Ontario and Quebec losing M&A market share to Western provinces: PwC

Deregulation of the Canadian Wheat Board, Plan Nord, Ontario’s Liberal win, the shale gas revolution to shape Canadian M&A.

TORONTO, Oct. 28, 2011 — A new PwC report on Merger and Acquisition (M&A) deal activity comparing provincial buy side and sell side transactions www.pwc.com/ca/QuarterlyDeals shows that while Ontario and Quebec continue to be top investment destinations in Canada, each has lost market share to the western provinces over the past 10 years. “Canadian M&A is not just about Toronto and Montreal anymore,” says Kristian Knibutat, PwC’s Canadian Deals Leader. “These centres are still critical for deal making, but regional trends certainly point to interesting opportunities in Canada’s west, as well as in Canada’s most eastern provinces.”

The report highlights that while Ontario and Quebec continue to be among the top three investment destinations in Canada, each province has lost sell side market share over the past decade. Targets in Ontario and Quebec once represented 47% and 29%, by value, of all acquisitions in Canada. Today, the provinces market shares have declined to 31% and 22% respectively.

The report also found that:

• Quebec based buyers have also lost market share over the course of the millennium. Measured by deal value, the province saw sellers outpace buyers this year by a factor of 1.5 to 1 this year. This trend may be contributing to the so-called “hollowing out” of Quebec.
• Ontario-based buyers are gaining market share. This year, 70% of acquisitions involving a Canadian buyer included an Ontario-based buyer, the highest proportion of any province and a 117% increase over Ontario’s proportion of buy side deal values in 2000. Fifty-six per cent of acquisitions were outside of Canada. Overall, Ontario-based buyers outpaced Ontario based sellers by a factor of 3.8 to 1 year to date.
• Alberta’s M&A market is shifting as oil and gas deals, once representing 80% of all M&A targets in the province, now represent 51% of deals. With the Alberta economy diversifying, sectors that are now more in the forefront of deal making include utilities and real estate. Energy market volatility and new sources, such as shale gas, are also increasing competition for capital and deals.
• Mining is the number one targeted sector in each of Ontario and British Columbia, thanks to Toronto and Vancouver’s roles as global capital markets centers (the majority of mining projects being acquired, however, are typically outside of the provinces).
• Large financial institutions see Manitoba as a ‘gateway to the west’ and are increasingly targeting the province’s niche financial services sector.
• Saskatchewan’s uranium, potash and farm land sectors and Ontario’s retail banking sector are likely among the most coveted for acquisition in the country. These sectors see little inbound M&A activity due to regulatory hurdles.
• Despite a wall of funds from private wealth and Asian money looking for acquisitions in British Columbia, acquisition opportunities in BC appear to be limited.
• The Atlantic provinces have been increasingly popular as an M&A destination compared to 10 years ago. Newfoundland’s technology sector saw a potential ‘game changing’ acquisition this year.

The report says there are a number of hot topics to watch with provincial impacts in deal making. These include: the deregulation of the Canadian Wheat Board, which may provide new players with the incentive to enter the prairie provinces wheat and barley markets via M&A; Plan Nord in Quebec, which has the potential to do for Northern Quebec what the development of the oil sands did for Alberta; the shale gas revolution may prompt strategic consolidation among domestic players in order to prepare for more intense global competition; and the Liberal election win in Ontario, which paved the way for increased investment in renewable energy.

In conjunction with its provincial deals analysis, PwC also released today a report of Q3 2011 M&A deals in Canada. This report is available at www.pwc.com/ca/QuarterlyDeals and the press release at www.pwc.com/ca/media.

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.

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