Third quarter 2013
Quebec Transaction
Snapshot
Economic uncertainty tempers
transaction volumes
US government shut down for two weeks. Uncertainty about whether or not US lawmakers will unite. Will
the debt ceiling be increased before the US government defaults on its obligations? US economic forecasts
revised lower by the Federal Reserve. Rate hikes not expected before the second half of 2015. Bank of
Canada downgrades growth forecasts for the second half of 2013. Quebec unable to reach a zero-deficit
budget. Provincial elections in Quebec before the end of 2013?
With recent headlines like that, it is not surprising that uncertainty remains the key word and that M&A
activity remained weak in Quebec during Q3 2013. The number of closed transactions during the three
months ended 30 September 2013 remained below 60 for a third straight quarter at 59. Although it is
perhaps unfair to compare the year-to-date total of 172 closed deals in Quebec to the 241 deals closed
during the comparable prior-year period through 30 September 2013 which, according to Thomson
Reuters, was one of the most active in the history of the Quebec market, transaction volume nonetheless
remained significantly below the 24-month average of 69 transactions per quarter, which is also the overall
quarterly average since Q3-2010.
In addition, although the dollar volume of these transactions increased to the highest level since Q3 2012,
this was due to two very large transactions, both of which had been announced several quarters ago — the
$3.2-billion acquisition of Astral Media Inc. by BCE Inc. and the €1.3-billion acquisition of Irish Life Group
Limited by Great-West Lifeco Inc., a subsidiary of Power Corporation of Canada.
In this edition, you will learn about EY’s Operational Transaction Services, which kick in after the closing
of a transaction to assist both vendor and purchaser through the post-merger integration process. You
will also read more than 20 transaction snapshots involving Quebec-based companies, and review our
statistics on historical M&A activity and public company valuations in the province. We also profile our
most recently completed transaction, where we acted as financial advisor to Demilec Inc. and its affiliated
companies in the sale of a controlling interest to Sun Capital Partners, Inc. Finally, we conclude with a short
article highlighting the best ways to prepare for and execute successful IPOs and exits.
I hope you enjoy this edition and those that follow.
Todd Caluori, CPA, CA, CBV
Editor and Associate Partner, M&A Lead Advisory
EY’s Transaction Advisory Services
This edition’s focus: Operational Transaction Services
Whether you are acquiring or divesting,
restructuring or embarking on a joint
venture, our global network of transaction
professionals can help you achieve your
strategic objectives. We tailor our services
to meet the requirements of almost any deal
or company size, large or small. We work on
some of the most complex transactions in
the market and offer responsive, objective
advice to some of the world’s leading
organizations, fastest-growing companies
and biggest private equity firms. We make
the experience gained in these transactions
available to your project.
We focus on your need to improve growth,
profitability and competitiveness. We
can help you plan effective integration or
separation strategies, identify synergies
and sources of value, and mitigate risk. Our
global reach means that wherever your
target acquisition or divestiture is located,
we can help you get the information you
need to achieve the value you and your
investors expect.
Our professionals offer their deep knowledge
and experience when you are looking for
assistance with the following:
• Effective integration of target companies
as part of a focused acquisition growth
strategy
• Integration of target companies spanning
multiple regions, cultures and/or varying
lines of business
To learn more about our Operational
Transaction Services practice, contact
Pierre Marc Seguin at 514 879 2624 /
[email protected].
