Canadian M&A deal-making still slow, despite higher values

Mergers and acquisitions in Canada showed a continuing “sluggish tone” in the third quarter of the year, reports Crosbie & Company. The Financial Post Crosbie: Mergers & Acquisitions in Canada database found 205 transactions announced in this period, or the lowest number since the bottom of the market cycle in Q1 2009. On the other hand, deal values, totaling $49 billion in the third quarter, increased 21% year over year. This was due to a few large transactions, particularly in the retail and real estate sectors. Crosbie managing director Colin Walker said that “strong value in the face of weak activity partly reflects the fact that many transactions are getting done at good valuations.”



Lacklustre Activity Continues but Transaction Valuations are Attractive

Data from the Financial Post Crosbie: Mergers & Acquisition in Canada database shows that the sluggish tone of the Canadian M&A continued in Q3 based on a number of measures. Not only were the number of announcements in the quarter (205) the lowest level since the bottom of the cycle (i.e. Q1/2009) but the year-to-date announcements (666) were 7% below the same period last year and 17% below the same period in 2011. Despite weak activity, the value of transactions increased by 9.7% to $49 billion in the quarter due to a few large transactions, particularly in the retailing and real estate sectors.

“Strong value in the face of weak activity partly reflects the fact that that many transactions are getting done at good valuations,” commented Colin W. Walker, Managing Director at Crosbie & Company. “Not only are there generally more buyers than sellers right now, but buyers are paying up for good quality companies.” Mr. Walker added, “Part of the reason buyers are able to stretch valuations like we are seeing are the exceptionally attractive financing terms currently available”.

The retailing and real estate sectors were key drivers behind the higher value of M&A during the third quarter with the five largest transactions all coming from these two sectors. Real estate was again the most active sector with 65 transactions, modestly below the 72 deals it recorded in the prior quarter. However, the value of real estate deals increased from $7.8 billion to $18.6 billion on the back of the $7 billion spin-off of Loblaw Companies Ltd.’s property portfolio to Choice Properties REIT and the $5 billion purchase of Brookfield Office Properties Inc. by Brookfield Partners L.P. The retailing sector recorded $18.6 billion worth of transactions, a record high quarterly level for the sector and a three-fold increase from the prior quarter. The largest transaction of the quarter was Loblaw’s $12.4 billion purchase of Shoppers Drug Mart Corp. The two other retailing transactions rounding off the five largest transactions were Canada Pension Plan’s $3 billion investment in Neiman Marcus Group and the Hudson Bay Company’s $2.9 billion acquisition of Saks Inc.

In aggregate, there were 9 mega-deal transactions (deals over $1 billion) valued at $35.7 billion which is the highest recorded quarter for mega-deals since Q3 of 2007. While the number of mega-deals is down from the 11 announcements in the second quarter, the value of those deals 28% higher than the $28 billion seen in the previous quarter.

Financial sponsors were again active with 11 transactions valued at $6.8 billion in the segment of deals valued over $100 million resulting in a participation rate of 15% of announced deals and 23% of M&A activity for the quarter. In addition to the Neiman Marcus investment, Canada Pension Plan announced two additional real estate deals including the acquisition of a stake in Brazilian Aliansce Shopping Centers S.A. for $0.5 billion and its purchase of Office Properties in London, UK via its 50/50 partnership with the BT Pension Scheme valued at $274 million. Onex Corp. was also featured in the third quarter with the sale of its industrial services provider TMS International to the U.S. based Pritzker Organization.

“The market does seem to be bifurcated at this point,” said Mr. Walker. “The strong showing for mega-deals demonstrates the confidence that sophisticated players have in pursuing large strategic transactions, many of which are transformative. However, the decline in mid-market activity seems to reflect a different perception among many middle-market companies.” He further added that “While conditions are exceptionally good for completing deals across the whole size spectrum, many sellers seem to believe that the timing is not currently right for them. Given the realities of age demographics, this may be setting the stage for a surge in activity at some point in the not too distant future.”

In the third quarter, 40% of announcement deals were cross-border transactions and Canadian acquisitions of foreign companies continue to outpace foreign acquisitions of Canadian companies. The outbound to inbound ratio was 2.2:1 in terms of deal activity and 1.2:1 in terms of deal value.

The information above and on preceding pages is a summary of Crosbie & Company Inc.’s analysis of each quarter’s M&A activity. The data is compiled from Financial Post Crosbie: Mergers & Acquisitions in Canada, the most extensive database on M&A activity in Canada.

For further information, please contact Colin W. Walker at Crosbie & Company (416-362-7016) or visit To subscribe to Financial Post Crosbie: Mergers & Acquisitions in Canada contact Infomart (phone 416-442-2121; toll free 1-800-661-7678; e-mail Infomart, a division of Postmedia Network Inc., is Canada’s leading media insights consultancy offering corporate data, media monitoring services, and research and content solution.

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