Transformational 3rd quarter for Canadian M&A activity by deal value; up 168% from Q2

Canadians take the lead in global deal-making

October 15, 2010—Measured by dollar value, the Canadian deal market during the last three months was a blockbuster one, says PwC in its quarterly roundup of the Canadian M&A market. Close to $95 billion in Canadian deals were announced and, measured by value, activity was up 240% from the 1^st quarter of 2010 and 168% from the 2^nd quarter.

Canadian activity also outpaced the global trend, where the aggregate value of 3^rd quarter deals declined by 10% and gained 9% over Q1 and Q2 respectively.

“This quarter was characterized by marquee mega-deals underscored by BHP’s $40 billion hostile bid for Canada’s Potash Corp, which accounted for 42% of announced value. There were also 13 $1 billion-plus deal announcements made during the quarter, the highest number of Canadian mega-deal announcements since the credit crisis,” says Kristian Knibutat, national Deals leader for PwC.

Measured by the number of announced transactions, M&A was sluggish, especially in the lower middle market, the report says. A total of 675 Canadian deals were announced during the quarter, down 12% and 22% over the 2^nd quarter and 1^st quarter respectively. Measured by number of transactions, the 3^rd quarter in Canada was the slowest deal quarter in Canada since the 2008 credit crisis.

The drop in middle market deal announcements was the prime culprit for declining deal volumes, says Knibutat. Volumes in the $100 million to $1 billion segment were flat and transactions below $100 million declined by 12% compared to the last quarter.

Three perspectives from the quarter are outlined in the report:

• Select players look past North America. Leading Canadian corporates extend their geographic reach and announce buys in Latin America, the Middle East, Brazil, Australia and Africa. These deals are the exception, not the rule. Middle market companies stay conservative and close to home.
• Two large funds on buying spree in otherwise slow PE quarter. Two Canadian funds lead global private equity deal making: Canada Pension Plan (CPP) and Onex Corporation both announce multiple large acquisitions. However, during the third quarter, private equity’s share of the Canadian M&A market declined for the first time this year, a reversion that suggests corporate, not financial buyers, have assumed the “driver’s seat” in today’s deal markets.
• Agricultural commodities in the deal spotlight. Since 2000, agricultural commodity deals have been an increasingly important component of the Canadian deal market. The outcome of BHP’s controversial hostile bid for Canada’s Potash Corp, will likely shape deal-making in the agriculture and all other commodity markets for the remainder of 2010 – possibly igniting a further flurry of commodity-related M&A activity or, conversely, prompting a “chilling effect.”

Knibutat, in the report says, “The third quarter was dominated by a small number of noteworthy deals rather than a large number of typical ‘Canadian’ deals. The nature of M&A this quarter suggests the Canadian deal market is at a turning point, not in regard to deal volumes or values, but in regard to deal drivers. Achieving growth in new geographies, new markets and perhaps with controversial deal partners, will shape Canadian M&A in the months to come.”

PwC deal data includes announced M&A transactions involving at least one Canadian entity and the source of all our data is Capital IQ. The full six-page report including graphs and detailed analysis is available from the contacts above. Go to this URL to subscribe to the bi-weekly capital market series: www.pwc.com/ca/QuarterlyDeals

Methodology Notes:

A “Canadian” deal refers to an M&A or spinoff transaction involving at least one Canadian entity as either buyer or seller.

Deal statistics may include cancelled transactions.

In the case of hostile or competing bids, more than one announcement for the same target may be included in statistics. Our methodology includes these announcements as we consider them to be a proxy for the state of the M&A market.

About PwC’s Deal Team

PwC’s Deal Team (www.pwc.com/ca/deals) helps clients to achieve deal success—from concept to close and beyond. As part of the world’s largest Transaction Advisory practice¹, and with our global Corporate Finance group being 2010 Upper Mid Market M&A Advisor of the Year², the PwC Canada Deals Team is your gateway to an exciting new world of emerging M&A opportunities.

¹Source: Kennedy;”Business Advisory Services Marketplace 2009-2011”; ©BNA Subsidiaries, LLC. Reproduced under license.
²Source: Acquisitions Monthly Awards 2010