Pierre ClérouxVice President Research & Chief Economist, BDC

ALBERTA’S M&A ACTIVITY AND THE BIG PICTURE

Business transition – the big picturePierre Cléroux, Vice President Research and Chief Economist, BDC

CalgaryNovember 8, 2017

BDC – Business transition – the big picture 3

AgendaWorld economic outlook

Alberta economic outlook

Business transition in Canada

1

2

3

Worldgross domestic product

3.5

3.4

3.2

3.6

3.7

2014 2015 2016 2017e 2018f

Note: GDP 2010 constant prices, e = estimate; f = forecast

SOURCE: International Monetary Fund, World Economic Outlook Update, October 2017.

United States

-2.8

2.5

1.6

2.21.7

2.42.6

1.6

2.2 2.4

-4

-3

-2

-1

0

1

2

3

2009 2010 2011 2012 2013 2014 2015 2016 2017f 2018f

Real GDP, United States

SOURCES: U.S. Bureau of Economic Analysis (historical data) and Consensus Forecasts, October 9, 2017.

Annual change, %

Trump’s economic agenda

Energy sector deregulation

Infrastructure spending

Tax cuts

-347.0

-68.8 -64.7 -64.4

-36.0 -32.0 -28.6-11.0

-400

-350

-300

-250

-200

-150

-100

-50

0

China Japan Germany Mexico Ireland Vietnam Italy Canada

U.S. merchandise trade balancein 2016, by country

SOURCE: U.S. Census Bureau.

US$ in billions

Canada is the largest or second-largestexport market for 42 U.S. states

SOURCE: U.S. Census Bureau.

crude oil pricesPrice of West Texas Intermediate, US$ per barrel

105US $JUNE 2014

57US $

NOVEMBER 2017

SOURCE: U.S. Energy Information Administration

Global supply and demand of oil slowly coming into balance

SOURCES: Thomson Reuters Eikon, International Energy Agency (IEA), BDC Economic Analysis

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

$0

$20

$40

$60

$80

$100

$120

Q2 2013 Q2 2014 Q2 2015 Q2 2016 Q2 2017

Millions of barrels/dayUS$/barrel

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

1.05

0

20

40

60

80

100

120

Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17

Crude oil price (left scale) Exchange rate (right scale)

Crude oil price and Canada/U.S. exchange rate

SOURCES: U.S. Energy Information Association (spot crude oil price) and Bank of Canada (exchange rate).

Price of West Texas Intermediate, US$ per barrel; Canada/U.S. exchange rate, US$

0

1

2

3

4

5

6

Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17

Canada’s overnight rate US federal funds rate (upper bound post-crisis)

Canadian and U.S. key rates

SOURCES : Federal Reserve Board and Bank of Canada.

Bank of Canada’s overnight rate and Federal Open Market Committee’s target federal funds rate, %

Albertaeconomic outlook

-5.5

4.9

6.4

3.9

5.75.0

-3.6 -3.5

4.0

-8

-6

-4

-2

0

2

4

6

8

2009 2010 2011 2012 2013 2014 2015 2016 2017f

Real GDP, Alberta

f= forecast

SOURCES: Statistics Canada (historical data) and average of chartered banks forecasts (estimate)

Annual change, %

Exports, energy products excluded, Alberta

* *= year to date as available, Jan-Sept 2017 compared to same period last year

SOURCE: Statistics Canada; BDC calculations

Annual change, %

-27.1

3.0

16.3

1.0 0.4

10.9

-1.2

-8.6

11.8

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 *

0

10

20

30

40

50

60

70

80

2009 2010 2011 2012 2013 2014 2015 2016 2017e

Exports, crude petroleum oils and oils obtained from bituminous minerals, Alberta

SOURCE: Innovation, Science and Economic Development Canada; BDC calculations

Billions of dollars

0

50

100

150

200

250

300

350

400

450

500

Week 1 Week 11 Week 21 Week 31 Week 41

2017 2016 2014

Active oil and gas rig count in Alberta

SOURCE: Baker Hughes

Number of active rigs, 2014 to present

Crude oil production, Alberta

2.9 3.1 3.1 3.3

Millions of barrels per day

e = estimate

SOURCE: National Energy Board

2014 2015 2016 2017e

Real GDP in oil and gas sector

SOURCE: Statistics Canada

40

60

80

100

120

140

160

Jan-07 Jul-08 Jan-10 Jul-11 Jan-13 Jul-14 Jan-16 Jul-17

Conventional oil and gas extraction Support activities for mining and oil and gas extraction

1980.0

2040.0

2100.0

2160.0

2220.0

2280.0

2340.0

Oct-07 Oct-08 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Oct-14 Oct-15 Oct-16 Oct-17

Thousands of people

Employment, Alberta

SOURCE : Statistics Canada

*

6.6

5.7

4.84.5

4.8 4.9

7.0

8.5

7.8

0

1

2

3

4

5

6

7

8

9

2009 2010 2011 2012 2013 2014 2015 2016 2017

Unemployment rate, Alberta

Latest data available.

