U.S. investment firms continued their blockbuster shopping spree in Canada on Monday, as Bolton, Ont.-based plastic specialist Husky IMS International Ltd. was sold for $3.85-billion (U.S.).
The deal saw the injection moulding company finally sold out of any Canadian ownership as funds controlled by Los Angeles-based investment firm Platinum Equity bought the business from the Ontario Municipal Employees Retirement System's (OMERS) private-equity group and its U.S. co-investor, Berkshire Partners. The business had previously been owned by Toronto-based buyout specialist Onex Corp.
The deal is emblematic of a couple of major private-equity trends in Canada this year – most notably, the strong showing of U.S.-funded megadeals, which have played a major role in pushing up this year's overall private-equity investment totals.
First, Texas-based Vista Equity Partners LLC privatized Toronto-based fintech firm DH Corp. in a $4.8-billion (Canadian) deal. Later in the spring, New York-based Rhône Capital struck a $2.2-billion agreement to acquire Montreal's private security company GardaWorld Security Corp. At $4.96-billion in Canadian dollars, the Husky deal would be even larger than these transactions.
"More and more, the U.S. is interested in what's going on in Canada," said Mike Woollatt, head of the Canadian Venture Capital & Private Equity Association (CVCA), adding that these foreign firms are being drawn in part because Canada is a slightly less competitive deal market than the United States, and valuations are slightly less overheated.
The Canadian private-equity industry is having a strong year, with 447 transactions worth more than $20.9-billion already in the market as of the third quarter of 2017, exceeding 2016's total $13.8-billion worth of deals, according to the CVCA.
The CVCA has also charted the strength of deals in the industrial and manufacturing (I&M) sectors, with about a fifth of all closed private-equity transactions having been in this space as of the end of the third quarter.
As a maker of equipment for the plastics industry, Husky fits that bill. The company's machines produce a range of items such as takeout containers, beverage bottles, medical supplies and even automotive parts.
But Mr. Woollatt says that the Canadian I&M category, which has become stronger in the wake of the oil-price drop a few years ago, could potentially be shaken, depending on the current negotiations and outcome of the North American free-trade agreement.
"If NAFTA gets disrupted, what does that do to the interest from the U.S. investors investing in Canada where most of the sales are heading across the 49th parallel?" Mr. Woollatt asked.
For Husky, that may be less of a concern. While the business has strong Canadian roots, three-quarters of its revenues come from outside North America. The company's manufacturing sites span eight countries and its customers are from more than 100 countries.
That's a larger global manufacturing footprint than the four manufacturing locations that the company had a decade ago, when it was first sold by founder Robert Schad to Toronto's Onex for $960-million (Canadian) in 2007. Mr. Schad went on to found a smaller competing business called Athena Automation Ltd. in 2008.
Once in the arms of private equity, Husky underwent some cost-cutting and restructuring efforts to boost profits before being sold again to OMERS and Berkshire for $2.1-billion (U.S.) in 2011.
OMERS declined to comment on how much the pension fund made in the sale, but along with Berkshire said in a statement that earnings had increased under their ownership. The two investors said they "worked with the company to enhance its ability to serve customers, while also supporting investment in acquisitions and new product development to expand the company's addressable market."
Husky is being sold to funds either being advised or managed by Platinum Equity, which itself has $13-billion (U.S.) in assets under management. The firm touted the injection moulding company's ability to produce innovative new technology as a key asset in a news release.