PE landscape resilient and adaptable in H1 2023, reveals CVCA

BY Fraser Tennant

The Canadian private equity (PE) landscape continues to navigate market dynamics with resilience and adaptability, according to a new report by the Canadian Venture Capital and Private Equity Association (CVCA).

In its ‘H1 2023 Canadian Private Equity Market Overview’, the CVCA reveals that C$1.6bn was raised across 161 deals in Q2 – a 4 percent increase in deal volume compared to Q1 2023.

Moreover, despite a 19 percent decline in disbursed capital, the PE industry has maintained a strategic focus on smaller investments and sectors aligned with sustainable growth. The average deal size declined by 22 percent to C$10m, reflecting the industry’s preference for smaller investments.

“The Canadian PE sector’s approach to investment and focus on sustainable growth strategies reflect a resilient response to market dynamics,” said Kim Furlong, chief executive of the CVCA. ​“Investors have shown cautious optimism, remaining committed to the mid-market and choosing sectors with longer-term potential, such as information and communications technology (ICT) and cleantech.”

Sector-wise, ICT claimed the top spot with C$936m invested across 64 deals, contributing to 26 percent of total investment value. The cleantech sector continues to shine, surpassing previous years’ performance with C$885m invested across 16 deals, underscoring the growing focus on climate issues and solutions.

As far as buyout and add-on investment activity is concerned, the industry experienced a decline, with C$435m raised from 47 deals in Q2, reflecting a 50 percent reduction in deal value. However, despite the challenges posed by rising interest rates, investors remain committed to smaller deals that align with their strategies.

In terms of the exit landscape, there were 46 exits totalling C$139m in H1 2023. M&A transactions accounted for 80 percent of exits, while exits via a secondary buyout represented the remaining 20 percent.

“Canada’s PE landscape remains strong in the mid-market,” concludes Ms Furlong. “Opportunities to assist on succession planning and the growth of small and medium sized companies continue to dominate.”

Report: H1 2023 Canadian Private Equity Market Overview

Earthstone Energy sold for $4.5bn

BY Richard Summerfield

In an all-stock transaction valued at around $4.5bn, including debt, Permian Resources has agreed to acquire Earthstone Energy.

The deal consists of 1.446 shares of Permian Resources common stock for each share of Earthstone common stock, giving it a per share value of $18.64 and a premium of 14.8 percent based on Earthstone’s close on Friday, the last day of trading before the deal was announced.

The deal has been unanimously approved by the boards of directors of both Permian Resources and Earthstone and is expected to close by the end of 2023, subject to customary closing conditions, regulatory approvals and shareholder approvals.

Once the transaction is complete, Permian Resources’ board of directors will be expanded to consist of 11 directors, including the addition of two representatives from Earthstone. Permian Resources’ executive management team will lead the combined company with the headquarters remaining in Midland, Texas. Permian Resources shareholders will own approximately 73 percent of the combined company and existing Earthstone shareholders will own approximately 27 percent.

“We believe the acquisition of Earthstone represents a compelling value proposition for our shareholders and strengthens our position as a premier Delaware Basin independent E&P,” said Will Hickey, co-chief executive of Permian Resources. “Earthstone’s Northern Delaware position brings high-quality acreage with core inventory that immediately competes for capital within our portfolio. Additionally, we have identified numerous ways to leverage our deep Delaware Basin experience and incremental scale to improve upon these assets across the board, including approximately $175 million of annual synergies. Permian Resources has a proven integration track record, and we believe the successful execution of these cost savings will create incremental value for both Permian Resources and Earthstone stakeholders.”

