Canadian VC funding declines for second straight quarter after record Q1, reveals new report

BY Fraser Tennant

Following a record Q1, Canadian venture capital (VC) funding declined in Q3 2018 for a second straight quarter, reveals a new report by PwC Canada and CB Insights.

According to the ‘MoneyTree Canada Report Q3 2018’, Canadian venture-backed companies closed 87 deals, down from 127 in Q2. At the same time, total VC funding totalled $541m in Q3 2018, a 42 percent decline in investment from the previous quarter.

However, despite the overall fall, there has been an increase in VC funding for Canadian digital health and FinTech companies in the third quarter of 2018.

“The first half of 2018 saw a new high in venture capital investment in Canada, and yet we have seen a marked decrease in deal activity in the third quarter,” said Michael Dingle, national deals technology leader at PwC Canada. “While a decrease does not come as a surprise, we will be sure to keep a close eye on investment trends for the following quarters as the tech sector in particular seeks to maintain funding levels.”

The report also notes that: (i) early-stage rounds increased to 30 percent of all Canadian deals, while seed stage deals declined to 25 percent of all deals; (ii) corporate investment in Canadian startups has been rising steadily in recent quarters, and increased to 39 percent of all deals in Q3 2018; (iii) corporate participation in deal activity increased for the third consecutive quarter; (iv) Toronto and Vancouver continued to drive the highest number of deals; and (v) investment in Canadian digital health companies jumped 170 percent to $83m, the third-straight quarterly increase.

While Vancouver and Toronto remained the top markets in deal activity, funding and deal activity for these cities decreased slightly in Q3 2018 to $104m across 21 deals and $248m across 30 deals, respectively. Montréal also saw a slight decline, falling to $95m over 16 deals during Q3 2018, compared to $105m over 17 deals in Q2 2018. In addition, Québec City experienced a significant decline in funding – from $147m to $14m – returning to its historical range, following a massive second quarter.

"While overall funding and deal activity among Canadian startups fell this quarter, there were bright spots like digital health and FinTech," said Anand Sanwal, co-founder and chief executive of CB Insights. "The digital health sector saw a 168 percent spike in funding -- the third-straight quarterly increase in this industry and well above the funding range in recent years."

Report: MoneyTree Canada Report Q3 2018

Sykes acquires Symphony to boost RPA and IA credentials

BY Fraser Tennant

In a bid to capitalise on the growing demand for robotic process automation (RPA), US multinational corporation Sykes Enterprises is to acquire Symphony Ventures, a global services firm focused on RPA and intelligent automation (IA).

Under the terms of the definitive agreement, Sykes will pay a cash purchase price for 100 percent ownership of Symphony, which is expected to be funded through a combination of cash on hand and Sykes’ credit facility.

Sykes expects the acquisition to position it as clear leader to support RPA and IA initiatives globally across all facets of its business operations, while enabling it to tap into an adjacent market estimated to be worth $8.1bn.

“The acquisition of Symphony is another significant step in building our company’s capabilities to succeed as the digital revolution continues to transform our clients’ businesses, their customer service needs, and by extension, the customer support industry,” said Chuck Sykes, president and chief executive of Sykes. “Combining the power of RPA with human ingenuity enables us to help our clients modernise, optimise and integrate key components of their digital operations to significantly improve their business, as well as improve their customers’ lifecycle journey experience.”

Headquartered in London, Symphony offers RPA consulting, implementation, hosting and managed services. The company is approximately 200 people strong and has one of the largest independent global teams of marquee brands, serving financial services, healthcare, business services, manufacturing, consumer products, communications, and media and entertainment industries.

“Symphony has rapidly grown over the past four years to become the digital operations partner of choice for numerous enterprise clients looking to implement RPA and IA solutions,” said David Poole, chief executive of Symphony Ventures. “This growth has been due to the efforts of our highly trained and experienced team that take a process first approach to digital transformation to ensure we deliver top notch quality each and every time. Both Sykes and Symphony are innovative pioneers dedicated to improving customer and client experience.”

The transaction is subject to customary closing conditions and is expected to close on or about 1 November 2018.

Mr Sykes concluded: “The world of intelligent automation systems is approaching a tipping point, and we are excited to be able to participate in this new technological advancement in a meaningful way.”

News: Another UK Startup Snapped Up: Symphony Ventures Sold for £52 Million

Calsonic Kansei drives off with Fiat unit

BY Richard Summerfield

Japanese automotive firm Calsonic Kansei has agreed to acquire the Magneti Marelli unit from Fiat Chrysler in a $7.1bn all-cash deal, excluding debt. The transaction is expected to close in the first half of 2019, subject to customary closing conditions and regulatory approvals, the companies announced in a statement.

By acquiring the unit, private equity-backed Calsonic will become Magneti Marelli CK Holdings, the world’s 10th largest auto-parts manufacturer with $17bn in annual revenue and a global workforce of around 65,000. Calsonic’s chief executive, Beda Bolzenius, will oversee the new organisation.

“Our industry has gone through fierce change in recent years and the phase to come will be even more dynamic,” said Mr Bolzenius. “It is exciting to form a strong platform for Calsonic Kansei and Magneti Marelli to work together and create a competitive automotive supplier which is extremely well placed among the global Top Ten. Together, we will benefit from complementary geographic footprints and product lines, while our respective customers will benefit from an increased investment in people, processes and innovative new products.”

