Canadian M&A Activity was a Big Deal in 2017

The US made up 60% of outbound deals despite uncertainty to their tax system

(Toronto, February 1, 2018)—M&A activity in Canada reached its highest point of the past five years in 2017 with 2,274 deals, despite uncertainty surrounding the impact the new US administration’s policies might have on trade and the broader North American and global economies, according to PwC Canada’s Deals report published today.

“2017 was a stellar year for M&A activity in Canada, and all indications are pointing to a similar high volume this year,” says Dave Planques, National Deals Leader, PwC Canada. “Investing in Canadian businesses may become even more attractive if the gap between US and Canadian valuations widens”

According to the report, deal volume (deals more than USD$1M) increased to 2,274 deals in 2017 from 1,956 in 2016. For deals with a disclosed value, only “mega deals,” those valued at USD$5B or more, decreased to two in 2017 from seven in 2016. The technology sector continued to be Canada’s most active industry sector in 2017, with a 34% increase in deal volume over 2016.

“Now that US tax reform has been passed, providing a further stimulus to an already strong US economy, we expect to see increased M&A activity in the US and potentially US outbound investment activity into Canada,” adds Planques.

Outbound deals to the US reached nearly 60% of all outbound deals in 2017, one of the highest levels since 2008. Of the outbound deals to the US, real estate saw nearly twice the number of deals year over year. Deals in the technology sector also increased by 45% from 2016, with the majority (90%) of those acquisitions coming from corporate buyers.

According to PwC’s 21st Annual Global CEO Survey, 44% of Canadian CEOs are planning to engage in M&A activity in the next year to drive corporate growth and profitability. The deals report sites three factors that could significantly influence Canadian M&A activity in the year ahead:

• Dealing with NAFTA uncertainty: We see Canadian companies continuing to “power through” and use US-bound M&A as a way to establish or grow a presence in the US. Theoretically, this could insulate them from protectionist legislation and provide easier access to the growing US market. This uncertainty should prompt them to take a fresh look at their business strategies.
• The impact of US tax reform: As the year progresses, we will start to see major changes resulting from the US Tax Cuts and Jobs Act. Businesses will be affected differently depending on their capital structure and industry. There are five critical provisions to consider: corporate tax rate reduction, territorial tax system / toll charge, immediate expensing (cost recovery), business interest expense, and international provisions.
• Technology as a catalyst for deals: Making deals with tech companies can add value across a number of vectors, including greater access to highly skilled teams, access to new technology or intellectual property, new markets, and cross-sell/up-sell opportunities. These value drivers can be critical to companies striving to stay competitive against tech companies and other disruptive entrants.