Canada’s Q2 M&A activity outpaces the global trend: PwC

TORONTO: In its second quarter roundup of the Canadian merger and acquisition (M&A) market, PricewaterhouseCoopers (PwC) is reporting a 15 per cent increase in the number of announced Canadian deals and a 26 per cent increase in the aggregate value of announced deals.

These results are in contrast to the US market, where deal volumes in 2010 are at ten-year low.

While this quarter’s growth is noteworthy, the consecutive quarterly pace of deal volume growth has slowed by 12 per cent.

“As the second quarter ended, we noted a shift in mood from cautious optimism to just plain caution,” says Kristian Knibutat, national deals leader for PwC. “While we do not anticipate a retrenchment in activity for Q3, we believe that the M&A recovery will be shallow and slow, dominated by well-capitalized corporations and large pension funds.”

PwC identified four key deal trends based on the latest Q2 figures.

First, improved access to leverage increased financial buyer activity. The number of deals valued at more than $500 million involving a Canadian entity doubled over last year’s Q2. The first quarter rally continued through the second quarter, improving access to deal capital. Private equity’s share of the Q2 deal market rose 25 per cent, the highest since 2007.

Next, M&A is being utilized by businesses to get “back to basics.” Canadian corporations are engaging in M&A to strengthen operational focus or achieve economies of scale. This trend contrasts the 2005 to 2008 period when corporate deals were focused on diversifying operations.

PwC also identified that fewer Canadians are looking past the US border while foreign buyers continue to actively acquire Canadian assets. In particular, the Asian buying spree of Canadian assets that started in 2007 intensified this quarter with the oil sands attracting considerable attention. For instance, in the largest Chinese investment ever completed in Canada—and the second largest in North America—state-owned oil company, Sinopec acquired a 9.03 per cent stake in oil sands company ConocoPhillips for $4.65 billion.

Finally, the energy and resources sectors are enhancing the Canadian deal experience. Canada’s dominance in the materials deal space is a natural hedge for its domestic market. Global investors view these industries as “safe havens”. Energy and materials deals represent 46 per cent of all Canadian M&A activity this quarter with metals and mining taking the lead with a volume of 29 per cent.

Read PricewaterhouseCooper’s merger and acquisition report.