“We are very pleased to announce this transaction with Permian Resources and believe the combination of the two companies’ top-tier assets and history of success will create an even stronger large-cap E&P company which is uniquely positioned to drive profitable growth and development in the world-class Permian Basin,” said Robert Anderson, president and chief executive of Earthstone. “We believe this all-stock transaction provides Earthstone’s shareholders with excellent value for their investment now and in the future. In less than three years, we have grown Earthstone from a small-cap E&P company producing approximately 15,000 Boe per day to one with a production base of over 130,000 Boe per day, delivering significant value enhancement for shareholders along the way. Our success directly reflects our outstanding employees’ dedication, hard work and perseverance. I personally thank each and every one of our employees. I could not be prouder of the Earthstone team and the company we have built together.”

“As significant owners of the business, our primary goal is to drive value for our investors, and the Earthstone transaction is another example of value creation for shareholders,” said James Walter, co-chief executive of Permian Resources. “We expect the transaction to be accretive across all key financial metrics before synergies and significantly accretive including synergies, both over the short and long-term. After evaluating over $20 billion of potential transactions during the past twelve months, we firmly believe the acquisition of Earthstone represented the best transaction for Permian Resources. It checks all the boxes, enhancing shareholder value while improving upon an already best-in-class company.”

Looking forward, Permian has identified $30m of annual general and administrative savings. The combined company is also expected to benefit from a lower overall cost of capital, leading to potential financial synergies of $30m annually.

News: Permian Resources to buy Earthstone Energy in $4.5 bln deal

Intel and Tower terminate $5.4bn deal

BY Richard Summerfield

Intel Corporation and Tower Semiconductor have announced the mutual termination of the previously announced $5.4bn deal which would have seen Intel acquire Tower. The termination is due to the companies’ inability to obtain the regulatory approvals required under the terms of the deal.

As per the terms of the previously agreed deal, Intel will now be required to pay a termination fee of $353m to Tower.

Intel announced its intentions to buy Tower – a contract chipmaker that manufactures semiconductors for other companies – in February 2022 for $5.4bn. However, the company was unable to secure approval for the deal from the Chinese antitrust authorities before the deadline passed. The deadline for the deal was midnight California time on 15 August.

“Tower was very excited to join Intel to enable Pat Gelsinger’s vision for Intel’s foundry business,” said Russell Ellwanger, chief executive of Tower. “We appreciate the efforts by all parties. During the past 18 months, we’ve made significant technological, operational, and business advancements. We are well positioned to continue to drive our strategic priorities and short-, mid- and long-term tactics with a continued focus on top and bottom-line growth.”

“Our foundry efforts are critical to unlocking the full potential of IDM 2.0, and we continue to drive forward on all facets of our strategy,” said Pat Gelsinger, chief executive of Intel. “We are executing well on our roadmap to regain transistor performance and power performance leadership by 2025, building momentum with customers and the broader ecosystem and investing to deliver the geographically diverse and resilient manufacturing footprint the world needs. Our respect for Tower has only grown through this process, and we will continue to look for opportunities to work together in the future.”

“Since its launch in 2021, Intel Foundry Services has gained traction with customers and partners, and we have made significant advancements toward our goal of becoming the second-largest global external foundry by the end of the decade,” said Stuart Pann, senior vice president and general manager of Intel Foundry Services. “We are building a differentiated customer value proposition as the world’s first open system foundry, with the technology portfolio and manufacturing expertise that includes packaging, chiplet standards and software, going beyond traditional wafer manufacturing.”​

Intel’s acquisition of Tower was a move designed to bolster its own contract chip-making business with enhanced manufacturing capacity and intellectual property, while also giving it a wider global reach. And while there was a possibility that the deal could have been completed without Chinese approval, since China represents a major part of Intel’s business and strategy, regulatory approval in China was deemed essential. The deal was approved by antitrust bodies in the US and Europe, however it ran into significant delays and obstacles in China, which is indicative of the challenges faced by US companies with ties to China in the current geopolitical climate. It is becoming increasingly difficult for companies to conduct business amid tensions between the two countries.

