Canadian M&A: Will a quiet 2013 lead to a more active 2014?

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Strength in other sectors can’t fill gap left by a slow year in natural resources

TORONTO, January 29, 2014— Retail, real estate, utilities and pension fund activity were not enough to fill the gap left by a dearth of deals in Canada’s oil patch and mining companies. Even life sciences chipped in with large deals in Q4, but it wasn’t enough to prevent 2013 being the slowest year since 2009, according to PwC’s latest Capital Markets Flash. Overall in 2013, 2,500 deals worth $162 billion were announced. 

Nicolas Marcoux, Canadian Deals Leader, PwC says, “We started 2013 with optimism since equity and debt were both available and the economic backdrop was improving.” At the risk of appearing over-optimistic again, Marcoux indicates that 2014 appears to have the key M&A ingredients that were lacking in 2013 – higher valuations in the public markets and strong positive market sentiment.

“The S&P500 advanced by nearly 30% in 2013 and the markets actually continued to gain after the Fed openly put parameters around the tapering out of quantitative easing, something that would have sent the market plummeting 12 months ago.  This sentiment should help investors bridge the valuation gap with sellers as they start to feel more confident about the future,” says Marcoux.

In Q4 2013, the 716 deals with an aggregate value 26% below Q4 2012 was not a great finish, but the $44 billion total was not out of line with post-crisis performance.  The sector breakdown for the quarter showed utilities and energy accompanying real estate at the top of the value table, with a surprise appearance from the life sciences sector with two deals over $1 billion.

“The US biotech industry has been very healthy – putting American companies in a position to pursue Canadian targets,” says Nitin Kaushal, Managing Director, Corporate Finance, PwC. “There’s a scarcity of good, revenue-producing companies in this sector, and the leading Canadian companies are attractive targets. Expect to see a surge of financing in the life sciences sector this year as investors cycle cash back into earlier-stage ventures.”

M&A outlook: 2014 versus 2013

  • Equity remains available and is looking for a return – Similar to 12 months ago, corporates and private equity funds have significant resources available and part of that will translate into M&As.  The question is whether that cash is getting more impatient – almost a certainty for the private equity funds, but corporates can always return the excess to shareholders as they did in 2013.
  • Debt is (still) available and cheap – Canadian interest rates look to remain low for some time. The difference from 12 months ago is that pundits now consider rates may rise in the US before they rise here.
  • Exchange rates – The Canadian dollar has said goodbye to parity and most are pointing to a gradual, but steady decline throughout 2014. This bodes well for export sectors.
  • Pension funds –Canada’s direct-investing pension funds are expected to perform well in 2014- similar to 2013. Expect them to continue to invest in real estate and infrastructure, but also continue partnering with private equity players further up the risk-reward ladder.
  • Household debt – Record levels of household indebtedness will likely lead to problems for retailers, but the resulting margin squeeze may continue to drive M&A activity as scale becomes ever more important.

Marcoux concludes, “With the US economic recovery and public company valuations far ahead of where they were a year ago, we expect the biggest push toward increased M&As in 2014 will come from sellers finally getting what they regard as a reasonable price from more confident buyers.”

For more information, including a full copy of PwC’s Capital Markets Flash, please visit: A copy of the report is also available from the media contacts. Note all dollar figures are in US dollars.

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