Restructuring
Lead
Advisory
(EYO)
• Carve-out of a portion of your business
• Rigorous project management and/or
deep functional integration experience
• Accelerating the integration process and the
realization of expected transaction value
• Identifying key risks and challenges and
mitigating approaches
• Integration of multiple acquisitions in a
finite time frame, or historical acquisitions
that have yet to be integrated
Working
Capital
Management
Transaction
Advisory
Services
Valuation &
Business
Modelling
Transaction
Support
Transaction
Tax
Operational
Transaction
Services
• Integration of acquisitions with a private
equity firm’s current portfolio company
Operational Transaction Services
Buy-side integration
Sell-side carve outs
••Core Integration Services
(pre- and post-closing)
••Advises parent company and/or
new organization to prepare for
carve-out situations
— Integration management office
—S
tandalone, one-time and
residual cost analysis
— Leading practices and tools
••Integration Due Diligence
— Identify integration challenges
••Accelerated Integration Planning
— Day 1, Day 100, long term
Synergy assessment
—T
ransition service agreements
and transition analysis
••Revenue enhancement
opportunities
— Day 1 readiness preparation
••Cost reduction
opportunities
Transaction value assessment
••One time synergy
capture costs
••Measures all components of
transaction returns
••Synergy realization
timeframe
••Identify early opportunities for
course correction or synergy gaps
••Compare transaction due
diligence, valuation, integration
planning and execution processes
against the leading practices
2 | Quebec Transaction Snapshot
Center of excellence playbook
••Institutionalizes leading practices,
retains knowledge and reduces risks
••Focuses on core integration
processes that will “Move The
Needle” from a value, speed and
risk mitigation standpoint
••Outlines a process to identify, value,
prioritize and realize synergies
Economic indicators
2013
2014
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
99.1
97.7
96.3
97.6
95.2
93.5
94.9
97.2
Real GDP (chain weighted)1
2.2
1.7
2.0
2.3
2.4
2.5
2.4
2.3
Consumer spending1
1.3
3.8
2.2
2.2
2.3
2.2
2.1
1.9
Government spending1
0.5
1.1
1.1
0.7
0.9
0.9
0.9
1.0
Business investment1
0.9
-2.5
4.8
6.7
7.0
8.0
7.3
6.6
Residential construction1
-4.4
5.4
-1.0
-2.0
-2.0
-1.5
-1.0
0.0
Exports1
5.2
0.9
0.5
4.9
5.0
5.1
5.0
4.7
Imports1
2.4
1.5
0.6
4.0
4.2
4.3
4.1
3.8
CPI, all items1
1.6
0.0
1.7
2.0
1.4
1.8
1.8
2.2
Overnight rate2
1.00
1.00
1.00
1.00
1.00
1.00
1.00
1.25
Three-month T-Bill2
0.95
1.00
1.00
0.99
0.99
0.99
0.99
1.24
90-day BAs2
1.20
1.18
1.18
1.19
1.19
1.19
1.19
1.43
10-year bond yield2
1.92
1.96
2.58
2.76
2.92
3.11
3.29
3.48
Personal income3
3.8
3.6
3.8
3.9
4.2
4.4
4.3
4.2
Unemployment rate (%)4
7.1
7.1
7.1
7.0
6.9
6.8
6.7
6.6
Housing starts ('000s)5
175
190
188
186
175
180
180
185
Exchange rate (US/CDN)4
1 Quarter over quarter % change, annual rate.
2 Average for the quarter in %.
3 Year over year % change.
4 Quarter average.
5 Annual rate.
Estimates.
Source: BMO Capital Markets Economics as at October 4, 2013
Third quarter 2013 | 3
Illustrative Quebec transactions*
• 1
July 2013: Domtar Corporation acquired Associated Hygienic
Products (AHP) from DSG International for US$272 million. AHP
is the largest supplier of store brand infant diapers in the United
States, with manufacturing facilities in Delaware, Ohio and Waco,
Texas, along with administrative offices and a distribution centre
in Duluth, Georgia. AHP has 621 employees and annual sales and
EBITDA of US$320 million and US$31 million, respectively.
• 4
July 2013: NATIONAL Public Relations, a subsidiary of
RES PUBLICA Consulting Group Inc., acquired Madano
Partnership, a strategic communications consulting firm
based in London, UK. Founded in 2004, Madano specializes
in corporate communications and public affairs, and offers
a variety of services ranging from proposition and message
development, external and internal communications, as well as
research and market intelligence. It represents clients in diverse
sectors, including energy, building and infrastructure, financial
and professional services, education and health care. Terms
were not disclosed.
