BC Business
Despite the pandemic, the second half of 2020 turned out to be a busy time for mergers and acquisitions involving B.C. businesses. For some insight into how things unfolded last year and what 2021 might hold, we talked to Enoch Chang, a Vancouver-based partner with Fasken who specializes in M&A and corporate and commercial law...
Tara Bosch founded SmartSweets in 2016. Last fall, U.S. private equity player TPG Growth reportedly paid US$360 million for a majority stake in the Vancouver-based candy maker
Despite the pandemic, the second half of 2020 turned out to be a busy time for mergers and acquisitions involving B.C. businesses. For some insight into how things unfolded last year and what 2021 might hold, we talked to Enoch Chang, a Vancouver-based partner with Fasken who specializes in M&A and corporate and commercial law. Check out the BCBusiness Podcast for the complete interview.
This year is unusual, and we all know why. For Canada, M&A activity was quite slow the first half of the year because of the uncertainty and the impact of COVID-19. What we have found is that in the second half M&A activity actually picked up. So if we compare year-over-year the second half of the year, we have seen a slight increase in M&A activities in Canada overall. Particularly in British Columbia, the increase is more pronounced.
In Canada, I think there were a little over 1,600 deals for the second half of the year, compared to around 1,570 deals for the same period [in 2019]. So overall, there was an increase of about 63 deals across Canada. In British Columbia, there were 603 reported M&A transactions involving B.C. companies, about a 24-percent increase year-over-year compared to 487 in 2019. So we’re seeing a much higher increase in British Columbia compared to the rest of Canada.
I think COVID has both a direct and an indirect impact, and a lot of the factors that we consider other than COVID are resulting from the indirect impact of COVID. For example, travel restrictions impacted M&A deal activities because for a lot of cross-border transactions, people wanted to see the target company, they wanted to tour the plant, and they were not able to do so. So we found that was a difficulty in getting M&A transactions completed.
There are ways that parties have overcome that challenge. We have seen the increased use of hybrid tours, for example, where you have somebody on the ground using videoconference technology to do a tour of a plant for the rest of the team, who are located elsewhere. We also see the impact of various government responses to COVID, both in terms of restrictions as well as COVID-related relief for businesses. Those have had indirect impact on M&A activities.
B.C., as I mentioned earlier, has seen a significant increase, and I think a lot of that has to be where British Columbia is positioned in terms of the type of businesses that we have. In British Columbia, a lot of businesses are what we call midmarket; those are companies usually with enterprise value of less than $100 million. We also have a very well-represented technology sector, and health, construction and agribusiness. And those are the sectors where we see most of the M&A activities.
We’re also seeing different types of buyers and sellers in this market. There are a couple of examples I can give. One is an acquisition by a B.C. company of a company based in Alberta; the B.C. company is Lendesk, and the Alberta company is Finmo [Financial Technologies]. So that’s a fintech company, it’s an interprovincial acquisition, and it’s a consolidation in that industry. These are two complementary businesses in the brokerage/professional services industry, and they use technology to make the mortgage process more efficient.
We’ve also seen activities from private equity firms, especially those based in the U.S. having an interest in B.C. companies. An example would be the [reported US$360-million] investment by TPG Growth in SmartSweets, a healthy snack company based out of British Columbia. And we’ve seen acquisitions by publicly traded companies of private businesses, such as the acquisition of video game companies, which have been doing quite well in 2020.
It’s becoming more and more optimistic. There’s very good news coming out in terms of vaccine development and approval. It’s a welcome relief, and we think that the good news on the vaccine front and the possibility of containing the pandemic in 2021 certainly makes investors more optimistic about the investment climate.
A couple of other factors will continue to drive M&A activities. For example, we think that interest rates will continue to be relatively low. And we think that with the vaccine, there will loosening of the travel restrictions currently in place, so we expect deal activity to continue because of how we are able to respond to the pandemic.
