TORONTO, November 24, 2011 — Despite economic uncertainly in the US, Canadian firms are making M&A history this year by acquiring more companies south of the border than vice versa (ratio of 1.5 to 1). The value of deals is also higher (ratio of 1.16:1). It’s another sign that businesses here are benefiting from a more robust economy and that they still believe in the US market, says Kristian Knibutat, Canadian Deals leader at PwC and one of the authors of PwC’s client newsletter, the Capital Markets Flash (www.pwc.com/ca/cmf).
As of November 14th, PwC observed Canadian entities involved in 385 US acquisitions worth over $US22 billion, 40% of all cross border deals by value and an all-time record-setting pace by volume. In the middle market (US$100-$US500 million), acquisition volumes and values have been steadily rising since 2005 and are on track to be triple what they were only five years ago.In addition to the relative strength of the Canadian dollar, Knibutat says Canadian M&A buyers continue to flock to the US for a number of reasons including:
Although the US is declining as a proportion of cross border deal destinations, it remains the investment destination of choice for Canadian buyers by a long shot. The second most targeted foreign country by Canadians this year was Australia, representing only 3.7% of cross border volumes. “While Canadians are hedging their bets by going further afield, they still favour the US. And they are willing to pay. Average premiums over the price of an acquired US target’s share price one month prior to a deal announcement have been rising since the recession,” says Knibutat. This year, the average share premium hit an astounding 51%, the highest average premium in PwC’s database. (average share premiums for Canadian targets currently sits at approximately 35%).
“Hot” US sectors identified by PwC that are likely to see some Canadian acquisition activity include:
Energy: PwC expects to see a high level of acquisition interest in US upstream deals as independents shift their portfolios to oil dominated assets from natural gas assets. PwC also expects the midstream sector will also remain active as large MLPs and private equity look to add to their asset bases in response to the increase in demand for infrastructure and logistics resulting from new shale area development. Oil field services consolidation will also continue as the large players look to strengthen their core businesses to take advantage of increased drilling activity.
Financials: PwC expects that acquisitions of US financial services companies are likely to gain momentum through 2011. Prospective regulatory changes and economic pressures may continue to drive small- and medium-sized US regional banks to seek out deal partners. And, as the US financial sector continues to restructure, we may see further disposals of non-core or higher risk lines of services.
Healthcare: PwC excepts that US healthcare M&A and joint venture activity will continue to accelerate, presenting many interesting deal opportunities for Canadians. In particular, Canadians may seek to acquire US managed care providers and hospitals in order to penetrate the lucrative US market. We also expect that the US medical device industry will continue to offer up interesting deal targets as the sector seeks to achieve cost savings and diversify product portfolios (as a result of federal excise taxes, downward pressure on pricing and reimbursements and declining procedure volumes in certain high cost treatment areas).
High technology: PwC expects that the underlying drivers of US technology M&A will persist in the near term: innovation, sector convergence and vendor consolidation. Each of these should present unique opportunities for Canadian technology players to either acquire companies in order to access captive customer bases (into which Canadian technologies can be pushed) or acquire point solutions that fill technology gaps in Canadian suites.
Media: Canadian media companies may seek out growth beyond Canadian borders into the innovative US media market, which has seen a number of firms succeed in generating sustained cash flows from both advertising and subscription based models in an age of disruptive mobile devices.
Real Estate: Well capitalized Canadian REITS and Canadian pension funds are likely to continue seeking out opportunistic buys in the US Real Estate market. PwC’s most recent emerging trends in real estate publication sets out what the likely “big bets” would be through 2012. Please contact us for a copy of the US Real Estate Opportunities report.
Capital Markets Flash includes nine graphs and further amplification of the topics covered in this release. The full report can be accessed at: www.pwc.com/cmf.Follow PwC on Twitter at @PwC_Canada_LLP and on Facebook at http://www.facebook.com/pwccanada.
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