• 5
July 2013: BCE Inc. completed the $3.2-billion
acquisition of Astral Media Inc. As part of the acquisition,
BCE acquired eight specialty and pay TV services, two overthe-air TV stations, 77 radio stations and the Astral Out-ofHome advertising division.
• 9
July 2013: The Delta Centre-Ville Hotel, in downtown
Montreal was acquired by a joint venture partnership owned
20% by Campus Crest Communities, Inc. and 80% by Beaumont
Partners SA. The partnership paid approximately $60 million
for the property, including closing costs, fees and reserves. It
expects to obtain redevelopment financing later this year to
fund the conversion of the 711-room, 33-story hotel into an
upscale student housing tower featuring a mix of single and
double units.
• 1
5 July 2013: Fiera Properties CORE Fund, a new diversified
open-ended property fund launched by Fiera Properties
Limited, acquired a $160-million portfolio of assets comprising
prime retail and industrial properties across Canada.
• 1
6 July 2013: Paladin Labs Inc. became the sole shareholder
of Allon Therapeutics Inc., in accordance with the Order for
Reorganization in Allon’s proposal proceedings under the
Bankruptcy and Insolvency Act (Canada) and under the Canada
Business Corporations Act. Allon Therapeutics Inc. is a clinicalstage biotechnology company focused on bringing to market
innovative central nervous system therapies.
*
• 17 July 2013: TransForce, Inc. acquired the assets of DriveForce
Transportation Services and DriveForce Transportation Services
of Tulsa. DriveForce is a regional provider of commercial truck
drivers and skilled industrial personnel with operations throughout
Oklahoma. Terms were not disclosed.
• 18 July 2013: Great-West Lifeco Inc., a subsidiary of Power
Corporation of Canada, through its indirect wholly-owned
subsidiary Canada Life Limited, completed the €1.3-billion
(C$1.8-billion) acquisition of Irish Life Group Limited.
Established in 1939, Irish Life is the largest life and pensions
group and investment manager in Ireland, with more than one
million customers and €37 billion (C$50 billion) of assets under
management as at 31 December 2012. The Irish Life name will
be retained, and the life and pensions operations of Great-West
Lifeco’s Irish subsidiary Canada Life (Ireland) will be combined
with the operations of Irish Life.
• 25 July 2013: Innergex Renewable Energy Inc. completed the
acquisition of the 40.6 MW Magpie run-of-river hydroelectric
facility from the Hydromega Group of Companies. The facility
is located on Crown lands in the Minganie Regional County
Municipality, in Northeastern Quebec. Magpie is expected to
generate annualized revenues of approximately $10.6 million
in 2013 (including payments received under the ecoENERGY
program) and adjusted EBITDA of approximately $8.2 million.
• 29 July 2013: Ivanhoé Cambridge acquired a 50% interest
in Carrefour de l’Estrie, the largest shopping centre in
Quebec’s Eastern Townships region, from Canada Pension
Plan Investment Board (CPPIB), which will continue to own
the other 50% of the shopping centre. The 1.2-million square
foot Sherbrooke shopping centre hosts 200 retailers, is 98%
occupied and employs 2,500 people. Terms were not disclosed.
• 1 August 2013: Agropur Cooperative acquired Coast
Mountain Dairy, an important ice cream producer in Chilliwack,
British Columbia. Coast Mountain Dairy has been producing ice
cream since 1997 and is the maker of SARA’S OLD FASHIONED
premium ice cream, the MOUNTAIN PRIDE premium line of ice
creams and ARCTIC STAR, an economy line of ice cream and
frozen desserts. Terms were not disclosed.
All amounts in Canadian dollars unless otherwise indicated. Sources: S&P Capital IQ, Thomson ONE and company press releases.
