Welcome to the era of the bolt-on acquisition.
While overall takeover activity is down - data from Crosbie & Co. puts the pace of Canadian M&A activity at a six-year low - ambitious companies are using the economic downturn to add to market-leading positions by adding single plants or business lines to their operations. The investment banking crowd calls these "tuck-in" or "bolt-on" acquisitions, and they have a far better success rate than larger "transformational" deals.
Consider the activity that played out on Monday, when grain handler Viterra VT-T and paper maker Cascades CAS-T both announced small takeovers.
Viterra picked off a Manitoba canola crusher named Associated Proteins LP for $64-million. This deal doesn't get the headlines garnered by recent $1-billion-plus Viterra purchases, but it does make all kinds of business sense, and the execution risks are minimal.
The same strategic rationale backs a $60-million takeover by Cascades, which bought the tissue-making unit of Atlantic Products Ltd. With this purchase, the Quebec-based company boosted its capacity to make tissues from recycled paper by 11 per cent.
Focusing on just one day of deal making, Sun Life's $359-million purchase of the British division of rival Lincoln National fits this same trend.
There will be more days like Monday, as there are all sorts of companies (and private equity funds) eager to shed units or parts of business to raise cash.
Assuming the Viterra and Cascades deals pass regulatory muster, these bolt-on acquisition promise low-risk growth for strong business franchises.
UTILITY TAPS PIPES FOR CASH
It may be a utility, but TransCanada TRP-T is proving one of this country's enduring growth stories, tapping the market for $1.6-billion yesterday to fund expansion of its pipe network.
TransCanada sold 50.8 million shares after markets closed yesterday at $31.50 each to a syndicate of underwriters led by RBC Dominion Securities, BMO Nesbitt Burns and TD Securities. The offering was priced at a 6-per-cent discount to Tuesday's closing price.
This is the utility's fourth major share sale in the past two years. Part of the proceeds will be used to acquire a larger stake in the Keystone pipeline system, which moves Western Canadian oil to refineries on the U.S. Gulf coast. TransCanada also plans to pay down debt.
SAFE AS HOUSES
Foreign bond funds are falling for Canadian mortgage bonds.
Canada Housing Trust, a federal government agency, had another successful outing in the capital markets yesterday, raising $8-billion from the sale of Canada Mortgage Bonds, known on the Street as CMBs.
These bonds are guaranteed by the Canada Mortgage and Housing Corp. as part of a program that backstops the residential real estate market. The underwriting was led by CIBC World Markets, Merrill Lynch, RBC and TD.
The latest CMB offering is five-year debt, sold with a 3.15-per-cent interest rate. That translates into a 42.5-basis-point premium to the comparable government of Canada bond, yet the CMBs carried the same triple-A credit rating as the federal government.
The latest round of CMB sales featured enormous interest from international investors. Doug Bartlett, head of CIBC's government finance team, said that appeal "is reflective of the international investors' positive view of Canadian government debt."
© The Globe and Mail
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