Canadian M&A activity outpaces the global trend
PricewaterhouseCoopers (PwC), in its second quarter roundup of the Canadian M&A market, is reporting a 15% increase in the number of announced Canadian deals and a 26% increase in the aggregate value of announced deals. These results are in contrast to the U.S. market, where deal volumes in 2010 are at a decade low. While this quarter’s growth is noteworthy, the consecutive quarterly pace of deal volume growth has slowed by 12%.
"As the second quarter ended, we noted a shift in mood from cautious optimism to just plain caution," noted Kristian Knibutat, national Deals leader for PwC, in a press release.
"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 has identified four key deal trends based on the latest Q2 figures:
- Improved access to leverage resulted in heightened "mega deal" and financial buyer activity. The leveraged lending rally of the first quarter continued through the second quarter. This improved access to deal capital enticed large financial players into the deal market: Measured by value, Private Equity’s share of the Q2 deal market rose to 25%, its highest proportion since 2007. Access to deal capital also permitted a subdued comeback in "mega deals:" the number of deals valued at (greater than)$500 million involving a Canadian entity doubled over Q2 2009.
- M&A is being utilized by corporates to get "back to basics." In an economy that remains volatile and uncertain, many Canadian corporate are engaging in M&A to tighten operational focus or to achieve economies of scale. This trend is in stark contrast to the 2005 to 2008 period when a more common strategic rationale for corporate deals was to diversify operations.
- Foreign buyers continue to actively acquire Canadian assets. Few Canadians are looking past the U.S. border. Meanwhile, foreigners continue to scour the Canadian market. In particular, the Asian buying spree of Canadian assets that started in 2007 intensified this quarter, with the oil patch attracting considerable attention. For example, in the largest Chinese investment ever completed in Canada and the second largest Chinese investment ever made in North America, state-owned oil company, Sinopec acquired a 9.03% stake in oil sands leader ConocoPhillips for $4.65 billion.
- The energy and resource sectors are differentiating the Canadian deal experience. Canada’s dominance in the materials deal space is a "natural hedge" for our domestic deal market. These industries are being viewed by global investors as "safe havens" in an uncertain environment. Energy and materials deals represented 46% of all Canadian M&A activity this quarter with metals and mining take the lion’s share of volume at 29%.