4 | Quebec Transaction Snapshot
• 1
August 2013: BELLUS Health Inc. acquired Thallion
Pharmaceuticals Inc. for approximately $6.3 million. Thallion
is a biotechnology company developing pharmaceutical
products in the areas of infectious disease and oncology.
Thallion’s lead clinical program Shigamabs™ is a dual antibody
product for the treatment of Shiga toxin-producing E. coli
(STEC) bacterial infections and recently completed a Phase II
clinical trial.
•► 1
2 August 2013: Pro Hockey Life Sporting Goods Inc.,
operating in Quebec under the Sports Rousseau and
L’Entrepôt du Hockey banners, was acquired by FGL Sports
Ltd. (formerly Forzani Group), a division of Canadian Tire
Corporation, for $85 million. The sports retailer has 23 hockey
stores operating in five provinces across Canada. It has annual
revenue of approximately $95 million.
• 2
2 August 2013: Dorel Industries Inc. acquired a 70%
interest in Bicicletas Caloi SA, a major Brazilian manufacturer
of bicycles and bicycle equipment. The purchase price was a
high single-digit multiple of Caloi’s EBITDA. Sales in 2012 were
close to BRL$273.5 million (approximately $135 million),
a 22% increase over the previous year. The company has an
estimated market share in Brazil of more than 40%.
• 2
2 August 2013: Thetford Mines, Quebec-based Analytical
Flow Products (AFP) was acquired by IMI plc, an international
engineering group. IMI paid an initial consideration of £5 million
($8.3 million) for AFP and could potentially pay further
deferred consideration of up to £36 million ($60 million)
based on performance over the next five years. AFP provides
products for the precise control of fluids in chromatography as
well as for the testing of the purity of gases in refineries.
• 2
6 August 2013: Logibec Groupe Informatique Ltée
acquired ReaEvolution Inc., a Quebec-based company
specializing in the development of medical charting and clinical
decision support solutions for prehospital and emergency care.
The entire ReaEvolution team, including its clinical researchers
working at the CHU de Quebec, will be joining Logibec. Terms
were not disclosed.
• 3
September 2013: Paladin Labs acquired an additional
stake of 13.2% in Litha Healthcare Group Limited from
Blackstat Group SE for approximately $20.1 million. Following
the transaction, Paladin holds 57.7% interest in Litha, a
Johannesburg Stock Exchange-listed, integrated health care
company with a varied product offering in: biotechnology,
vaccines, pharmaceuticals, medical devices and consumables
and cold chain logistics, with extensive contracts in both the
public and private health care sector.
• 4 September 2013: Richelieu Hardware Ltd. acquired
Vancouver-based Hi-Tech Glazing Supplies. The company acts as
a distributor of door and window hardware serving the British
Columbia market and has sales of approximately $5 million.
Terms were not disclosed.
• 5 September 2013: Wood Wyant Canada Inc., a subsidiary
of the Sani Marc Group, acquired 100% of the shares of
Edmonton, Alberta-based Total Cleaning Supplies Ltd. The
company specializes in the distribution of sanitation products
and equipment. Terms were not disclosed.
• 5 September 2013: Leger Marketing Ltd. acquired IFOP
North America, a market research firm based in Toronto. A
subsidiary of the IFOP group based in Paris, IFOP North America
provides market research and consulting services with a focus
on the health care sector and consumer insights. Terms were
not disclosed.
• 18 Sep 2013: Medicago Inc. was acquired by Mitsubishi
Tanabe Pharma Corporation (MTPC) in a transaction valued
$357 million. MTPC acquired a 55% stake for approximately
$160 million. As a result of the transaction, Medicago is
now 60% owned by MTPC and 40% owned by Philip Morris
Investments B.V., an affiliate of Philip Morris International
Inc. Medicago is a clinical-stage biopharmaceutical company
developing novel vaccines and therapeutic proteins to address a
broad range of infectious diseases worldwide.
