M&A Market Update

February 19, 2014

M&A Market Update

Howard E. Johnson MBA, FCPA, FCA, FCMA, CBV, CPA, CFA, ASA, CF, C.DIR

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Speaker

Howard E. JohnsonMBA, FCPA, FCA, FCMA, CBV, CPA, CFA, ASA, C.DirManaging Director, Veracap M&A International Inc.(416) 597-4500; [email protected]

Howard is a Managing Director of Veracap M&A International and its sister firm, Campbell Valuation Partners Limited. He is also the incoming President for M&A International.

Howard has been involved in business valuation, acquisition, divestiture, and shareholder value advisory assignments for corporations throughout North America. He is the author of several books on the subjects of business valuation and corporate finance, and has acted as an expert witness on valuation matters before the courts.

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About Veracap M&A International

Veracap M&A International Inc. is a leading investment bank advising on acquisitions, divestitures, financing and shareholder value initiatives.

As a member of M&A International, Veracap forms part of the world’s leading organization of M&A advisors, with over 600 professionals in 41 countries.

Veracap is a sister company of Campbell Valuation Partners, Canada’s longest established independent business valuation firm.

www.veracap.com

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About M&A International

Veracap and our M&A International Inc. partners closed 1,300 transactions totaling more than US$75 billion in transaction value in the past five years

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This material is for educational purposes only. It deals with technical matters which have broad application and may not be applicable to a particular set of circumstances and facts. As well, the course material and references contained therein reflect laws and practices which are subject to change. For these reasons, the course material should not be relied upon as a substitute for specialized advice in connection with any particular matter.

Although the course material has been carefully prepared, the author does not accept any legal responsibility for its contents or for any consequences arising from its use.

© Howard E. Johnson, 2014

Disclaimer

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Source: S&P Capital IQ

Global M&A Activity

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Global M&A Transactions

Deal Value ($ USDMillions)

Total No. of Deals

No. of Deals with ReportedValue

Deal Value ($ USD Millions) No. of Deals

7


Global M&A Activity

-

5,000

10,000

15,000

20,000

25,000

0

5

10

15

20

25

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Global M&A Transactions

> $500M

$100M - 500M

$50M-100M

< $50M

Median Deal Value($ USD Millions)

Median Deal Value ($ USD Millions) No. of Deals

8


Global M&A Activity

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North American M&A Activity

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

North American M&A Transactions

Deal Value ($ USDMillions)

Total No. of Deals

No. of Deals withReported Value

Deal Value ($ USD Millions) No. of Deals

10



-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

0

5

10

15

20

25

30

35

40

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

North American M&A Transactions by Deal Value

> $500M

$100M - 500M

$50M-100M

< $50M

Median Deal Value($ USD Millions)

Median Deal Value ($ USD Millions) No. of Deals

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Consumer Discretionary

Consumer StaplesEnergy

Financials

Healthcare

IndustrialsInformation Technology

Materials

Telecommunication ServicesUtilities

0

1,000

2,000

3,000

4,000

5,000

6,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Number of North American M&A Transactions by IndustryNo. of Deals

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North American EV/EBITDA Multiples by Industry2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Consumer Discretionary 8.9 10.0 10.1 11.2 11.4 7.1 10.9 11.1 9.6 11.5Consumer Staples 10.2 13.4 8.9 10.8 9.5 9.6 8.4 9.1 9.7 10.7Energy 7.8 8.2 8.1 8.1 7.7 6.2 9.5 11.0 7.2 6.8Financials 10.6 15.9 15.5 15.3 10.9 8.8 12.2 12.7 11.5 13.2Healthcare 12.1 12.6 14.7 15.6 15.6 7.7 12.0 11.4 11.2 10.5Industrials 10.1 9.5 9.5 9.3 9.9 7.1 8.1 9.2 8.1 8.2Information Technology 12.5 14.4 13.2 14.3 15.7 11.7 13.8 12.7 12.1 16.0Materials 8.7 6.7 7.7 8.9 9.8 7.0 9.0 10.5 8.2 7.6Telecommunication Services 6.8 9.1 10.5 8.7 10.3 7.3 7.5 5.5 10.9 8.0Utilities 10.0 8.0 9.4 9.2 8.4 8.0 15.4 9.0 9.8 10.6All Industries 10.0 10.8 10.3 11.5 11.0 7.7 10.5 10.9 9.7 9.9

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0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Number of Private Companies Sold

United States

Canada

No. of Deals

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0

100

200

300

400

500

600

700

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Number of Public Companies Sold

United States

Canada

No. of Deals

15



0

10

20

30

40

50

60

70

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Median Premium Over Public Trading Price (1-Month Prior) (%)

United States

Canada

Median Premium (%)

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Canadian M&A Activity

-

500

1,000

1,500

2,000

2,500

0

50,000

100,000

150,000

200,000

250,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Canadian M&A Transactions

Deal Value ($ CADMillions)

Total No. of Deals

No. of Deals withReported Value

Deal Value ($ CAD Millions) No. of Deals

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Top 10 Takeovers of Canadian Companies

Target Buyer Country of Buyer YearTotal Transaction Value

($ CAD Billions)Alcan, Inc. Rio Tinto Group United Kingdom 2007 45.8

Petro-Canada Suncor Energy Inc. (TSX:SU) Canada 2009 24.1

Falconbridge Limited Xstrata plc (LSE:XTA) Switzerland 2006 23.0

INCO Limited Vale S.A. (BOVESPA:VALE5) Brazil 2007 21.4

Nexen Energy CNOOC Ltd. Hong Kong 2013 19.5

Placer Dome Inc. Barrick Gold Corporation (TSX:ABX) Canada 2006 13.0

Fording Canadian Coal Trust, Inc. Teck Resources Limited (TSX:TCK.B) Canada 2008 11.6

