Acquisition Models

Mergers & Acquisitions

On September 6th, 2016, Enbridge Inc. and Spectra Energy Corp. announced their definitive merger agreement to combine in a stock-for-stock merger transaction. On February 27th, 2017, Enbridge Inc. acquired Spectra for US$28.43B. Under the terms of the Merger Agreement, Spectra Energy shareholders received 0.984 share of Enbridge per Spectra common share. 691 million common shares of Enbridge at US$41.34 were issued to Spectra shareholders plus approximately US$3 million in cash and 3.5 million in share options with a fair value of $77 million, giving Enbridge 100% ownership of the company. This created the largest energy infrastructure company in North America with an enterprise value of US$127 billion. (Sep 6, 2016 news release)

Modelyze Investments modelled this transaction as of September 2, 2016 under a stock sale tax structure. The deal is structured as tax inversion. The deal was neutral to slightly accretive as of September 2nd, 2016 with respect to Enbridge's 2018F earnings, subject to deal assumptions including first and foremost synergies, asset write ups and share exchange ratio. Sensitivity of the deal accretion/dilution with respect to nominal exchange ratio, percentage of cash financed with debt as well as synergies are presented. Post transaction analysis including the impact of the Target acquisition on the Acquirer, contribution and value creation opportunities are further investigated. Click here to view the model and investment thesis.

Walking Under Gas Pipes

On June 3rd, 2019 Algonquin Power & Utilities Corp. (“APUC”) announced the agreement to acquire 100% of the issued and outstanding shares of Ascendant Group Limited (“Ascendant”) for an equity acquisition price of US$365 million in an all cash deal, an offer price of US$36 per share and a 97% premium over the current Ascendant share price as of June 7th, 2019 (news release). The deal was expected to close in the second half of 2019, however as of August 2020, APUC still awaits regulatory approval of Regulatory Authority of Bermuda and a decision is expected to be made by October 2020. . Modelyze Investments performed the financial due diligence for this transaction as of June 7, 2019 and built a dynamic financial model to address the accretion/dilution of the deal, sensitivity analysis of the accretion/dilution with respect to the deal terms and realisation of synergies, contribution analysis and post transaction value creation opportunities for Target and the Acquirer.

Subject to the assumptions, asset write ups and % of cash financed with debt, transaction related income/expense, incremental D&A, assumed synergies and taxes, the deal is 1.86% accretive with respect to 2019F APUC earnings per share (EPS) and 7.76% accretive with respect to 2020F APUC EPS. Click here to view the model and investment thesis.

Wind Turbines

On July 28, 2019 Exact Science Corp. (NASDAQ: EXAS.O) and Genomic Health Inc. (NASDAQ: GHDX.O) entered into a definitive agreement (the “Merger Agreement”) in which Genomic Health will merge with and become a wholly owned subsidiary of Exact Sciences in a cash and stock transaction for $72 a share, an equity offer value of $2.794 billion. This price is an 11% premium over the target share price as of Jul 25, 2019, the "analysis date". The transaction has been approved by the board of both companies. All issued and outstanding Genomic Health shares on a fully diluted basis (38,811,006 shares) will be converted into the right to receive $27.5 in cash (Cash Consideration), and $44.5 worth of Exact Sciences shares so long as the average of the volume-weighted average prices per share of Exact Sciences Common Stock on the Nasdaq Stock Market for each of the fifteen consecutive trading days ending immediately prior to the closing date (the “measurement price”) is within $98.79 and $120.75 range. The deal is expected to close by the end of 2019 subject to customary conditions including the approval of Genomic Health stockholders.

Modelyze performed the financial due diligence on this merger structured as a stock sale as of Jul 25, 2019 and built a dynamic financial model to address the historical performance of the merger participants, derivation and rational of the offer price based on comparable and intrinsic valuation, exchange ratio and collar analysis, accretion/dilution of the deal up until 2022FYE, sensitivity analysis of the accretion with respect to synergies and % of Cash Consideration financed with debt, pro forma credit statistics, determination of post deal implied share price, contribution analysis and value created for Exact Sciences and Genomic Health stockholders. Click here to view the model and investment thesis.