• 2
5 September 2013: MTY Food Group Inc. acquired the
assets of Extreme Pita, PurBlendz and Mucho Burrito (Extreme
Brandz) for a consideration of $45 million. Extreme Brandz
has over 235 Extreme Pita and over 70 Mucho Burrito
restaurants in operations in Canada and the United States at
the closing of the transaction, of which two are corporately
owned for each brand. The PurBlendz concept, which is
operated as an add-on to the Extreme Pita restaurants, is
present in approximately 70 Extreme Pita restaurants. Systemwide sales in Extreme Brandz’s most recent completed fiscal
period were over $103 million.
• 30 September 2013: Boisbriand, Quebec-based Demilec Inc.
and its affiliates were acquired by private equity group Sun
Capital Partners, Inc. Demilec is one of the world’s largest
manufacturers and distributors of premier rigid and semi-rigid
spray foam insulation. Terms were not disclosed. Ernst & Young
Orenda acted as financial advisor to Demilec in connection with
the transaction.
Third quarter 2013 | 5
Historical M&A activity
In terms of transaction mix:
• There was a total of 59 closed transactions involving Quebecbased companies during the quarter ended 30 September
2013. This represents a slight increase from Q2 but a
significant decrease from the 79 transactions recorded in
Q3 2012, and is below the rolling 24-month average of 69
transactions per quarter. Note, however, that 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 only two deals involving a financial sponsor in
Q3 2013, representing a ratio of 29 to 1 for transactions
completed by strategic buyers versus financial buyers,
compared to a ratio of 7.7 to 1 over the last eight quarters.
This represents the third consecutive quarter with fewer than
five reported deals in Quebec involving private equity.
• In terms of transaction size, a few large deals closed in the
quarter and accounted for all the increase in dollar volume:
from a total of 22 deals with reported values, there were two
deals in excess of $500 million and four deals between $100
million and $500 million, in line with the eight quarter averages
of two and four deals of this size per quarter, respectively.
• The top sectors in terms of deal volume during Q3 2013 were
healthcare; transportation, commercial and professional
services; and metals and mining. Over the last eight quarters,
metals and mining; transportation, commercial and professional
services; and IT products and services were the most active
sectors, with 84, 75 and 74 deals closed, respectively.
• In terms of counterparties, Quebec-based acquirers focused
again mostly on Quebec targets in Q3, with 18 deals closed,
in line with an average of 20 transactions over the last eight
quarters. A total of 36 Quebec-based companies were acquired
in the quarter: there were 18 acquirers from outside of Quebec
in total, of which nine were from other Canadian provinces.
(Source: Thomson ONE)
Transactions involving Quebec-based companies over the last eight quarters1
$ 12,000
100
$ 10,000
84
80
79
78
70
$ 8,000
66
58
60
40
20
0
73
50
20
71
7
11
Q4 2011
71
8
Q1 2012 Q2 2012
55
59
$ 6,000
$ 4,000
51
57
3
4
2
Q1 2013
Q2 2013
Q3 2013
58
8
Q3 2012 Q4 2012
# of transactions
by a financial sponsor
55
# of transactions
by a strategic buyer
US$, millions
# of transactions
120
$ 2,000
$0
Reported values
(US$, millions)
Transactions involving Quebec-based companies over the last eight quarters
by deal size (in US$, millions)
