Published On: Thu, Aug 4th, 2011

Canadian companies on a buying spree

Canadian companies were on a buying spree in the spring despite financial turmoil in Europe and the U.S., according to a report released


There were 836 merger and acquisitions announced, worth about $57 billion (U.S.) from April to June – the strongest quarter for deals in Canada since the credit crisis, a report from finance and tax consulting firm PwC.

The rising Canadian dollar and strong economy, as well as positive business sentiment late last year, led to the increase in M&A activity, the report said.

Deal volumes rose 6 per cent over the first quarter of 2011. The total value was up 14 per cent.

Materials, energy and financial sectors were the hottest sectors. Together they accounted for nearly two-thirds of the deal-making market.

But the question now is whether that pace can continue, given renewed worries about slowed economic growth and the sovereign debt crisis in Europe.

“We’ve probably taken a step back in terms of the level of activity,” said Kristian Knibutat, Canadian deals leader for PwC, formerly PricewaterhouseCoopers. “We may see a greater level of cancellation and reduced level of volume of deals.”

The biggest deal announced in the second quarter was Barrick Gold’s pending $7.8 billion acquisition of Equinox Minerals.

Other blockbuster deals announced in the quarter included:

The pending $4.5 billion-takeover of Nortel Networks’ patent portfolio by a consortium of technology companies that includes RIM, Apple, Sony, and Microsoft also ranks among the largest deals.

In the financial sector, Intact Financial Corp.’s pending $2.7 billion acquisition of AXA Canada took the top spot.

Berkshire Partners and the Ontario Municipal Employees Retirement System (OMERS) private equity joint $2.1 billion takeover of Husky Injection Molding Systems.

The presence of large Canadian pension funds is also a driving factor in M&A deals, Knibutat said. “Canada is a small part of global capital markets and we have very significant pension funds that need to diversify their portfolios.”

Merger and acquisition deals typically take as long as six months from start to completion. The agreements announced in the second quarter likely got their start the previous fall or winter.

“You need to go back and reflect on the sentiment at that time,” Knibutat said.

Despite some worries about European sovereign debt at that time – well before the U.S. debt ceiling standoff – Canada’s economy was performing well, he added. “That created a market that people are very interested in being involved with from an M&A activity perspective.”

In general, Canadian companies tend to be acquirers in 70 per cent of transactions, Knibutat said.

Canadian M&A activity in the real estate sector also continued at a rapid clip through the second quarter.

The second quarter saw 90 real estate deals worth $9.7 billion, including Dundee REIT’s announcement to acquire a $1.09 billion portfolio 295 commercial properties in Germany.

Recent instability in global markets may put a dent in some M&A activity, but the Canadian market is still expected to be healthy relative to other developed markets, Knibutat said.

“Given recent instability, we do expect deal activity to slow down, but we anticipate that Canada will fare better than many of its developed nation peers.”


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