Canadian M&A dealmaking plunges in first quarter

Following lacklustre activity in 2013, deal-making in Canada’s M&A market showed a major drop in the first quarter of 2014, reports Crosbie & CoThe Financial Post Crosbie: Mergers & Acquisitions in Canada database counted 189 announced transactions valued at $31.1 billion in this period, representing the lowest level of activity since the first quarter of 2009. Crosbie managing director Colin Walker said slow activity is at odds with several factors that should be creating strong market conditions. To an extent, overall M&A numbers are being impacted by sharp declines in dealmaking in certain sectors, such oil and gas and real estate, the report said.

PRESS RELEASE

Canadian M&A Activity – First Quarter 2014 Report

Flirting with a New Low

June 19, 2014

Following a lacklustre 2013 year, the Canadian M&A market experienced a significant drop in the first quarter of 2014. Data from the Financial Post Crosbie: Mergers & Acquisition in Canada database indicated 189 announcements valued at $31.1B in Q1 2014 (down from 262 deals worth $35.2B in Q4 2013). This represents the lowest level of activity since Q1 2009 when just 169 deals were announced.

“Despite many anecdotes from the street that activity has improved over the last few months, we are not yet seeing it in the numbers,” said Colin Walker, Managing Director at Crosbie & Company. “There is often a lag between announcements and measurable activity,” he added, “but we continue to see many of the conditions that should be very favourable to stronger M&A markets including good valuations and financing appetite.”

A strong part of the story this quarter is what is going on within a few key sectors. While activity in many sectors was broadly in line with last quarter, the two largest sectors, Real Estate and Oil and Gas were down significantly. In Q1, 42 Real Estate transactions and 33 Oil and Gas transactions were announced, representing declines of 38% and 45% in activity respectively. The largest Real Estate transaction was the acquisition of two assets by the Cadillac Fairview Corporation Limited from Hudson’s Bay Company for $650M.

Transactions over $100M by financial sponsors were also lower this quarter, with 7 announcements compared to 26 last quarter and an average of about 18 per quarter since the beginning of 2012. Canadian Pension Funds continued to make significant cross-border acquisitions. The largest deal by a financial sponsor in the quarter was the CPPIB acquisition of U.S. based Wilton Re Holdings Limited for $1.8B.

So called mega-deals (transactions over $1B) were up in the quarter, with 8 announcements compared to 5 in the last quarter. The total value of these deals was $16B (up 28% from Q4 2013). The largest transaction for the quarter was the acquisition of Devon Energy Corporation’s Canadian oil and gas assets by Canadian Natural Resources Limited for $3.1B. It is noteworthy that all 8 of the mega-deals in the quarter were cross-border transactions, 5 of which were Canadian companies making acquisitions abroad.

Mid-market M&A activity declined proportionally with the overall decline in the quarter, resulting in 164 reported transactions under $250M valued at $6.6B – representing 87% of total M&A activity.

Cross-border transactions in the quarter represented 45% of all announcements, in line with the long term trend. However, 75% of the total value of all of the deals in the quarter represented cross-border M&A, the highest level since before the financial crisis. Canadian companies continued to be very active internationally in Q1, acquiring 2.1 times more companies abroad than foreigners acquired Canadian companies while outspending their foreign counterparts by 1.6 times.

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 www.crosbieco.com.

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