100
84
# of transactions
70
80
60
1
4
10
40
25
79
1
4
8
6
6
6
14
17
59
48
20
0
78
3
4
3
15
47
30
Q4 2011 Q1 2012 Q2 2012 Q3 2012
Undisclosed value
$0-$20 million
1 3
2
4
59
1
3
2
4
5
15
15
13
11
37
35
38
37
Q4 2012
Q1 2013
Q2 2013
Q3 2013
$100-$500 million
> $500 million
Number of Quebec transactions
over the last eight quarters
32
11
55
2
2
4
75
1
2
4
58
1
8
5
$20-$100 million
Number of Quebec transactions
over the last quarter
10
66
Number of Quebec transactions
over the last quarter
28 16
17 23
23
46
53
Number of Quebec transactions
over the last eight quarters
7
65
18
12
159
107
28
8
2 2
5
4
Construction and Engineering
Energy and Utilities
Food and Beverage
Industrials
Materials
Metals and Mining
Retail and Distribution
84
29 21
74
Consumer Goods
Financials
Healthcare
IT Products and Services
Media and Telecommunications
Real Estate
Transport, Comm. and Prof. Services
22
Quebec with Quebec
Quebec with US
Quebec with rest of Canada
Quebec with rest of world
1 Closed transactions only. Due to the existence of private transactions, not all deals have reported values.
6 | Quebec Transaction Snapshot
218
Quebec with Quebec
Quebec with US
Quebec with rest of Canada
Quebec with rest of world
Ernst & Young Orenda’s Quebec
public company review1
(Source: S&P Capital IQ)
Stock price evolution over the last eight quarters2
TEV/EBITDA evolution over the last eight quarters2
140
11x
130
10X
120
9X
110
8X
100
7X
90
6X
5X
80
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
S&P TSX
Quebec mid caps
Dec-12
Mar-13
Jun-13
Sep-11
Sep-13
Dec-11
Mar-12
Jun-12
Quebec large caps
Quebec small caps
Quebec large caps
Quebec small caps
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Quebec mid caps
Quebec TEV/EBITDA trading multiples by industry
30 June 2013
11.5x
11.1x
10.7x
10.6x
11.5x
11.1x
Transportation, commercial
and professional services
Other
5.6x
9.5x
Metals and mining
Retail and distribution
7.0x
6.7x
Media and telecom.
5.6x
6.2x
Materials
12.1x
11.5x
IT products and services
9.5x
9.6x
Industrials
19.5x
19.8x
Healthcare
15.0x
14.1x
Energy and utilities
12.0x
12.1x
Consumer goods
Construction and engineering
12.2x
13.1x
30 September 2013
1 Ernst & Young Orenda’s Quebec public company indices and multiples are capitalization-weighted. Indices and trading multiples are updated
periodically to reflect new entrants/exits.
2 For the purposes of this analysis, small caps include companies with a market capitalization below $250 million, mid-caps include companies
between $250 million and $2.5 billion, and large caps include companies with a market capitalization above $2.5 billion.
Third quarter 2013 | 7
EY transaction snapshot
Ernst & Young Orenda Corporate
Finance Inc. and Ernst & Young
Corporate Finance (Canada)
Inc. (collectively EYO) are
pleased to announce the sale
of a controlling interest in
Demilec Inc. and its affiliated
companies Premilec Inc., Cornell
Chemicals Ltd., Polyurethane Foam
Systems Inc., Demilec (USA)
LLC, and Premilec (USA) LLC
(collectively, the Demilec Group).
EYO acted as financial advisor to
the Demilec Group in connection
with the transaction.
has been acquired by
Ernst & Young Orenda Corporate Finance Inc. acted as a financial
advisor to Demilec Inc.
The deal
The founding shareholders sold a controlling stake in the
Demilec Group to an affiliate of Sun Capital Partners, Inc. The
transaction closed on 30 September 2013. Financial terms
were not disclosed.
About the Demilec Group
Headquartered in Boisbriand, Québec, the Demilec Group is
one of the world’s largest manufacturers and distributors of
premier rigid and semi-rigid spray foam insulation. Through
its Canadian and US operations, the Demilec Group provides
environmentally friendly, high-performance polyurethane
insulation systems to residential and commercial developers
across five continents.
8 | Quebec Transaction Snapshot
About us
EYO is one of Canada’s largest
corporate finance firms focused on midmarket transactions. With close to 80
professionals in 10 cities across Canada,
we offer significant industry and regional
depth. As part of EY’s Transaction
Advisory Services practice, EYO delivers
a fully integrated approach to transaction
services, including:
Since its inception in 1983, the Demilec Group has been at the forefront
of developing innovative solutions and premium polyurethane spray foam
systems for the insulation industry. Products such as SEALECTION 500 and
HEATLOK SOYA use recycled materials and renewable resources to provide
superior, cost-efficient results that achieve higher insulation performance
ratings for both residential and commercial buildings and create clean, quiet
and healthy environments for the people that live and work in them.
