CVCA-Strategic bidders seen dominating Canada buyout scene

* Strategic bidders outnumber financial buyers

* Deal economics have changed

By Pav Jordan

OTTAWA, May 28 (BestGrowthStock) – Companies looking to make
strategic acquisitions have taken the upper hand in Canadian
buyouts, as bidders seeking a quick payoff shy away from
deal-making, the lead investment banker at Canaccord Genuity
(CF.TO: ) said.

Even though the global financial crisis has eased and
confidence has returned to the private equity market, the
dynamics of deal-making have changed, said Daniel Daviau,
managing director and head of investment banking at Canada’s
leading independent brokerage.

“People say the buyout market is dead, but it’s not dead,
it’s just that economies don’t work the same way,” said Daviau
on the sidelines of the Canadian Venture Capital and Private
Equity Association conference in Ottawa.

What has changed is access to credit, meaning financial
bidders have to commit more of their own capital to do a deal,
limiting returns.

Without leverage, bidders looking for higher returns in
shorter time horizons have stayed away from deals that may have
proven more attractive before the crisis. As a result, deals
tend to be longer-term, strategic acquisitions involving
companies in related businesses.

“In the old days, four or five years ago, we’d put up a
company for sale, we’d have 20 financial bidders and three
strategic bidders and for sure one of the 20 financial bidders
would be the highest bid,” said Daviau, an investment banking
veteran who helped found Genuity Capital Markets, recently
acquired by Canaccord Capital.

“These days, we put up a business for sale and we’ll still
have the same three strategic bidders, but only four financial
bidders, and it’s highly likely that the strategic bidder would
be the highest bid.”

Daviau came to Canaccord Financial (CF.TO: ) in April, when
the company took over Genuity, a boutique Canadian investment
bank specializing in mergers and acquisitions and advisory

Canaccord, one of the country’s top independent brokerages,
has built a strong presence in Canada’s mining sector,
particular among juniors and midcaps. The firm, with 37 offices
worldwide, has also developed a strong presence in China.

Genuity gave the company a well-connected M&A shop with
bankers with ties to some of the country’s top companies, like
No. 1 Canadian airline Air Canada (ACa.TO: ) (ACb.TO: ).

Daviau said Canadian companies, armed with a domestic
currency now close in value to the U.S. greenback, are
increasingly looking south for takeover opportunities that are
now more affordable.

Credit is also coming back to market these days.

“Buyouts are coming back, and we are working on several,
traditional leveraged buyouts,” said Daviau. “It’s a market
that is going to continue to develop.”

Technology companies can count on sale prices from two
times earnings to three or four times earnings, he estimated.

He said the appetite for initial public offerings is more
difficult to gauge, in part because it can take many months to
bring a company to market.

“The IPO market is sketchy on both sides of the border —
fickle is probably the better word,” he said.

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(Reporting by Pav Jordan in Ottawa; Editing by Frank

CVCA-Strategic bidders seen dominating Canada buyout scene