Every once in a while I am reminded that I actually have a full time job.
And then I am reminded that that job is in fact NOT being a blogger.
Nosirree. I am in fact an experienced M&A professional that spends most of my time working with clients helping them close the sale of their businesses or the financing and acquisition thereof. Clients who are mostly Western Canadian based, private and mid-market in size.
I say this for several reasons.
First, my kids STILL ask me what I do for a living, so by having the above prepared I can both answer them and force them to read my blog.
Second, it’s a reminder that – in addition to railing on about politics, tariffs, pipelines, the energy sector, peak oil, shitty gas prices, sports, global affairs, the insanity of separation, listicles, movies, books, holiday and whatever else gets my goat in a particular week – I can actually use this space for good and self-promotion.
That good of course is celebrating the successes of our clients when they close their deals and of course tooting our own horn in helping them get there – landing the plane as the expression goes.
The best way to do this of course is to highlight a few of the most prominent or memorable deals and talk a bit about any unique challenges or aspects to the deal that were noteworthy.
So, without further ado, below I will do a bit of a random walk through some recent transactions we were involved in and share what flavour and interesting side notes that I can.
But first – I would be remiss if I didn’t make my Super Bowl 60 pick, like I always do.
Neither Seattle or New England are “my team” so I don’t have the proverbial dog in the fight, so this will be a dispassionate prediction.
I fully expect Seattle to win this going away. They have been a top two team in the NFL all season and just beat the other top two team two weeks ago. Sam Darnold is the ultimate reclamation/comeback story – from washed up bum to favourite to win the Super Bowl MVP in two years. Well done. Jackson Smith-Njigba is the quietest third best receiver in the league you have never heard of. The defense is monstrous and the coaching is buttoned-up and smart. They don’t beat themselves, then they beat you up.
New England has been surviving on a bit of smoke and mirrors all season. Much has been made of “the easiest schedule since the 1999 St Louis Rams”, which is fine, but didn’t those Rams win the Super Bowl? So anything is possible, right? Drake Maye has had an MVP season in his second year and Mike Vrabel should win coach of the year for returning the team to the promised land.
That said, unless the football gods (or the refs) decide to hand the Pats the win because of Bill Belichek not making the Hall of Fame on the first ballot, this is going to be a really rough day for the Patriots. Their defense is good but not all-world and the offense has been stalled in the post-season. Sure they’ve been playing great defenses, but Seattle is the best they will have played. They need lady-luck to win. I don’t see it.
Also, no team has ever won a Super Bowl starting a QB with a four-letter last name. Look it up. Tough luck Maye.
Seattle 30 – New England 17.
Oh, and as it regards the halftime show, I don’t have a dog in that fight. Bad Bunny seems interesting enough and I wish him well, but to be honest I’m usually saucing up the wings at halftime. My wife will write a critique for Facebook that is usually bang on.
OK, back to my deal review blog.
First a little context.
The last few years have been quite a journey for many companies, what with challenges in the energy industry both at home and abroad, political turmoil, the emergence of trade wars as a key financial consideration – affecting trade exposed and cross-border deals, elevated capital costs (high interest rates), stubborn inflation and ongoing global conflicts weighing down on buyer confidence.
At the same time, massive investments in AI, computing power, data centres and the energy required to power all of this has led to a market frenzy in both technology companies and the nuts and bolts businesses that build all the shit we need.
As a firm focused primarily on companies that directly and indirectly participate in the energy services world as well as prototypical Western Canadian industrial businesses, our clients have both benefitted from and seen their deals impacted by events out of their control and these broad secular themes.
That said, the M&A market has been healthy and robust, at least from where we sit and we continue to remain busy beyond what our size would suggest.
And notwithstanding any of the noise all around us, a truism exists that should never be overlooked:
Good deals will always get done.
As a firm, we continue to grow, leveraging both human capital and technology to serve our clients to the best of our abilities. Our clients range in size from sub $5 million in EBITDA to in excess of $20 million and can be super-sophisticated with professional management to smaller mom and pop or entrepreneur led businesses that bootstrapped their way to becoming major players in their industry.