About Sun Capital
Sun Capital Partners, Inc. is a pioneer in private equity investing, uniquely
combining the financial skills and resources of a traditional private equity
firm with the insight and expertise of a world-class operating team. The firm
focuses on market-leading companies that can benefit from its in-house
professionals, resources and expertise in their efforts to materially improve
operating performance.
Sun Capital affiliates have invested in more than 325 companies worldwide
with combined sales in excess of $45 billion since its inception in 1995. Sun
Capital has offices in Boca Raton, Los Angeles and New York, and affiliates
in London, Frankfurt, Paris, Luxembourg, Shanghai and Shenzhen. For more
information, visit www.SunCapPart.com.
The win–win
By partnering with an affiliate of Sun Capital, the Demilec Group’s
shareholders set the stage for the company’s next phase of growth. In
addition, the transaction allowed them to monetize their efforts to date while
teaming with a business partner that has operational and financial expertise,
as well as the international network, required to expedite the company’s
future development.
“EYO clearly understood our transaction objectives and helped us find a
partner that would ensure the company’s future and growth,” said Jacques
Larivière, President, CEO and founder. EYO’s industry capabilities in both
the Chemical sector and the Home and Building Products sector, as well as
their deep relationships within the private equity community were critical in
making this transaction a success.
Key factors that contributed to the successful completion of this transaction
were our understanding of key shareholder concerns, our vast experience in
working with entrepreneurial businesses of all sizes, managing communication
and anticipating potential deal issues as well as our approach to deal
structuring and ability to provide creative solutions to all stakeholders.
Mergers and acquisitions advisory
• Divestitures
• Mergers and acquisitions
• Management and leveraged buyouts
• Recapitalizations
Structured finance
• Structure and arrangement of debt
and equity
• Project finance and infrastructure
advisory services
Financial advisory services
Transaction real estate
Learn more
François Tellier*
514 874 4351
[email protected]
Todd Caluori*
514 879 2793
[email protected]
Ernst & Young Corporate Finance (Canada) Inc. is a
US registered broker-dealer. Any inquiries regarding
transactional services by US persons should be directed
to the Ernst & Young Corporate Finance (Canada) Inc.
contacts noted with an *.
Third quarter 2013 | 9
Executing successful IPOs and exits
Company leaders are constantly seeking the best ways to
raise and allocate capital to grow their companies, pursue new
investment opportunities, diversify risk and, sometimes, exit
the business. CEOs and CFOs seeking to take their companies
to the next level need to be aware of all their options and be
prepared to make the right decisions to maximize the value of
their organization, whether it’s through an IPO or private sale.
Evaluating your strategy: consider goals and
options early
Having a clearly defined set of objectives is critical to choosing
among the many strategic alternatives, including an initial
public offering (IPO), recap, private sale, employee stock
ownership plan, management buyout and other options.
Craft a compelling story
Company executives need to build a strong value and
growth story to achieve the best IPO or exit outcome.
Being able to articulate growth opportunities in the near
term, and also going forward, is key. Investors are willing
to pay and help maximize the value of your company if
you can deliver that growth story in a concise manner. The
presentation has to be succinct. How is it that by them
buying you, they become a more valuable company? You
have something they don’t have, whether it’s access to
markets, access to technology, a sales force, something — it
is critical to create the mindset that they have to have you
and they are willing to pay for it.