“Having carefully examined a range of options to enable Magneti Marelli to express its full potential in the next phase of its development, this combination with Calsonic Kansei has emerged as an ideal opportunity to accelerate Magneti Marelli’s future growth for the benefit of its customers and its outstanding people,” said Mike Manley, chief executive of FCA. “The combined business will continue to be among FCA’s most important business partners and we would like to see that relationship grow even further in the future. The transaction also recognises the full strategic value of Magneti Marelli and is another important step in our relentless focus on value creation.”

Fiat Chrysler will enter into a multi-year supply agreement with its former unit which will maintain Marelli’s presence in Italy and maintain employment levels. The company had explored other options for divesting the unit previously before opting for a sale. With market conditions deteriorating amid global trade tensions and political uncertainty in Italy, as well as profit warnings from automakers and suppliers, a sale was considered the most viable option.

Private equity giant KKR acquired Calsonic from Nisan and other shareholders in 2016 and claimed it would help the company expand internationally.

News: KKR's Calsonic buys Fiat Chrysler parts firm Magneti Marelli for $7.1 billion

Norwegian Energy agrees $1.9bn Shell deal

BY Richard Summerfield

Norwegian Energy (Noreco) has agreed to acquire Royal Dutch Shell’s Danish upstream business – Shell Olieog Gasudvinding Danmark B.V. (SOGU) – in a deal worth $1.9bn, making it the second largest oil & gas producer in Denmark, adding output of 67,000 barrels of oil equivalents per day.

The sale includes SOGU’s 36.8 percent ownership stake in the Danish Underground Consortium (DUC), which leads much of the exploration and development of the Danish portion of the North Sea. The DUC, which started production in 1972, has assets in around 15 offshore fields and accounts for around 90 percent of the country’s oil & gas production. The deal also includes SOGU’s portion of the Tyra gas field redevelopment project including the redevelopment and around $1.1bn in decommissioning costs associated with the assets. In a statement, Norco added that it “…expects to maintain strong production in the years to come. As the Tyra hub is being redeveloped, the portfolio will be revitalised and offer improved economics accompanied by prolonged field life.”

For Shell, the divestment of the business is the latest step in the company’s three year, $30bn divestment plan, which started in 2015 following its purchase of BG Group. To date, Shell has divested large portfolios in the British North Sea, Gabon, Thailand and Canada. Under the terms of the agreement, Shell Trading and Supply and Shell Energy Europe Limited will continue to have oil & gas lifting rights from the SOGU assets for a period after completion.

“Today’s announcement is consistent with Shell’s strategy to simplify its portfolio through a $30bn divestment programme and contributes to our goal of reshaping the company into a world-class investment case,” said Andy Brown, Shell’s upstream director.

Noreco said the deal comprised proven and probable reserves of 209 million barrels of oil equivalents at the end of last year, 65 percent of which were liquids. The company said that funding for the Shell deal would be provided by a private placement of new shares and a convertible bond, as well as a $900m loan from BMO Capital Markets, Deutsche Bank and Natixis.

As the transaction is a ‘share sale’, local SOGU staff primarily dedicated to DUC will continue employment with their current company, which Noreco will own upon completion.

The deal, subject to customary closing conditions and shareholder approval, is expected to complete in H1 2019.

News: Shell sells Danish upstream assets to Norwegian Energy in $1.9 billion deal

Another US retailer on the ropes as Sears files for bankruptcy

BY Fraser Tennant

In a further body blow to the US retail industry, Sears Holdings Corporation has filed for Chapter 11 bankruptcy protection – yet another retail giant struggling with mounting debt and the increasing shift in consumer behaviour toward shopping online.

Through the Chapter 11 process, Sears – which also owns Kmart – and certain of its subsidiaries are seeking to establish a sustainable capital structure, continue streamlining its operating model and grow profitably for the long term. The company listed more than $10bn in debts and more than $1bn in assets in its filing.

The company hopes to move through the restructuring process as smoothly and expeditiously as possible, and is committed to pursuing a plan of reorganisation as it continues negotiations with major stakeholders.

“The Chapter 11 process will give Sears the flexibility to strengthen its balance sheet, enabling the company to accelerate its strategic transformation, continue right sizing its operating model and return to profitability,” said Edward S. Lampert, chairman of Sears Holdings. “Our goal is to achieve a comprehensive restructuring as efficiently as possible, working closely with our creditors and other debtholders, and be better positioned to execute on our strategy and key priorities."

To this end, Sears intends to continue paying employee wages and benefits, honour member programmes, and pay vendors and suppliers in the ordinary course for all goods and services provided on or after the Chapter 11 filing date.

"Over the last several years, we have worked hard to transform our business and unlock the value of our assets," said Mr Lampert. "While we have made progress, the plan has yet to deliver the results we have desired, and addressing the company's immediate liquidity needs has impacted our efforts to become a profitable and more competitive retailer.”

Sears has received commitments for $300m in senior priming debtor-in-possession (DIP) financing from its senior secured asset-based revolving lenders, and is negotiating a $300m subordinated DIP financing with ESL Investments, Inc – its largest stockholder and creditor.

Subject to court approval, the DIP financing is expected to improve Sears’ financial position immediately and support its operations during the financial restructuring process.

Mr Lampert concluded: "As we look toward the holiday season, Sears and Kmart stores remain open for business and our dedicated associates look forward to serving our members and customers. We thank our vendors for their continuing support through the upcoming season and beyond.”

News: US retail giant Sears files for bankruptcy