GENERAL INDUSTRY REPORT - Q3 2020 - Whitehorn Capital Inc.
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GENERAL
INDUSTRY REPORT
Q3 2020
Q3 2020 Key Highlights
Q3 2020 Key Highlights
• The federal government extends the emergency wage subsidy until December 19 and eases eligibility rules; amounts paid off to be proportionate to
revenue decline.
• The US reverses the 10% tariff on raw Canadian aluminum on September 15, introduced in mid August.
• Canada and the US agree to extend border closure between the two countries to at least October 21.
• The Bank of Canada leaves overnight rate unchanged throughout Q3, expects the Canadian economy to require at least two years to fully bounce
back from COVID-19.
Let’s Talk Canadian Federal Government Debt
We have grown concerned about the dramatic increase in government spending in Canada. Even prior to the pandemic the federal government and many
provinces were running record levels of spending and deficits, which were pushing total debt levels well over historic highs. The pandemic stimulus efforts
have taken the deficit spending beyond levels imaginable. We have reviewed several articles and statistics that economists and the government used and
have pulled together the most interesting facts to put the spending, deficit and debt levels into perspective.
Federal Spending Per Person
The Fraser Institute is currently quite focused on our topic. They produced a full report on spending by prime minister in May 2020. The chart below provides
a great review of spending per year, by prime minster. The largest increases in spending (outside of World War II) have been while a Trudeau is Prime
Minister. Since the report was published, the federal government released its fiscal update on July 8 and the projections from May were way off. Federal
spending per person is now expected to reach $15,596 in 2020, approximately 18 per cent more than expected in May.
Find the chart here on Fraser Institute
Federal Government Surplus / Deficits by Year
Federal Deficits – Actual Dollars (In billions CAD)
As you can see, the current year’s (2020/2021) deficit is like Year
nothing we have seen this century.
2001-02
2002-03
2003-04
2004-05
2012-13
2014-15
2018-19
2019-20
2020-21
2016-17
2017-18
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2013-14
2015-16
$50
$8 $7 $9 $1 $13 $14 $10
$0
-$10 -$5 -$3 -$6
-$17 -$20-$14
-$50 -$33 -$35-$29 -$34
-$56
Surplus / Deficits
(In billions CAD)
-$100
-$150
-$200
-$250
-$300
-$350 -$343
Justin Trudeau’s government Federal government projects $343
initially estimated the deficit billion deficit – pushed to obscene
would reach $19.8 billion. levels by the COVID-19 Pandemic.
How did this happen? As presented in the timeline, deficit spending was
December 2019 August 2020 the plan all along. However, even prior to COVID, the federal deficit had
jumped from $19.8 billion to $26.6 billion or 34 per cent. Once COVID hit,
Spring 2018 July 2020 estimated spending ballooned to $343 billion and is now loosely estimated
to exceed $400 billion.
Deficit upped to An additional $52 billion was piled
$26.6 billion. on to maintain CERB payments and
readjusted EI payments. Likely pushing
the deficit to over $400 billion.
2 Q3 2020 General Industry ReportCanadian Federal
Government Debt
Total Debt Increase in 2020 We believe both governments decided to use the debt spending as a tool
to offset the economic crisis. It was an easy tool to use and the downside
The COVID-19 pandemic is a global economic disaster. Almost every
was not likely to be catastrophic based on the experience of countries with
region of the world has been impacted. However, not all federal
high debt loads, like Japan and Italy. However, one could ask how much
governments have responded by spending at the same level as Canada.
of this tool should we use now? Its availability is a result of years of prudent
The average increase in total debt per capita expected by G7 countries this
financial management and an economy that has provided stable gross
year (excluding Canada) is approximately $2,500 per person. Canada’s
domestic product growth over generations. Do we want to become like
increase in total debt per capita is planned to be $6,200 per person. The
other countries that have used their ability to borrow already? The higher the
US has also increased its total debt per capital significantly this year – by
debt, the higher the cost of the interest for future generations with reduced
almost $10,000 per person.
services. However, with interest rates expected to stay near 0 per cent for
many years the future cost of the increased debt is not currently of grave
The following chart shows the expected total debt increase per capita from concern. The next chart shows Debt as a % of GDP for the G7 countries
2019 to 2020 by each G7 country. from 2015 to 2020. Relative to the other G7 countries, Canada’s total debt
level is lower even after the spending of the last four months.
