Quebec Transaction Snapshot

Fourth quarter 2016

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Wait and see

Predicting what to expect in 2017 in terms of economic growth and transaction activity in Quebec and Canada is a challenging task indeed, against the backdrop of what's happening south of the border, and the uncertainty related to the future of our trade relationship with the United States. The IMF is estimating that Canada is heading for stronger economic growth of 1.9% in 2017 and 2.0% in 2018, compared to only 1.3% in 2016. However, most believe that it is still too early to predict how the new Trump administration will impact our local economy. Although the US Federal Reserve raised the overnight interest rate by 25 bps to 0.75%, the Bank of Canada is holding steady at 0.5% and has confirmed it is ready to cut interest rates if US protectionist measures derail the Canadian economy. In the meantime, we will all have to wait and see.

2016 marked a memorable, if not busy, year for transactions in Quebec, as deal volume dropped by 49 transactions (12.6%) to approximately 340 closed transactions. Looking back, we witnessed the $3.2 billion acquisition of Quebec’s leading hardware retailer when RONA was acquired by US-based home renovation giant Lowe’s, and the sale of Groupe St-Hubert, one of Quebec’s oldest and most successful domestic brands, to Ontario-based Cara Operations Ltd. for $537 million. On the flip side, Quebec also went on a cross-border buying spree led by Alimentation Couche.Tard’s US$4.4 billion acquisition of CST Brands, adding 2,000 outlets in the United States, along with its $1.7 billion acquisition of 279 gas stations in Quebec and Ontario from Imperial Oil. Other cross-border buyers included Transforce, with the US$558 million acquisition of XPO Logistics, MTY Food Group with the US$300 million takeover of Arizona-based Kahala Brands, and Gildan Activewear who expanded into Mexico via the US$110 million acquisition of the apparel division of Ennis Inc., not to mention acquired selected assets from American Apparel for US$66 million.

A total of 82 transactions closed during Q4-2016, down from the 89 closed during Q3 and the 106 closed in Q4-2015. Only 5 of the deals closed in Q4-2016 involved a financial buyer, the lowest tally in the last eight quarters. Notwithstanding decline in volume, total reported transaction value increased from $2.7 billion in Q3 to $5.1 billion in Q4-2016, largely on account of the $2.9 billion mega-transaction involving the acquisition of Rexall Pharma Plus Ltd by McKesson Canada Corporation. Average deal size for those with reported values (excluding mega-deals) decreased by approximately $10 million to $72 million, in line with the rolling eight quarter average of $75 million. Finally, in terms of active sectors, IT Products & Services continued to lead the way with 12 closed transactions reported during the quarter, and 102 over the last two years.

In this edition, you will read about two of EY’s most recently closed transactions in Quebec, including the management buyout of Econofax + Inc. wherein we advised on the acquisition and helped raise the related financing, and the divestiture of F2Z Entertainment Inc., a Quebec-based publisher and distributor of modern board games, to Asmodee Group in Guyancourt, France. We also introduce how EY’s Transaction Tax practice can help mitigate transaction risks, enhance opportunities and provide crucial negotiation insights on acquisitions, divestitures, financings, restructurings and initial public offerings.

I hope you enjoy this edition and those that follow,

Todd Caluori

Todd Caluori, CPA, CA, CBV
Editor and Associate Partner, M&A Lead Advisory

 

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Quebec Transaction Snapshot Q4 2016
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