36 LEXPERT MAGAZINE
|
SEPTEMBER
/
OCTOBER 2018
"e M&A market is very busy and robust.
e last time I looked at it we tend to do
more transactions than any other firm [but
many] are mid-market, which my practice
is focused on."
e majority (48%) of the transactions
analyzed by Blakes had values totaling less
than $100 million. e next largest group,
those with values of $100 million to $500
million, accounted for 31% of the deals.
e number of large transactions was
more than expected.
"Canada is a middle-market country,
so if we start talking about Private Eq-
uity deals over $500 million, there just
aren't that many of them," says John Mer-
cury, who leads the Private Equity practice
group out of the Calgary office of Bennett
Jones LLP. "Only a couple a year [are more
than] a few billion."
Blakes began work on the study in early
2016, involving "dozens of lawyers across
the firm," says Sarno. e resulting 50-page
document outlines data exclusively sourced
from transactions in which Blakes was in-
volved as lead or Canadian counsel.
Sarno says Blakes initiated its study "be-
cause we noticed there was an absence of
market data in this area." He agrees that
Blakes' numbers likely reflect his firm's
experiences and are not applicable across
the board. He cites what he says is the only
comparable study — the American Bar As-
sociation's Canadian Private Target M&A
Deal Points Study (it had deals under $100
million at 63%) — that was released in late
December 2016 and was based on transac-
tions signed in 2014 and 2015.
At Stikeman Elliott, Horn has seen US
interest in doing Private Equity deals in
Canada become "bigger and bigger over
the years." One reason, she says, is that,
"Private Equity tends to like doing deals in
what I would call their own backyard," and
Canada, to many of them, falls into that
category. She also has heard some US buy-
ers mention that "the market in Canada
tends to be less competitive than the US
marketplace. e ideal transaction for any
PE player is to find a deal that isn't a com-
petitive auction for probably obvious rea-
sons: better price and negotiations. When
you have a competitive process, you're prob-
ably going to pay more and perhaps not get
all the terms you'd like."
Mercury agrees that Canada's proxim-
ity to the US is a big factor in driving PE
money northward. "Going from New York
to Toronto or Montréal is not a very diffi-
cult exercise," he says, adding that he spent
a decade in New York, mostly as an invest-
ment banker.
"We're basically another state to [the
Americans]. Nor can you underestimate
the human relationships here. ere are
lots of Canadians working in New York
or LA working on these funds. at has
only grown in the last 10 or 15 years, where
you have even more Canadians migrate to
the US and when coming back here, those
bonds are even tighter."
He adds that the US Funds have "dollars
under management that dwarf anything
else going on around the world." With all
that "dry powder," the funds are under "in-
tense pressure to deploy capital in a manner
that results in attractive valuations."
Blakes found that the largest number
of its transactions, by a wide margin, in-
volved founders selling to Private Equity
(47%), followed by strategic to Private Eq-
uity (26%) and Private Equity to strategic
(16%). e first statistic did not surprise
Tevlin. "Founders to Private Equity? No
doubt. at's certainly what I'm seeing
both on the buy and sell side."
Many of the founders are baby boom-
ers, he says. "I think the demographics are
right. A lot of founders are now in their
late 60s or early 70s, a time when [many]
are prepared to enter transactions. ey're
probably saying 'Well I've got five or 10
years le so it probably makes sense to cash
out my chips now.' "
Horn has a similar sense as to why so
many founders are selling. "I'm just pos-
tulating here," she notes, "but we hear a lot
about the fact that there are these entrepre-
neurs selling out of, I can't remember how
many trillions of dollars of value, that we
expect to change hands in the next, say, 10
or 15 years, as the baby boomers, many of
whom are business owners, decide it's time
to do their succession planning."
Although Pascale Dionne, a partner
in the Montréal office of Borden Ladner
Gervais LLP, sees deals involving founders
to Private Equity, she says it's not as preva-
lent in Québec. "ere are a lot of inbound
transactions here. ere are many special-
ized funds in Québec, so a lot of pension
funds or consortiums between certain fi-
nancial institutions [occur]."
e majority of deals conducted by
Blakes involved industrial goods and ser-
vices (25%), followed by technology and
media (17%) and life sciences (12%). ose
rankings did not catch Sarno off guard.
"It's a large, broad categorization," he says,
"but it goes to what has been a focus of Pri-
vate Equity investors, at least in Ontario,
for a long time. Technology and life sci-
ences — those two sectors have garnered a
lot of attention in the recent past."
Tevlin agrees that, "industrials are big.
A lot of my clients are bricks-and-mortar
type companies. And definitely technol-
ogy. But life sciences? at's a hit or miss
kind of thing. Some make it big and others
fizzle out."
In Québec, says Dionne, "the market is
ramping up, especially in the technology
"A lot of founders are now in their late
60s or early 70s ... They're probably
saying, 'Well, I've got five or 10 years
left so it probably makes sense
to cash out my chips now.' "
MATT TEVLIN
TORKIN MANES LLP
| PRIVATE EQUITY |