$ Change - Debt per Capita
(In USD) Central Government Debt % of GDP
$10,000 180%
$8,940
160%
$8,000 140%
$6,257 120%
$6,000 100%
80%
$4,000
60%
$1,400 $1,804 $2,118
$2,000 40%
$501 $517 20%
$0 0%
France Germany Italy Japan United United Canada
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2015 2016 2017 2018 2019 2020
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Based on the projections provided to date, the federal debt will exceed
To give a different perspective of the above data, the following chart shows $1.2 trillion by the end of the current fiscal year. Compared to other G7
the 2020 total debt level for each of the G7 countries. The increase from countries, Canada can endure more deficit spending in the short term, but
2019 is highlighted and the per cent change is noted at the top of each bar. we need to ask ourselves: are we getting value for the spending? What are
we spending our “rainy day” fund on? Will it spur the economy in such a
way that we grow our way out of the economic issues? Will our lives be
Debt Per Capita better because of this spending? We suspect the government is going to
(In USD) pose that question to us in the coming months… How will we respond?
$80,000
$70,000 3.43% 16.37%
$60,000
$50,000
3.75% 1.23%
$40,000 1.63%
$30,000
9.49% 43.35%
$20,000
$10,000
$0
an
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Stanited
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nc
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Jap
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Fra
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Ca
U
Ge
3 Q3 2020 General Industry ReportNorth American
Mergers & Acquisitions
Whitehorn has been actively tracking M&A activities in various sectors. The majority of transactions tracked involved acquiring companies
seeking to diversify product and service offerings, as well as looking to expand geographically.
Sector Date Acquirer Acquirer Location Target Target Location
Mobility Services July 2020 thyssenkrupp Elevator (Canada) Scarborough, ON Winnipeg Elevator Group Winnipeg, MB
Ltd Inc
Acquisition of company offering maintenance, repairs and modernization services to elevators, handicap lifts and
escalators.
Construction July 2020 Bird Construction Co Ltd. Mississauga, ON Stuart Olson Inc. (TSX:SOX) Calgary, AB
$96.5 million acquisition of construction and industrial services provider operating throughout Western Canada to
diversify services, end-markets and geographies.
HVAC August 2020 Kontrol Energy Corp. (CSE:KNR) Mississauga, ON New Found Air Toronto, ON
$2.7 million acquisition of building energy and service monitoring, operation and services provider serving the
commercial, industrial and multi-residential building sector.
Building Materials August 2020 Exchange Income Corp. Winnipeg, MB Window Installation Seattle, WA
(TSX:EIF) Specialists Inc.
US$45 million acquisition of full service glazing company specializing in the sale, consultation, installation and
service of pre-glazed fenestration products.
Telecommunications August 2020 Circa Enterprises Inc. Calgary, AB Teletics Inc. Calgary, AB
Acquisition of substantially all assets of manufacturer and supplier of fully monitored, ruggedized wireless voice
and data devices.
Measuring September 2020 EXFO Inc. (TSX:EXF) Quebec City, QC InOpticals Inc. Taiwan
Instruments
Acquisition of technology leader offering ultra high speed test instruments for the laboratory and manufacturing
markets.
Retail September 2020 Kingswood Capital Los Angeles, CA Mountain Equipment Vancouver, BC
(Pending) Management Co-op
Acquisition of the assets and the majority of MEC's retail stores from CCAA proceedings.
Logistics September 2020 TFI International Inc. (TSX:TFII) Saint-Laurent, QC DLS Worldwide Bolingbrook, IL
US$225 million acquisition of logistics services provider offering less-than-truckload, truckload, freight forwarding,
expedited, parcel and intermodal from R.R. Donnelley & Sons Company.
Health Care September 2020 Loblaw Companies Ltd. (TSX:L) Brampton, ON Maple Corp. Toronto, ON
$75 million acquisition of a minority stake in telemedicine company connecting patients with doctors and medical
specialists via technology through its Shoppers Drug Mart subsidiary.
Telecommunications September 2020 Crown Capital Partners Inc. Calgary, AB Galaxy Broadband Mississauga, ON
(TSX:CRWN) Communications Inc.
$7.5 million acquisition of satellite service company providing telecommunication services to enterprise customers
nationwide to provide scale, cross-selling opportunities and expanded capabilities within Crown’s telecom
holdings.
4 Q3 2020 General Industry ReportWhitehorn Merchant Capital is an independent, Western Canadian financial advisory firm
that provides business owners and management teams with crisis advisory services, capital
raising, acquisition, and sale of business transaction solutions.
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Whatever milestone transaction you are considering, Whitehorn’s leaders can guide you through the
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Contact Whitehorn today for expert advice on accessing capital, Whitehorn Merchant Capital Inc.
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We look forward to helping you reach the achievement of your goals. 403-718-9860 | www.whitehorncapital.comYou can also read
