More mergers and acquisitions in Canada

TORONTO—Canada is in for a “blockbuster” year of business deals, according to a new survey by Toronto-based research firm, PricewaterhouseCoopers LLP.

The PwC survey tracked 3001 mergers and acquisitions last year in Canada—a high not seen in five years. Although still below 2007’s peak, deals amounted to $155 billion, an increase of 65 per cent from the previous year.

Canadian activity is outpacing the global trend, where the number and value of deals rose 25 per cent from the year before.

Breakdown of deals in Canada:

• Materials sector  (30 per cent of all activity) 913 deals
• Energy (16 per cent)  471 deals
• Financials (5 per cent) 454 deals
• Industrials (10 per cent) 304 deals
• Information Technology (9 per cent) 256 deals

Last year also saw a record number of Chinese acquisitions in Canada, with the dollar value of Asian buys crossing the $5-billion mark.

At the same time, more Canadians acquired foreign entities than the other way around—77 per cent compared to 23 per cent.

“The hollowing out debate was one of the most heated business issues of the year,” says
Kristian Knibutat, PwC’s National Deals Leader.

“While we recognize that certain assets in Canada are highly strategic, on the whole our experience suggests M&A has contributed to the growth—not the demise—of corporate Canada.”

Jeff Brownlee, vice president of Public Affairs & Partnerships with Canadian Manufacturers and Exporters, says the PwC survey results aren’t surprising.

“What we are seeing emerging is a game of survival of the fittest and some companies believe that they can be in a stronger position globally by either forming strategic alliances or purchasing other companies,” he says.

Brownlee says increases in M&A and consolidation are redefining the nature of supply chains.

“The Canadian SME segment is feeling the brunt of this change. A lot of companies, before the recession, relied on US companies in their supply chain to take them global. With consolidation back to the US, many lost their linkages to the global supply chain are now looking beyond the 49th parallel,” he says.

Brownlee says CME is trying to fill that void by finding new business opportunities and focusing on Mexico and Hong Kong as a gateway to Asian markets.

Some companies are already crossing the gates in their own way, the PwC survey found, as Canadian firms made purchases in nearly every continent last year.

“During the fourth quarter of 2010, we noted leading Canadian corporates reaching into new geographies including the Middle East, Asia and Africa. These transformational deals are beacons for what will become the norm for Canadian deal-making going forward,” Knibutat says.

The report makes several predictions for 2011, including more joint venture and minority position deals.

The energy and mining sector will continue to lead M&A activity in Canada, but there will be increases across a broader range of sectors such as infrastructure, agribusiness and food, and healthcare.

Canada will keep outdoing the global trend thanks to its strong dollar, well-capitalized financial system and leadership in hot deal sectors. Businesses here will also have greater access to financing through traditional and leveraged loans, as well as public debt markets.

But Knibutat cautioned firms about the still-recovering global economy.

“Companies and funds should approach deals with a long-term perspective, rather than get swept up in the short-term storm,” she said.