Energy pressures to drive Canadian dealmaking in 2016

Primary driver will be the slump in commodities prices.

February 3, 2016   by PLANT Staff

TORONTO — Canadian merger and acquisition (M&A) activity is expected to accelerate in 2016, as low energy prices attract buyers to the market, according to a study by Citi.

The appetite for deals is broadly projected to rise: 70% of respondents predict a higher level of M&A activity in the next 12 months, with 20% expecting a significant increase.

The report, Brighter Horizons: A bolder future for Canadian M&A, found that the proper market conditions appear to be taking hold for an increase in deal volume in 2016. The primary driver will be the slump in commodities prices according to 38% of respondents, followed closely by private equity demand (36%).

“2016 is shaping up to be an interesting year,” says Grant Kernaghan, Managing Director of Canadian Investment Banking at Citi. “In addition to the continuing demand from private equity, we are expecting higher activity levels in the mining and energy sectors, and a number of factors are converging that suggest an increase in hostile takeovers may be on the horizon.”

Other key findings from the report include:

The biggest increases in Canadian M&A activity are expected in domestic and inbound deals. Forty-eight percent of respondents predict an uptick in domestic deals and 81% believe that inbound deals will increase, while only 33% foresee a rise in outbound M&A.

The greatest challenge to Canadian M&A in 2016 will be the valuation gap between buyer and seller according to 68% of respondents, trailed closely by volatility in global commodity prices (62%).

When asked what sectors they think will see the most Canadian M&A activity, respondents identified Energy (50% for Domestic M&A, 48% for Inbound M&A) and Mining (34% for Domestic M&A, 28% for Inbound M&A) in 2016.

Download a copy of the report here.

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