Every story is different and fascinating and we love them all. The M&A process is typically short and intense – emotions can be raw, feelings can be intense and there is much anxiety. Sometimes a process will develop a life of its own and span in excess of a year. You just never know what you are going to see when you start. That’s what makes it so fun. Our job ranges from sober second thought to therapist to punching bag – sometimes all in the same day. But we never waver in our purpose as M&A advisor – help our clients get the best deal for their business, even if that best deal means telling them to stand down or walk away.
CDN Controls
CDN Controls is one of our favourite clients of the last few years and a tremendously successful business and deal that we would be remiss in not celebrating.
Founded in 2011, the company grew rapidly to become Western Canada’s leader in E&I maintenance, renewables/solar, major projects, combustion & emissions reduction, and measurement.
Our relationship with the Company began around COVID when we were introduced to the dynamic management team who were strategizing at that time about how to find a partner who could help them execute their vision and take them to the next level.
After some pre-emptive discussions were held that didn’t yield the results desired by ourselves or our client, we collectively put the mandate on hold until the market settled down post COVID.
Waiting turned out to be the right call as when the company later asked us to run a more broadly marketed process to find them a partner, not only had the market for businesses like CDN become much more robust, but the company itself had doubled in size thanks to the vision and efforts of its management team and a couple of strategic acquisitions.
After canvassing the market in Canada, the United States and abroad, we received a compelling offer from a family office based in St Louis Missouri called the Hoffman Group. The Hoffman Group was looking for an industrial business that would complement some existing investments they had and wanted to back a management team that had an executable vision.
The transaction allowed CDN founders to draw down some of their hard-earned equity (the proverbial chips off the table) while still being able to roll forward a significant amount of equity capital to drive and participate in the next stage of the company’s journey. At the same time, the shareholder base was adjusted to bring in new participants and exit a number of shareholders who wanted to move on. Finally, the new majority owner has made available additional capital to fund the company’s growth.
Since closing the transaction, the Company has opened several new locations in Western Canada and formally expanded into the United States via acquisition.
This is one of the larger deals we have done in our corporate history and we are proud to have been part of this successful deal.
Whitetail Energy Services
They say lightning doesn’t strike twice, but in the case of Whitetail, it most certainly did.
In 2017, Stormont assisted the owner/manager of Whitetail in the sale of his business (more of a merger) to Okala Energy Services, a firm run by a group of former executives from another prior Stormont client.
The combined Whitetail and Okala business was primarily engaged in providing telecommunications services and solutions to remote worksites as well as related rentals and was a leader in its field in Western Canada.
After running the business for the next seven years, the shareholders and new partners decided that it was time to seek some liquidity to allow some of the longer tenured shareholders to exit and find new management to assist in the growth of the business.
The team engaged Stormont to run a process to solicit interest from both strategic and private equity buyers. While there was significant interest, a front-runner soon emerged in the form of Centurion Group, a Scotland based energy services and industrial company majority-owned by SCF Partners, a private equity fund based in Houston.
At the time, Centurion was looking to expand its rental division in Western Canada and the fit with Whitetail was hand in glove. The exiting shareholders were able to realize fair value for their shares in cash with minimal roll-over while the one owner/manager who wanted to stay with the Company was able to roll-over his shares into Centurion shares and grow his management portfolio inside the larger organization.
This was our fifth transaction with Centurion and predecessor firms so we were able to reassure our client that we had a professional and predictable buyer who knew how to close and wasn’t scared off by hiccups along the way. On the flip side, as a repeat buyer, Centurion was confident in our ability to shepherd the transaction to a successful close, especially with a client team that we were intimately familiar with.
We await the opportunity to work with either of these groups again.
Innova Power Solutions
In September of this past year, Innova Power Solutions, a Calgary-based, power system manufacturer with expertise in downhole battery packs and monitoring systems was sold to Vitzrocell Co. Ltd., a South Korean provider of portable industrial power solutions (batteries).
Founded in 1999, Innova is a second-generation family-owned business that had been approached pre-emptively by a number of competitors and complementary businesses over the years whose shareholders eventually decided that they would entertain some discussions.
Seeking an advisor with domain expertise in the energy services industry, the shareholders engaged Stormont to assist them through the process of determining what interest was real and professionalize the process to maximize value while complementing management and helping them avoid distraction.
With a number of pre-emptive approaches in hand, we worked with the client to develop a proper Information Memorandum and data-room and ran a modified process designed to validate existing suitors and determine if there were any other interested parties.