Science

On August 26, 2019, PDC Energy Inc. (“PDC” or the “Company”) (NASDAQ: PDCE) and SRC Energy Inc. (“SRC”) (NYSE: SRCI) entered into a definitive agreement (the “Merger Agreement”) for SRC to merge with and into PDC in a stock swap transaction for $988 million equity value and $1,665 million enterprise value, assuming $677 million of SRC’s net debt. Each outstanding share of SRC will be converted into the right to receive 0.158 of a PDC common stock. Given PDC share price of $25.25 as of August 23, 2019 (the “analysis date”), 39,139,955 PDC shares are issued in the transaction leading to PDC’s 62% ownership of the combined entity. The transaction offer price of $3.99 is a 4% discount to SRC share price as of the analysis date. The deal is expected to close by 2019 fiscal year end (FYE). The merger is subject to customary conditions including the receipt of the required approvals from SRC’s and PDC’s stockholders.

Modelyze Investments performed the financial due diligence on this merger structured as a stock sale and reorganization under US tax laws as of August 23, 2019 and built a dynamic financial model to address the historical performance of the merger participants, derivation and rational of the offer price based on comparable valuation, accretion/dilution of the deal up until 2022FYE, contribution analysis and value created for SRC and PDC stockholders. Valuation of the combined entity based on intrinsic, net asset and relative valuation, sensitivity analysis of implied share price with respect to cost of capital and terminal growth rate, pro forma credit statistics and operating performance of the Company are prepared and presented. Click here to view the model and investment thesis.

Well Drill

As of mid 2017, Whole Foods had been posting declining sales for seven consecutive quarters and had been advised and pressured by the board members to sell itself or merge with another grocery store. Amazon acquired this firm on August 28th, 2017 for $13.7B at $42.00 per share, a 27% premium over Whole Foods share price at US$33 as of the Announcement Date June 15th, 2017. Whole Foods shares traded as high as $42.68 on June 17th and hovered around US$42.00 until its last trading day. This merger allowed Amazon to penetrate the grocery market and hold its brick-and-mortar status. The deal was an all cash deal financed with debt and Acquirer cash on hand. (June 15, 2017 Merger Agreement)

Modelyze Investments modelled this transaction under a stock sale tax structure as of June 30th, 2017. The deal was 0,2% accretive to Amazon.com 2017E earnings, subject to deal assumptions including synergies, asset write ups and inputs. Sensitivity of the deal accretion with respect to offer price and percentage of cash financed with debt as well as cost of debt is presented in the model. Post transaction analysis, contribution analysis and relative valuation are presented in the model. Click here to view the model and investment thesis.

green papers

On June 27, 2019 Air Canada (TSX: AC) and Transat A.T. Inc. (TSX: TRZ) announced a definitive Arrangement Agreement that Air Canada will acquire all outstanding shares of Transat for C$13 per share. The offer price was raised to C$18 per share on August 11, 2019. The C$720 million all-cash deal is expected to close in 2020 Q2. Air Canada offer price of $18 per share is a 91% premium to Transat A.T. Inc. 90-day VWAP and a 39% premium to 30-day VWAP as of June 26, 2019. Given the spread of COVID-19 and the economic turmoil, the offer price is a 100% premium to the 30-day VWAP as of May 04, 2020.

Modelyze Investments performed the financial due-diligence and conducted a comprehensive analysis of AC and TRZ operations and historical performance as of May 04, 2020, the deal, accretion and dilution, value creation opportunities and Air Canada valuation post transaction despite COVID-19 headwinds and discussions surrounding the legal terms of the arrangement and reverse termination given the economic uncertainties in 2020. Click here to view the model and investment thesis. The transaction was renegotiated on October 9th, 2020 such that Air Canada acquires all issued and outstanding shares of Transat for $5.00 per share. On April 2nd, 2021, Air Canada and Transat agreed to terminate the Arrangement Agreement with Air Canada paying $12.5 million termination fee to Transat as it became evident that the European Commission will not approve the transaction. For an updated investment thesis click here.

Airplane Wing
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