2011 M&A transaction volumes hit all-time high in Canada

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Despite global setbacks, measured growth expected for 2012

TORONTO — Amidst a year of turmoil, Canadian dealmakers were motivated and busy in 2011, with volumes hitting an all-time high of 3,173 M&A transactions, worth $189 billion. A report released today by PwC, available at www.pwc.com/ca/quarterlydeals, also points to deal values rising by 22% compared to 2010 and double the 2009 value tally (deal values still do remain well off the 2007 peak). Many Canadian entities were focused outward this year with the percentage of Canadian M&A deals involving a domestic target dropping to 51%, down from a high of 81% in 2006.

“Canada is coming off a strong year, despite a number of economic setbacks globally. As a country we stepped onto the world stage and have established a level of credibility that we view as extremely noteworthy,” says Kristian Knibutat, PwC’s Canadian Deals Leader.

The report shows that Canadian deals represented 10% of the global M&A market in 2011, up from 7% at the 2007 market peak. Also, for the first time in history, the value of Canadian acquisitions into the US outpaced the value of US-led deals in Canada.

In 2012, Canadian M&A will likely move forward at a measured pace. The report says: “We anticipate Canadian M&A to outpace global M&A growth rates and end the year in-line or moderately below the 2011 domestic tempo.” PwC outlines five trends that will help to shape the 2012 deal market:

  • Low debt yields in North America will provide support for continued Canadian M&A. Demand for real assets, private companies and cash flow positive investments should be strong, especially in the real estate, infrastructure, utilities, extractive resources, timber and agriculture sectors.
  • Government austerity measures in the developed world will present unique investment opportunities for Canadian pension funds and specialized infrastructure and project finance firms (via government privatizations, equity reductions or P3 projects).
  • Public market volatility will create a bias for reallocating portfolios in favour of private investments. Mid-size undervalued public companies will be particularly attractive targets to private equity players hungry for take-private opportunities.
  • As more baby boomers retire and as a buyers’ hunt for good private middle market targets intensifies, the Canadian family succession wave will begin to gradually materialize
  • More emphasis on growth markets, and a more innovative “deal mindset” will emerge as the reality of anaemic growth in the west sets in. A recent global PwC report elaborates on this, available at www.pwc.com/ca/EMDeals

A sneak peek at 2012 via comparison of the first 16 days of the year against 2005-2011 revealed that M&A deal values are already off to a strong start.

DEAL TRENDS FROM 2011

Robust growth. As previously noted, deal volumes and values showed a positive trend, with many Canadian entities being in the enviable position of being able to pick up foreign carve outs. As well, the post-crisis renaissance of middle market M&A continued with 188 middle market transaction announcements worth $43 billion. Worth noting however, is that demand/supply imbalances in the market meant that the latter sector had two consecutive quarters of decline in 2011.

Motivated buyers. Not only did M&A volumes hit an all-time annual high, but the number of deal cancellations was at an all time low. We were also treated to some dramatic high profile bidding wars.

A rebound in deal multiples. This was not a “fire sale” market. Across North America, the average Leveraged Buy Out (LBO) EV/EBITDA multiple was 9.4x, just shy of the 2007 market peak (9.7x) and nicely recovered from 2009 crisis lows (7.7x). Multiples varied broadly across sectors.

Active private equity market. Last year was a busy year for PE funds. In Canada, domestic funds were involved in 215 deals worth $52 billion. This represented 28% of all Canadian M&A activity, measured by value, up from market share in each of the three years prior.

A more varied group of sectors were active. Post-crisis, extractive resources (oil, natural gas, gold, mining commodities, etc) have typically accounted for more than half of all Canadian M&A values. This year, these industries led by a narrower margin as a more varied group of sectors was also active. By measures of deal value the top five Canadian M&A sectors were: metals and mining (19%), real estate (16%), energy (16%), financials (12%) and industrials (9%).

The report also explains other trends which made 2011 different from other years, such as more collaboration among buyers, more activity in global markets and increased interest by emerging market foreign buyers in Canadian companies.

Predicting how 2012 will turn out is proving to be difficult, says Knibutat. “There is much uncertainty and the world is waiting for a number of events to unfold. The most likely scenario is that Canadian M&A will move along at an ‘unremarkable’ pace, but forward nevertheless.”

Follow PwC on Twitter at @PwC_Canada_LLP and on Facebook at www.facebook.com/pwccanada.

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.

About PwC Canada

PwC Canada helps organizations and individuals create the value they’re looking for. More than 5,700 partners and staff in offices across the country are committed to delivering quality in assurance, tax, consulting and deals services. PwC Canada is a member of the PwC network of firms with close to 169,000 people in 158 countries. Find out more by visiting us at www.pwc.com/ca.

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PwC firms provide industry-focused assurance, tax and advisory services to enhance value for their clients. More than 161,000 people in 154 countries in firms across the PwC network share their thinking, experience and solutions to develop fresh perspectives and practical advice. See www.pwc.com for more information. In Canada, PricewaterhouseCoopers LLP (www.pwc.com/ca) and its related entities have more than 5,300 partners and staff in offices across the country.

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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