News: Intel scraps $5.4 bln Tower deal after China review delay

Tapestry acquires fellow fashion group Capri for $8.5bn

BY Fraser Tennant

In a deal that establishes a powerful global house of iconic luxury and fashion brands, multinational luxury fashion holding company Tapestry, Inc. is to acquire fellow luxury fashion company Capri Holdings.

Under the terms of the definitive agreement, which is expected to close by the end of 2024, Capri shareholders will receive $57 per share in cash for a total enterprise value of approximately $8.5bn.

The acquisition brings together six highly complementary brands with global reach – Coach, Kate Spade, Stuart Weitzman, Versace, Jimmy Choo and Michael Kors – powered by Tapestry’s data-rich customer engagement platform and diversified, direct-to-consumer operating model.

The boards of directors of Tapestry and Capri have unanimously approved the transaction, subject to approval by Capri shareholders, as well as the receipt of required regulatory approvals, and other customary closing conditions.

“We are excited to announce the acquisition of Capri Holdings – uniting six iconic brands and exceptional global teams,” said Joanne Crevoiserat, chief executive of Tapestry. “Tapestry is an organisation with a passion for building enduring brands through superior design and craftsmanship and an unwavering focus on our customers.

To that end, the acquisition of Capri builds on Tapestry’s core tenets as consumer-centric brand-builders and disciplined operators, accelerating its strategic and financial growth agenda.

“We are confident this combination will deliver immediate value to our shareholders,” said John D. Idol, chairman and chief executive of Capri. “It will also provide new opportunities for our dedicated employees around the world as Capri becomes part of a larger and more diversified company. By joining with Tapestry, we will have greater resources and capabilities to accelerate the expansion of our global reach while preserving the unique DNA of our brands.”

The combined company is also well-positioned to advance a comprehensive and impactful environmental, social and governance (ESG) strategy focused on a shared mission to drive progress toward a more sustainable, equitable and inclusive future.

Ms Crevoiserat concluded: “This combination of iconic brands creates a new powerful global luxury house, unlocking a unique opportunity to drive enhanced value for our consumers, employees, communities and shareholders around the world.”

News: Coach owner's Michael Kors deal creates US giant to take on European luxury rivals

GTCR acquires security provider ADTC in $1.6bn deal

BY Fraser Tennant

In an acquisition expected to fortify its position in the market, commercial security, fire and life safety solutions provider ADTC has been sold to private equity firm GTCR in a deal valued at approximately $1.6bn.

Headquartered in Texas, ADTC has built a robust national footprint with more than 5300 colleagues across over 100 locations servicing more than 300,000 customer sites.

GTCR’s investment will strengthen ADTC’s position as one of the largest and fastest growing providers in the space. Together, GTCR and ADTC will implement a strategy to drive continued growth and innovation, with additional capital available to help fund strategic M&A opportunities.

As an independent company, ADTC will continue to focus on delivering reliable service, strong technical expertise and unique solutions to protect its customers’ people and assets.

“We are excited to again partner with the incredible team at ADTC,” said David Donnini, managing director and head of business & consumer services at GTCR. “This is a unique opportunity to invest in a successful business that we know well and helped develop, alongside partners that we have worked with for two decades.”

The acquisition of ADTC marks GTCR’s fourth investment in the security and fire industry, which includes the acquisition of Cambridge Protection Industries, the carveout of Honeywell Security Monitoring and the taking private of security company P1.

“As a firm, we have a long history of investment in the security and fire sector and have always viewed the commercial market as an attractive area for growth,” said Tom Ehrhart, principal at GTCR. “We look forward to building upon ADTC’s position as a premier provider of critical services and continuing to invest in its expansion and innovation.”

The transaction is expected to close in the fourth quarter of 2023 subject to customary regulatory approvals.

Mr Donnini concluded: “We believe making ADTC a standalone company strengthens its competitive positioning, sets up ADTC for future growth and builds upon GTCR’s history of successfully transforming businesses in the sector.”

News: Security firm ADT's commercial unit to be taken private by GTCR for $1.6 bln