Notes: 1. Transaction value is not disclosed for all deals 2. Target province is not disclosed for all deals

Figure 6

CROSS-BORDER TRANSACTIONS: 2016 Q1

However, Quebec’s M&A activity year over year increased significantly by 29% to 71 transactions. Similarly, megadeals in Quebec (Amaya and Rona transactions mentioned above) have contributed to an approximately three-fold increase in total deal value ($10.8B vs $2.6B in Q1 2015). Another notable transaction was the $537M acquisition of Quebec-based St-Hubert restaurant business by Swiss Chalet owners, Cara Operations. Cross-Border Deals As the data in Figure 6 indicates, cross-border transactions continued to account for a significant proportion of activity with 47% of all transactions involving a foreign target or buyer, demonstrating the global nature of the Canadian economy.

Note: 1. Transaction value is not disclosed for all deals

Canadian companies making acquisitions abroad (“outbound” transactions) outnumbered the number of foreign companies acquiring in Canada (“inbound” transactions) by a factor of 1.1 times. Additionally, the value of outbound transactions exceeded the value of inbound transactions in Q1 by nearly three times. In this quarter, we saw a continuation of the trend observed recently where Canadian firms were both more active abroad and spending more than foreigners acquiring Canadian companies. Inbound activity increased significantly as foreign firms acquired more Canadian companies in Q1 compared to the same quarter last year (132 vs 111 in Q1 2015). Similarly, the value of inbound transactions increased nearly six times compared to same quarter last year ($19.9B vs $3.4B in Q1 2015).

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Largest Transactions Announced During Q1 2016 VALUE (C$ MILLIONS) $18,188

$15,837 $12,733

$6,462

$3,891

$3,794

$3,500

$3,121

$3,000

$2,666

$2,163 $1,686

$1,630

$1,430

NAME

ROLE

ANNOUNCED

Columbia Pipeline Group, Inc.

Target

17-Mar-16

Transcanada Pipeline USA. Ltd

Acquiror

ITC Holdings Corp.

Target

Fortis Inc.

Acquiror

Asciano Limited

Target

CPPIB; British Columbia Investment Management Corporation; others

Acquiror

Amaya, Inc.

Target

Management

Acquiror

Progressive Waste Solutions

Target

Waste Connections

Acquiror

London City Airport Ltd.

Target

OTPP; Borealis Infrastructure Trust; OMERS Private Equity; AIMCO; others

Acquiror

Global Infrastructure Partners; Highstar Capital

Vendor

Rouse Properties, Inc.

Target

Brookfield Asset Management Inc.

Acquiror

Rona Inc.

Target

Lowe's Companies Canada, ULC

Acquiror

Rexall Pharma Plus Ltd.

Target

McKesson Canada Corporation

Acquiror

Katz Group Pharmacies Inc.

Vendor

Shaw Media Inc.

Target

Corus Entertainment Inc.

Acquiror

Shaw Communications, Inc.

Vendor

Capstone Infrastructure Corporation

Target

Irving Infrastructure Corp.

Acquiror

Imperial Oil Ltd., Canadian Retail Assets Located in Ontario and Québec

Target

Mac's Convenience Stores Inc.; Couche Tard, Inc.

Acquiror

Imperial Oil Ltd.

Vendor

ENGIE SA, 1.4GW Hydroelectric Assets Portfolio

Target

Public Sector Pension Investment Board

Acquiror

ENGIE SA

Vendor

KraussMaffei Group GmbH

Target

China National Chemical Corporation; AGIC Capital; others

Acquiror

Onex Corporation

Vendor

9-Feb-16 15-Mar-16

1-Feb-16

19-Jan-16

26-Feb-16

19-Jan-16

3-Feb-16

2-Mar-16

13-Jan-16

20-Jan-16 8-Mar-16

25-Feb-16

11-Jan-16

The information contained above and within the “Crosbie & Company Canadian M&A Report” is a summary analysis of the quarter’s M&A activity. For further information, please contact Ed Giacomelli at 416-362-0020 or visit www.crosbieco.com.

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