As the process unfolded, it became clear that not only was Vitzrocell a persistent and motivated suitor, they also represented competitive value and structure as well as an interesting vertical integration.
As the deal and negotiations got under way and after Vitzrocell was selected and moved into their diligence phase, we were confronted with “Liberation Day” tariffs. As a trade-exposed company (more than 80% of sales were into the United States) it was imperative that we were able to pre-emptively get ahead of this news for our Korean buyer, so together with management we developed a communication and mitigation strategy as it regards any tariff exposure. The main concern was not necessarily that the products being shipped weren’t USMCA compliant (that was addressable also via moving manufacturing south) but since the vertical integration play for Vitzrocell was to use their lithium cells in the Innova battery packs, there was a country-of-origin concern as well. By addressing this early and head-on we were able to move what could have been a deal-breaker into the “interesting side-story” basket.
This was the first transaction we have worked on with a Korean buyer so there were some steep learnings in the process both from their approach to deal structuring and legal agreements but also how they went about their due diligence and how responsibility was allocated inside their organization. As a publicly-traded company on the Korean exchange, Vitzrocell also had some unique and time-sensitive disclosure requirements with their Exchange, which I guess is their securities regulator. We were able to assist with this process as well. Interestingly enough, the language barrier turned out not to be much of a factor at all.
Overall, it was gratifying for us to work with a second generation set of owners (not all active in the business) and assist them in selling their business to a highly motivated buyer and see the legacy of their father’s business carried forward.
Metallex
Metallex is a Stettler, Alberta-based company that manufactures and sells metal building solutions to wholesale distributors and end-user customers in the energy, utilidor, power generation, municipal, and agriculture sectors. In addition, Metallex fabricates a variety of specialty and custom order products with a range of applications including electrical generation and industrial noise suppression.
The owner-managers of this business were a husband and wife team that decided that they were looking for a break from the day-to-day pressure of running the business and wanted to explore other pursuits.
Stormont was engaged to market the transaction to a range of strategic and private equity buyers with the goal being a buyer that could both maximize value in a lower risk transaction and deliver a short transition timeline for management of the business. As a smaller deal in a rural location, our view was that it was most likely that a direct competitor was the most logical buyer, the downsides of that being that those buyers were less likely to offer fair value and instead, were more likely to run their mouths about the process in order to steal business.
As is typical for a smaller deal, the marketing took a bit longer than expected and the offers were a mixed bag with a high percentage putting too much risk on the vendor.
Ultimately, one buyer stood out relative to the rest in terms of value, structure and flexibility. To our surprise, this buyer wasn’t a local competing strategic but rather a newer type of financial buyer that is called a “Search Fund”.
While not necessarily new, recent years have seen the emergence of more and more of this class of buyers such that they needed their own category. A typical search fund is composed of one or two individuals who create a “fund” whose sole purpose is to find and run a singular investment. The most formal of these structures will have capital pledges, a budget, investment philosophy and a fixed timeline to find an acquisition. More colloquially, what we have found is that the typical search fund is one or two really smart finance people who most likely have rolled out of a larger private equity fund to follow their ambition to run a business. They will be backed by any of a number of LPs including quite often their former employers. The goal is to find that one perfect business they can buy, supported by their LPs, run and grow with a view to selling that business in five years to a private equity buyer for a gazillion dollars.
We receive inquiries all the time from these funds. At first almost exclusively from US-based funds and the conversation went something like this: “We will move anywhere to run a business!” “OK, here is Zama City Alberta.” “We will move almost anywhere to run a business!”. Eventually however the search fund phenomena moved north and west and many of them are well-funded and credible buyers who should be included in a process.
The issue with any search fund is that they are looking for that “one perfect deal” so it is exceedingly difficult to match them with a client. A corollary to that is that search funds look at a lot of transactions and make offers on a lot but because they are new and less capitalized, they don’t get taken as seriously.
In the case of the Metallex buyer, we had an individual who had created his own search fund and was looking for an Alberta-based industrial business in the size range we had and the fit kind of fell in our lap.