The following framework should serve as a starting point in
deciding which route to choose:
Corporate
Financial
Non-financial
• Fund growth plans
• Protect confidentiality
• Maintain benefit plans
• Preserve culture
• Create a liquid currency
• Solidify #1 or #2 brand
• Leverage conservatively
• Enhance reputation
• Monetize intangibles
• Expand global footprint
• Balance customer/product mix
Personal
10 | Quebec Transaction Snapshot
• Increase tax efficiency
• Protect legacy in community
• Speed, certainty, risk, value
• Transition role to successor
• Cash, no stock or earnouts
• Find long-term partner
• Reps, warranties, indemnity
• Upgrade board composition
• Health care coverage
• Governance and voting control
• Separate non-core assets
• Go sailing, fishing, golfing…
The IPO journey
Support your story
Prepare early
Sellers need to focus on performance and back financial
projections with strong data and a strong management team.
An IPO can help a company accelerate growth and become
a market leader. An IPO is a journey, not a one-time event or
an end game. Companies need to start preparing to go public
a full 12-24 months in advance. This includes implementing
corporate governance procedures, recruiting qualified nonexecutive board members, improving internal controls,
forming an audit committee and acting like a public company.
Develop a proactive investor relations strategy
A strong communication strategy is necessary to attract
potential investors and sustain the market’s interest in your
company. Businesses must proactively communicate with the
media, employees, and current and potential shareholders
that they can achieve their financial targets during IPO
preparation and post-IPO. Being public adds another
dimension in terms of working with investors, in terms of
public relations, in terms of regulatory authority relations. It is
also advisable to know the analysts that will be covering your
company, seek information about what they think of the peer
group, let them understand your business. You can solicit as
much information out of them as they are seeking from you.
Private sales
Minimize disruptions
Sellers should prepare rigorously in order to expedite the
sale process and minimize business disruptions. Unprepared
sellers are often quickly seen as having weak management or
a flawed business strategy.
The longer things take to get done, the more likely
something unforeseen is going to pop up, whether it’s an
externality like tightening of interest rates, stock markets
tank, or something internal to your business such as a tech
failure or a customer cancels a major contract. If you are
not hitting the numbers month in and month out, you lose
credibility. Then buyers just discount your projections and
start coming up with their own numbers.
One of the most closely considered issues is whether they
believe this management team is going to achieve what they
say they are going to achieve, and whether they want to be
their partner in doing that.
In addition, buyers seek to reach a very deep understanding
of the underlying trends of the business. Be prepared to
answer questions such as why pricing is coming down here
but going up over there, why the units are slowing down here
and speeding up over there and why hasn’t this country been
successful but that one has.
Diversification can be a benefit in that it takes the peaks
and valleys out and makes you much more attractive. Your
home run years might be terrific, but you are going to be less
attractive if you have peaks and valleys than if you have stable
cash flows.
Understand the playing field before you negotiate
As companies prepare for sale, they need to approach the
full set of potential buyers and create a sense of competitive
tension.
A few years before you are thinking about exiting, you should
discuss with advisors how your business will be valued and
what factors could affect the purchase price.
Conclusion
Companies are generating significant value through IPOs and
private sales. Cohesive strategies and rigorous preparation
are the keys to a successful deal.
If you have the right company, right strategy and right
business model, this is a great time. If you don’t, even in a
strong market, you are not going to have a great transaction.
Third quarter 2013 | 11
For more information
Montreal
Francois Tellier, CPA, CA, CBV
Quebec Managing Partner
Transaction Advisory Services
514 874 4351
[email protected]
Ken Brooks
Partner
Transaction Advisory Services
514 874 4412
[email protected]
Todd Caluori, CPA, CA, CBV
Associate Partner
M&A Lead Advisory Services
514 879 2793
[email protected]
Charles Rousseau, CPA, CGA
Vice President
M&A Lead Advisory Services
514 874 4362
[email protected]
Bernard Cormier, CFA
Vice President
M&A Lead Advisory Services
514 874 4305
[email protected]
EY | Assurance | Tax | Transactions | Advisory
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© 2013 Ernst & Young Orenda Corporate Finance Inc.
© 2013 Ernst & Young Corporate Finance (Canada) Inc.
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