B.C. companies have always been attractive to cross-border investors, in particular investors in the U.S., and we expect that trend to continue into 2021. Some of the factors are, I think, we in British Columbia have a very entrepreneurial and highly skilled labour force. We have a very well developed startup and technology ecosystem, and we find that that helps in other sectors. So we’re seeing more tech-enabled businesses being an attractive target. And we have world-class universities that continue to sustain the highly skilled labour force. And overall, British Columbia is a great place to live.
There are two separate buckets. One is consolidation in sectors that are, unfortunately, significantly impacted by the pandemic. So we expect to see consolidation in hospitality [companies] in order for them to recover from the pandemic. We also see what would be considered COVID-resistant sectors: health care, consumer goods and technology-enabled businesses—businesses that can help companies to better leverage a team working remotely and across different locations. We’re going to see increased interest and activity in sectors that digitalize paper in all sectors, because more and more people will continue to work from home.
A lot of these sectors, ultimately, if you think about hospitality, technology, health care, they’re all very people-driven. So you need to have a highly skilled labour force and an entrepreneurial spirit to be successful in those sectors. And as I mentioned before, that’s where B.C. really shines. We have a really good talent pool, and we continue to attract talent to this province. And again, our startup and technology ecosystem is well developed, so that also helps the province to stand out among others in the sectors where we see potential growth.
With the pandemic and with a significant shift in how businesses need to operate and how people are working, what we find is that the company can focus more on talent retention. A lot of the M&A activities are driven now by talent acquisition, especially the technology sector. So companies make an acquisition because they want to hire the best engineers, the best programmers or the best sales force. So I think more due diligence and attention to the talent pool will be a factor.
Shahrzad Rafati is chair and CEO of Vancouver-headquartered BBTV Holdings. In October, the same month it went public on the Toronto Stock Exchange, BBTV bought German entertainment company RTL Group’s 51-percent interest in media tech firm BroadbandTV Corp., a deal valued at US$121 million
Courtesy of Mergermarket, here are the 10 biggest announced M&A transactions of 2020 where B.C. was the dominant geography for both target and bidder.
1. Target/Seller: New Gold (Blackwater Project)/New Gold Bidder: Artemis GoldAnnounced: June 9Deal value: US$142 million
2. Target/Seller: BBTV Holdings (51% stake)/RTL GroupBidder: BBTV HoldingsAnnounced: October 22Deal value: US$121 million
3. Target: East Side GamesBidder: Leaf MobileAnnounced: November 11Deal value: US$115 milion
4. Target/Seller: Eskay Creek Project/Barrick Gold Corp.Bidder: Skeena ResourcesAnnounced: August 4Deal value: US$69 million
5. Target/Seller: Pure Sunfarms Corp. (41.3% stake)/Emerald Health TherapeuticsBidder: Village Farms InternationalAnnounced: September 8Deal value: US$61 million
6. Target: Tantalus Systems Corp.Bidder: RiseTech Capital Corp.Announced: November 19Deal value: US$58 million
7. Target: Altum PharmaceuticalsBidder: BetterLife PharmaAnnounced: July 30Deal value: US$36 million
8. Target: AltMed Capital Corp.Bidder: Champignon BrandsAnnounced: April 9Deal value: US$32 million
9. Target/Seller: TFL 44 Limited Partnership (44% stake) and Alberni Pacific Division Sawmill Limited Partnership (7% stake)/Huu-ay-aht First NationsBidder: Western Forest ProductsAnnounced: March 16Deal value: US$26 million
10. Target/Seller: Indigenous Bloom Hemp Corp./Michael Matvieshen (private investor)Bidder: Veritas PharmaAnnounced: September 9Deal value: US$21 million
Data correct as of December 9, 2020. Based on announced deals, excluding lapsed and withdrawn bids. Includes all deals valued over US$5 million; where deal value not disclosed, deal has been entered based on turnover of target exceeding $US10 million. Excluded activities include property transactions and restructurings where the ultimate shareholders’ interests are unchanged.
Source: Mergermarket