TORONTO—Canadian businesses have completed more than $50 billion worth of deals in the past 90 days – 81 per cent higher than the first quarter of 2010 and in line with the Q1 2007 high, according to a new PwC report.
“It has been a very active quarter and we’ve seen more diversity in deal making. For the first time since the credit crisis, the top twenty deals of the quarter showcased a variety of different industries,” says Kristian Knibutatn Canadian Deals Leader. “But our view is that the overall M&A environment in 2011 is dramatically different than 2007.”
The report suggests that 2011 will be very promising, but also points out key differentiators between today’s post-crisis Canadian M&A market and the pre-crisis “boom”:
- A new kind of resource market. While Q1 saw activity from a variety of industries, Canada’s deal markets remains the most concentrated on the globe (49% commodities). Within commodities, however emerging sub-sectors such as agriculture, alternative energy, junior mining, shale gas and unconventional extraction look to be the most promising deal opportunities.
- The return of leverage (but not leveraged deals). There was no shortage of leverage available in the first quarter of 2011. In fact there was a record quarterly volume of new issue leveraged loans in Q1, higher even than Q2 of 2007. However, most new issues were in support of re-pricing and recapitalization, not LBOs. Buyers remain hesitant to pursue leveraged buy outs that meet seller’s value expectations.
- Private equity re-invented. Financial buyers continue to take a back seat to corporate buyers. This quarter, despite an uptick in available leverage and robust capital markets, private equity firms were only involved in 20% of Canadian deals, down from 29% (Q4 2010) and 23% (Q3 2010). No Canadian private equity deal breached the $1 billion mark. In addition to digesting opportunistic deals completed in 2010, many private equity firms spent the quarter focusing on rebalancing private company portfolios and maximizing efficiencies within private company portfolios.