After a strong finish to 2020, what’s in store for B.C.’s M&A market?

A mergers and acquisitions lawyer weighs in on how deals played out last year—and what to expect in 2021. Plus: the top 10 local M&A transactions of 2020

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.

What kind of year did Canada have when it comes to M&A and private equity transactions?

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.

For deal volume, how did 2020 compare to 2019?

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.

COVID was obviously the big story of 2020. What else impacted the market when you think about M&A and PE deals?

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.

If you look at B.C. in 2020, what were some of the deal highlights?

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.

Broadly speaking, what’s the mood among investors at the moment?

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.

For B.C. companies, how much cross-border activity can we expect in 2021 as far as deals go?

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.

If you think about Canada as a whole, which sectors are more likely to see mergers than others, and why?

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.

How might B.C. stand to benefit from those trends?

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.

Looking ahead to 2021, what advice do you have for businesses that are looking for takeover targets or aiming to be acquired?

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.

The top 10 local M&A deals of 2020

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 Gold
Announced: June 9
Deal value: US$142 million

2. Target/Seller: BBTV Holdings (51% stake)/RTL Group
Bidder: BBTV Holdings
Announced: October 22
Deal value: US$121 million

3. Target: East Side Games
Bidder: Leaf Mobile
Announced: November 11
Deal value: US$115 milion

4. Target/Seller: Eskay Creek Project/Barrick Gold Corp.
Bidder: Skeena Resources
Announced: August 4
Deal value: US$69 million

5. Target/Seller: Pure Sunfarms Corp. (41.3% stake)/Emerald Health Therapeutics
Bidder: Village Farms International
Announced: September 8
Deal value: US$61 million

6. Target: Tantalus Systems Corp.
Bidder: RiseTech Capital Corp.
Announced: November 19
Deal value: US$58 million

7. Target: Altum Pharmaceuticals
Bidder: BetterLife Pharma
Announced: July 30
Deal value: US$36 million

8. Target: AltMed Capital Corp.
Bidder: Champignon Brands
Announced: April 9
Deal 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 Nations
Bidder: Western Forest Products
Announced: March 16
Deal value: US$26 million

10. Target/Seller: Indigenous Bloom Hemp Corp./Michael Matvieshen (private investor)
Bidder: Veritas Pharma
Announced: September 9
Deal 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