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Energy leads Canadian M&A activity: PwC

It may be the slowest quarter in 10 years for mergers and acquisitions, but Canadian deals are up from Q4 of 2011 with transactions worth $48.7 billion, says a PwC Canada report.


April 26, 2012
by PLANT STAFF

TORONTO: It may be the slowest quarter in 10 years for mergers and acquisitions, but Canadian deals are up from Q4 of 2011 with transactions worth $48.7 billion, says a PwC Canada report.

Mergers were up 24% and acquisitions 7%, with the energy sector “the clear frontrunner,” representing 28% of all deal value, and up 90% over 2011, and much of the action that’s taking place in the west.

PwC reports 116 Canadian energy transactions worth $13.8 billion in Q1, noting a slump in natural gas prices prompted many players to find new markets, shift production, improve capital efficiencies or access enabling technology.

“The Canadian M&A market now represents 10% of all global M&A and continues to defy gravity. But this is a very different market than pre-crisis. Emerging market demand for resources, changes in regulation and government policy and disruptive technology were the common themes driving many deals this quarter,” says Kristian Knibutat, PwC Canada’s national deals leader.

Agribusiness had a 15% share in Q1. PwC said the growth is largely due to the pending $6.1 billion acquisition of Viterra by Glencore. The deal did not come as a surprise to the market, which was expecting takeover activity in the Prairies after the federal government’s move to deregulate the Canadian Wheat Board.

Real estate and mining were the third and fourth most active sectors, although both saw market shares drop by 20% and 50% respectively.

The Q1 report shows that the resource-rich West is attracting much of the investment in Canada. The was home to 67% of all Canadian M&A targets in Q1, including 15 of the top 20 Canadian acquisitions.

Despite Ontario’s eroding market share of takeover value, however, it was still responsible for 29% of Canadian M&A takeover volume, moderately higher than Alberta’s 22% share.

Meanwhile the Canadian middle market experienced a fourth consecutive quarter of contraction. In the $100-$500 million transaction size segment, 42 Canadian transactions worth $9 billion were announced, 11% and 6% lower than the prior quarter respectively.

The single most significant pocket of weakness was the commercial real estate sector, down 57% to $1.6 billion. Otherwise, the middle market actually registered a 26% increase in deal values.

Deal activity continues to show that Canadians are lagging their developed market counterparts in capitalizing on M&A opportunities in emerging markets. This quarter there was a sharp slowdown in outbound M&A to emerging markets. PwC said transaction values nosedived 75% quarter-over-quarter to their lowest levels since Q4 2009 and were 82% lower than their post-crisis peak in Q3 2011.

Volumes saw a more modest decline, falling 8% from Q4 2011 and 15% from peak volumes seen in the Q1 2011.

Says Knibutat, “Canadian buyers continue to miss the mark in growth markets. Together with Canada’s leading regulatory, analysts and policy makers, we believe this trend needs to change to ensure Canada remains competitive and prosperous.”

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