Q-News

October 2010

Commentary for September 2010

Posted in Mike's Commentary

Bridgescale Partners continued to make its presence known in September with the announcement of its participation in a $7 million financing for Rypple. Since opening shop in Toronto in June 2009, Bridgescale has made three investments: Dayforce, Bluecat Networks, and now Rypple. Bridgescale also finally announced that Derek Smyth joined the firm as Managing Director. Derek was formerly a Partner at Edgestone Capital Partners, President and CEO of Bridgewater Systems Corporation and COO at Ironside Technologies. I am sure that he will be a valuable addition to Bridgescale’s Canadian operation.

We also came across another Wellington Financial transaction with $5 million in venture debt going to Markham-based Real Matters. This transaction is the eighth transaction for Wellington this year with six deals in the U.S., totaling $37.25 million, and two in Canada for a total of $15 million. By my estimation, that put them at the top of the list of “venture” firms putting out money this year.

I also want to congratulate Richard Black and the Walsingham Fund for completing their second successful exit this year with the sale of portfolio company Atrion to Englewood, Colorado-based IHS Inc. NYSE-traded IHS announced the acquisition of Atrion International along with Syntex Management Systems for a combined price of approximately $80 million. Walsingham’s first successful exit this year was ListenUp Canada, a transaction that took place in the spring.


M&A Update:

Two sources that we follow, PricewaterhouseCoopers and Zephr, reported a strong third quarter for Canadian M&A activity, but digging beneath the numbers indicates that the quarterly performance was skewed by a small number of large-dollar transactions. In reality, Canada’s adjusted performance is more in line with a global trend of slowing M&A activity.

PWC reported that Canada topped the global rankings for M&A activity but this is largely the result of the yet to be resolved US$39.6 billion bid by BHP Billiton for Potash Corporation of Saskatchewan. PWC’s press release stated that during the third quarter almost $95 billion in deals were announced representing a 168% increase over Q2, which compared very favorably to the 10% decline in overall global levels of M&A activity. Thirteen additional deals were announced during the quarter with values in excess of US$1 billion. With a quarterly total of 675 announced deals, the third quarter was off 12% from Q2, representing the lowest deal volume since 2008. Furthermore, the top 14 or 2% of deals totaled over US$52.6 billion, or 55% of the dollar value, leaving the remaining 661 transactions to account for 45% of the total value.

Zephr’s deal volume and value number differ from PWC’s, yet the message remains largely similar. Zephr reported that deal volume in Canada continued to weaken for the third successive quarter, with 799 reported transactions compared to 981 in the second quarter of 2010. During the quarter the value of reported and proposed transactions increased by a whopping 139% to US$69.2 billion versus $28.9 billion in the second quarter but, as is often the case, numbers can be misleading. Subtracting the US$38.6 billion BHP Billiton offer for Potash Corporation of Saskatchewan results in a significantly different 6% quarter-over-quarter increase to $30.6 billion. Furthermore, subtracting the top four announced deals (in aggregate totaling US$53 billion) results in 99.5% of the deals, or 795 of the deals, accounting for the remaining US$16.2 billion of deal value.

Largest 4 deals announced during Q3 2010


M&A Volume and Value Q3 2009 to Q3 2010


Source: “Zephr published b BvD”
* adjusted for top 4 transactions



On a final note, don’t forget to sign-up for the Canadian Innovation Exchange (CIX) taking place December 7th at the MaRS Discovery District in Toronto.

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