Energy, utilities, mining and industrials

Mid-year Canadian M&A industry and market trends

Deal activity in energy, utilities, mining and industrials (EUMI) was strong in the first half of 2021, particularly compared to the same period last year. With deal valuations expected to remain high, companies will need to have strong, clearly defined plans to realize synergies and drive value so they can achieve their desired return on investment.

Here are some of the key M&A trends we’re seeing in EUMI:

The global shift towards net zero has accelerated over the last six months. This is becoming a major influencer of deals activity across the EUMI sectors—in addition to capital availability and environmental, social and governance (ESG) more broadly.
As we noted in our February market trends report, legacy firms are showing more interest in forging innovative partnerships to achieve net zero and other strategic goals. For example, Hydro-Québec and Énergir recently announced plans to work together to reduce heating-related greenhouse gas emissions, while Suncor and ATCO announced plans to develop a hydrogen power generation facility.
While oil prices have improved in recent months, we expect energy production companies to remain cautious with their capital plans for the remainder of 2021 and into 2022. We could see divestitures from some foreign integrated producers as they move away from carbon-intensive assets. But selling their Canadian assets could prove challenging, given the limited buyers for Canadian assets.
Mining companies headquartered in Canada are seeing higher levels of geopolitical uncertainty in regions where their mines are located, and this may impact acquisition and divestiture activity in the next six months. With high commodity prices, some foreign governments are looking to capture a greater share of profits by introducing or increasing taxes, royalty rates and other interventions. Mining companies need to assess these risk factors, given how they could impact company valuations and delay the pace of any deal activity. Canada has always been a popular destination for mining deal activity, and we expect this to continue for precious metals, as well as critical and strategic minerals.
We’re continuing to see independent power producers—and, to a lesser extent, utilities—looking to invest globally to achieve better returns, with a number currently working to develop an in-depth understanding of specific markets that align with their assessment of the market’s perspectives, their development know-how and the language skills and experience of their people. The recent announcement by Hydro-Québec and Innergex of their acquisition of Curtis Palmer hydro power plants in the United States is another indication of continuing M&A appetite by Canadian utilities and independent power producers.
Demand for battery minerals and hydrogen keeps strengthening, which will likely lead to an increase in feasibility and commercialization projects focused on green technologies over time. This is expected to create demand for capital and, in turn, new opportunities for investment. As these projects mature, M&A opportunities will also emerge. The recent announcement by Investment Management Corporation of Ontario that it will create a global battery storage platform following its acquisition of Green Frog Power is a significant first step in this direction.
Looking forward, there will likely be continuing consolidation in the energy services sector as firms look to expand their service offerings and achieve synergies—and in the gold sector as restrictions loosen and due diligence processes become easier to complete. We also expect to see more joint ventures involving Indigenous partners, both as a theme coming out of reconciliation and driven by the social side of ESG.