Labatt Brewing Company Limited Companhia de Bebidas Das Americas (AMBEV) (BOVESPA:AMBV4)

Brazil 2004 10.8

IPSCO, Inc. SSAB AB (OM:SSAB A) Sweden 2007 9.4

MBNA Canada Bank, Credit Card Portfolio, Certain Other Assets and Liabilities

The Toronto-Dominion Bank (TSX:TD) Canada 2011 8.6

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-

200

400

600

800

1,000

1,200

0

5

10

15

20

25

30

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Canadian M&A Transactions by Deal Value

> $500M

$100M - 500M

$50M-100M

< $50M

Median Deal Value($ CAD Millions)

Median Deal Value ($ CAD Millions) No. of Deals

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Consumer Discretionary

Consumer Staples

Energy

Financials

Healthcare

Industrials

Information Technology

Materials

Telecommunication ServicesUtilities

0

100

200

300

400

500

600

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Number of Canadian M&A Transactions by IndustryNo. of Deals

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0

500

1,000

1,500

2,000

2,500

3,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Number of Canadian Companies Sold

Canadian Buyer ofCanadian Firm

Foreign Buyer ofCanadian Firm

No. of Deals

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Top 10 Deals Involving Canadian Buyers and Sellers in 2013

Target Buyer Country of Seller Country of Buyer Closed DateTotal Transaction Value

($ CAD Billions)Nexen Inc. CNOOC Ltd. Canada Hong Kong 25/02/2013 19.5

Portfolio of 425 Properties of Loblaw Companies Limited

Choice Properties Limited Partnership Canada Canada 05/07/2013 7.0

Inmet Mining Corporation First Quantum Minerals Ltd. Canada Canada 01/04/2013 6.5

Neiman Marcus Group LTD Inc. Ares Management LLC; Canada Pension Plan Investment Board

United States United States; Canada 25/10/2013 6.4

Canada Safeway Limited Sobeys Inc. Canada Canada 03/11/2013 5.8

Primaris Retail Real Estate Investment Trust

H&R REIT; H&R Finance Trust Canada Canada 04/04/2013 4.5

Ally Credit Canada Limited and ResMor Trust Company, Inc.

Royal Bank of Canada Canada Canada 01/02/2013 3.7

Astral Media Inc. Bell Media Inc. Canada Canada 05/07/2013 3.4

Celtic Exploration Ltd. Exxonmobil Canada Energy Canada Canada 26/02/2013 3.2

Saks Incorporated Hudson's Bay Company United States Canada 04/11/2013 2.8

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Cross-Border M&A in Canada

0

100

200

300

400

500

600

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Foreign Buyers of Canadian Companies by Region

United States

Europe

Asia / Pacific

No. of Deals

Location of Buyer

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Consumer Discretionary424 12%

Consumer Staples118 3%

Energy267 8%

Financials255 7%

Healthcare225 7%

Industrials665 19%

Information Technology854 25%

Materials568 16%

Telecommunication Services31 1%

Utilities59 2%

Foreign Buyers of Canadian Companies by Industry # of Deals (2004-2013)



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Consumer Discretionary$27,078

6%

Consumer Staples$29,962

7%

Energy$87,355

21%

Financials$21,336

5%

Healthcare$13,832

3%

Industrials$31,756

8%

Information Technology$31,536

7%

Materials$171,501

40%

Telecommunication Services$811 0%

Utilities$12,523

3%

Foreign Buyers of Canadian Companies by Industry $ Value (2004-2013)



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0.7

0.8

0.9

1

1.1

1.2

1.3

1.4

-700

-500

-300

-100

100

300

500

700

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

# of Net M&A Transactions

Candian Buyer ofForeign Firm


Net M&A

CAD/USD ExchangeRate

No. of Deals CAD/USD Exchange Rate

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0.7

0.8

0.9

1

1.1

1.2

1.3

1.4

-$200,000

-$150,000

-$100,000

-$50,000

$0

$50,000

$100,000

$150,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

$ Value of Net M&A Transactions

Candian Buyer ofForeign Firm


Net M&A ($ CADMillions)

CAD/USDExchange Rate

Deal Value ($ CAD Millions) CAD/USD Exchange Rate

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0

100

200

300

400

500

600

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Canadian Buyers of Foreign Companies by Region

United States

Europe

Asia / Pacific

No. of Deals

Location of Seller

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Consumer Discretionary478 10%

Consumer Staples140 3%

Energy432 9%

Financials607 13%

Healthcare204 4%

Industrials561 12%

Information Technology687 15%

Materials1,389 30%

Telecommunication Services34 1%

Utilities122 3%

Canadian Buyers of Foreign Companies by Industry # of Deals (2004-2013)



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Consumer Discretionary$87,585

16%

Consumer Staples$13,041

2%

Energy$99,679

18%

Financials$119,857

21%

Healthcare$39,461

7%

Industrials$64,386

11%

Information Technology$23,515

4%

Materials$69,828

12%

Telecommunication Services$1,586

0%

Utilities$52,767

9%

Canadian Buyers of Foreign Companies by Industry $ Value (2004-2013)



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Empirical Observations

•Valuation multiples have returned to historic highs in some sectors (e.g. technology)

•Deals are taking longer to close

•Lots of cash on corporate balance sheets

•Private equity overhang of approx. US $430B

•Small cap public company issues & opportunities

•2014 likely to be a relatively good year (but how long will it last?)

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Resources

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