The transaction was not without its challenges. First off, like most search funds, the equity box is small and the transactions tend to carry a lot of leverage. Secondly, to get value up and address funding gaps, they often ask the vendor to finance part of the deal. Lastly, because they are “new”, their lenders tend to be conservative. In this instance, our client was asked to carry a vendor note, subordinate to the bank, but given the valuation was head and shoulders ahead of other discussions it was decided to take that risk, especially given the high cash at close percentage and short transition period.
Ultimately, the owner got the liquidity they were looking for and the search fund got their first deal. If I could do anything different, and this is what I now tell all search funds, make less use of vendor financing (they are selling for a reason), put more equity into the deal and have your financing partner lined up earlier in the process.
AMS (Advanced Medical Solutions)
Headquartered in Yellowknife, Northwest Territories (NWT), AMS is a Canadian-owned company that specializes in the delivery of 24/7/365 operational and medical support across Canada’s northern regions, including the NWT, Yukon, Nunavut and parts of Canada’s northern provinces. Founded in 1995, the company employs over 300 frontline medical personnel who deliver well-rounded, full-spectrum healthcare services through six distinct divisions and in partnership with over fifteen indigenous populations. In addition, AMS is the exclusive provider of air ambulance, emergency medical evacuation and repatriation flights throughout the NWT for patients and high-risk industrial worksites conducting over 2,000 air and ground missions annually.
We were first introduced to the owner of AMS fifteen years ago and have been in regular contact as the business has evolved ever since. There is some debate amongst us whether a former client made the first introduction but I do have an email saying “Stu, you need to talk to this guy” from a former Stormont client who was, in fact, one of my first ever corporate finance clients way back in 1999.
See??? Relationships Matter!
At any rate, regardless of how we met, our client reached out to us a little over two years ago to indicate that he had reached the stage in his business life where he needed to address succession in his business. It is worth noting that we had recently closed a deal for a very similar business operating in Alberta so we were very well prepared for the market and understood what the buyer demographic was looking for.
We elected to run a fairly broad process because we felt that there were a lot of potential private equity buyers for this business which was really unique as well as a number of obvious strategics.
As an aside, it is worthy of note that while we in Canada love to brag about “public health care”, aside from front line hospitals, there are many areas where private delivery of health care (publicly funded) is not only common, it is often the only way. One need only consider the provision of health care to remote Northern communities. The typical Canadian provincial approach is to staff a hospital, provide urgent care and then fan out from there. But in these Northern locations this is just not possible. Locations are remote, populations tiny, access seasonal and distances mind numbingly large (the territories cover an area larger than Canada). A small territorial government in Iqaluit cannot provide the staffing required to serve all these remote locations but they can contract it to a private company and pay them. This is what happens.
And inside this ecosystem resides a range of strategic businesses and specialty private equity investors whose sole mandate is to invest in and support companies providing health care in innovative ways.
As the mandate unfolded we received multiple and very competitive offers that ranged from competitors to specialty PE. In assessing the offers, the template often applied was less about maximizing proceeds and more about preservation of the team. Our client was prepared to leave the business but he wasn’t prepared to see his hundreds of dedicated team members get a bad deal going forward. Fit mattered as much as value.
As it turns out, we were able to hit both those goals with our eventual buyer, Calian Group Ltd., a Canadian-based company that provided a wide range of services to governments across Canada, including a health care division that very much wanted to gain a foothold in the territories.
The deal of course wasn’t without its hiccups and drama – they rarely are. During the diligence process, several key contracts came up for renewal and government being government they took longer to finalize, putting undue risk into the transaction, so we were forced to wait, which led to another renewal with a different client. In addition, businesses that operate in the north must have relationships and business arrangements with the first nations or they simply can‘t operate so communicating all of these to the buyer and properly transitioning them was a challenge.
Ultimately all of this, while being quite complicated, was solvable, but it takes a patient buyer and vendor to make it through all the angst the uncertainty causes – both as it regards value and closing. As an intermediary we often find ourselves trying to bridge these gaps – sometimes we make friends and sometimes we don’t. Our client’s team was phenomenal during the process though and our client has now fully extracted himself from the business which continues to perform above all expectations thanks to his management team.
Well there you have it – a “deal download” special for Super Bowl 60.
If you are interested in seeing other transactions we have worked on or what we may have in the market at the moment, feel free to check the transactions section of our website – if you’ve read this far you may as well, you’re already on the site!