*October 2017

SOURCE: Statistics Canada

*

-6.6

4.45.0

7.1 7.16.5

-1.8

0.1

7.1

-8

-6

-4

-2

0

2

4

6

8

2009 2010 2011 2012 2013 2014 2015 2016 2017

Retail sales, gasoline stations excluded, Alberta

* *= year to date as available, Jan-Aug 2017 compared to same period last year

SOURCE: Statistics Canada; BDC calculations

Annual change, %

*

20.3

27.125.7

33.436.0

40.6

37.3

24.5

29.3

0

5

10

15

20

25

30

35

40

45

2009 2010 2011 2012 2013 2014 2015 2016 2017

Housing Starts, Alberta

*Estimates based on first three trimesters

SOURCE: Statistics Canada

Thousands of units

*

-22.7

10.7

16.1

2.44.1

7.2

-14.3

-8.0

14.1

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

2009 2010 2011 2012 2013 2014 2015 2016 2017

Manufacturing sales, Alberta

*= year to date as available, Jan-Aug compared to same period last year

SOURCE: Statistics Canada; BDC calculations

Annual change, %

-5.5

4.9

6.4

3.9

5.75.0

-3.6 -3.5

4.0

2.4

-8

-6

-4

-2

0

2

4

6

8

2009 2010 2011 2012 2013 2014 2015 2016 2017f 2018f

Real GDP, Alberta

f= forecast

SOURCES: Statistics Canada (historical data) and average of chartered banks forecasts

Annual change, %

business transitionUnderstanding the Canadian market to successfully buyor sell a company

The Canadian population is

getting older

SOURCE: Statistics Canada

2633

40 44

1971 1991 2011 2031 (F)

Median age

Entrepreneurs are older than the Canadian workforce

SOURCE: Statistics Canada, CANSIM Table 282-0001 and Statistics

Canada, Survey on Financing and Growth of SMEs, 2014.

32%50 years-old or older

Canadian workforce

59%

Canadian entrepreneurs

Owners of Canadian small and medium-sized businesses surveyed

2,500+

Who are the sellers?

of entrepreneursplan to exit their business and not acquire another

41%

The trend is stronger in Atlantic Canada and the Prairies% of entrepreneurs who will exit their business and not acquire another company

BC and Territories 43%

Atlantic

46%Ontario 40%

Prairies

45%

Quebec

37%

A boom in transitions coming upWhen do they expect to leave?

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

13%

54%

33%Next 12 months

Next 1-3 years

Next 4-5 years

Are entrepreneursleaving money on the table?

plan to expand

their business

have sound

financial reporting

have taken action

to maximize profits

ONLY…

48% 49% 37%

Who are the buyers?

of entrepreneursintend to make an acquisition

19%

44%

of leaders of larger businesses intend to make an acquisition

The buyers, among the most dynamic businesses in Canada

Eager to grow

84%

Willing to take risks

63%

No.1 motivation is

buying a competitor

Horizontal integration (acquire a competitor)

36%

Expand geographic presence

27%

Acquire a known brand to increase reputation

23%Vertical integration (acquire a supplier/client)

23%

Stable, profitable businesses –most sought-after

of buyers are looking for a stable, profitable business

61%

of buyers are lookingfor a growing, profitable business

31%

62%of potential buyers want a business the

same size or smaller than their own

Breakdown of buyers by industry

45%30%

29%24%

24%23%23%

Mines, quarries, oil and gas

Information and culture

Accommodation and food services

Transportation and storage

Arts, entertainment and recreation

Wholesale

Finance and insurance

A boomin transitions coming up

Significant opportunities for consolidation and expansion

In summary

Global economic growth

has gained momentum

in 2017 and it is

expected to continue

in 2018.

With oil prices stabilizing

and strong economic

expansion in the U.S.,

the Albertan economy

is expected to continue

its recovery.

Part of this story

will no doubt be how

mining and oil and gas

companies scale up

through acquisition

and become more

internationally

competitive.

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