Bright spots in a slowdown: Canadian-led M&A in Europe hits a post-crisis high, Canadian middle market M&A surges ahead

Despite 2% quarterly drop in the value of Q2 Canadian M&A, Canadian purchases in foreign markets up 191%, value of middle market M&A up 35%

TORONTO — Despite continued macro-uncertainty, Canadian companies were very active in Europe during Q2 2012, announcing $15.1 billion worth of deals on the continent—a post-crisis quarterly high.  Overall, the quarter saw Canadians active in a number of foreign markets.  $21.8 billion of acquisitions were announced in 40 countries outside of Canada, including 27 growth markets, one of the highest outbound deal values on record.

“Canadian firms are combating slow domestic growth by making acquisitions abroad,” says Nicolas Marcoux, Canadian Deals leader at PwC.  “Quite often, M&A can be utilized as a tool to achieve growth as well as a means to innovate.”

The middle market segment of the Canadian M&A market also picked up steam during Q2 with 51 transactions worth $12.2 billion announced, up 21% and 35% respectively over the prior quarter.  According to Marcoux, “These results are not surprising to us.  Many corporates and private equity firms have been publicly stating their desire for bolt on acquisitions for some time.”

Other observations in the PwC Q2 2012 deals report (available at www.pwc.com/ca/quarterlydeals) included:

• The second quarter saw 721 M&A announcements worth $47.7 billion.  Deal volumes and values declined 7% and 2%, respectively, over the prior quarter.  On a year-ago basis, they were down 14% and 4%, respectively.  Overall, the tally was roughly in line with the average post-crisis performance.
• The overall drop off in announced M&A during the second quarter was led by a decline in “mega deals.”  The aggregate value of M&A transactions worth more than $1 billion dropped by $4.8 billion, or 16%, compared to Q1.  Ontario overtook Alberta as the most popular province to make an investment.  By value, 41% of announced deals were in Ontario compared to 36% in Alberta.  A key reason for the change was because of fewer large deals in Alberta’s oil sands.
• By sector, real estate and energy continued to see a flurry of M&A activity while diversified financials made a comeback as a result of deals in the insurance and banking industries.  Activity in the metals and mining sector dropped to represent just 5% of Canadian M&A activity by value, largely due to a decline in commodity prices and a slowdown in demand for resources, especially from China.
• Cancelled deal activity dropped to a record low in the quarter despite shaky markets.  There were only 12 deal cancellations in Q2.  “This shows Canadian buyers have a high degree of confidence in their ability to complete transactions,” says Marcoux.  He went on to add, “Buyers are investing more time ‘up front’ ensuring targets are the right strategic fit.”

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