Mega-Deals Up in Canada

Reports indicate that M&A deal count volume has been down in 2014. However, deal values have increased by 26 percent, a bright spot in transaction activity. Big ticket Canadian deal volume has seen an uptick, paralleling U.S. mega-deals, with 20 Canadian deals over US$1-billion announced by the time this article was prepared. They had an aggregate deal value of US$46.5-billion.

This represents a 33 percent and 66 percent increase in deal number and value, respectively, of these larger deals as compared to the prior year period.

As confidence in the economy grows, risk-averse companies that hoarded cash through the downturn may feel new pressure to grow earnings through acquisitions. Continuing consolidation in many sectors of the Canadian economy also means that inbound investors need to move quickly and decisively to seize remaining opportunities of scale. Supported by liquid capital markets and willing lenders both in Canada and the United States, financial buyers are also once again ramping up activity in Canada and providing meaningful competition to strategic buyers.

Oil and gas transactions led all private equity investments last year, and this activity is continuing.

Private equity funds have traditionally avoided mining investments due to high valuations, commodity price risk and volatility in earnings and cash flows. However, a number of Canadian and international sponsors have become increasingly focused in the sector, including by raising dedicated funds and with new asset allocations in existing funds.