PE Tech Report

NEWSLETTER

Like this article?

Sign up to our free newsletter

Energy sector continues to fuel Canadian M&A

Transactions in the Canadian market continue to be dominated by energy sector deals, with six of the ten largest deals in the first half of 2009 involving Canadian companies occurring i

Transactions in the Canadian market continue to be dominated by energy sector deals, with six of the ten largest deals in the first half of 2009 involving Canadian companies occurring in the energy sector, according to mergermarket.

The sector makes up 87.1 per cent of deal values and 41.4 per cent of deal volumes so far this year.

With the price of crude oil slowly creeping up, M&A activity is expected to rise. Oil sands companies that have put a hold on development are now slowly starting to ramp up construction. These same companies might become more receptive to joint ventures involving stake sales as oil-weighted companies turn the focus back on drilling programmes. If crude prices continue to go up, it is expected that junior players that have difficulty raising capital will also look to sell assets, says mergermarket.

After a very slow quarter during the fourth quarter of last year, Canadian M&A has fared relatively well in the first half of this year. The total value of USD42.6bn for the first half of the year represents only a 7.3 per cent drop when compared to the same period last year. Deal volumes are down by approximately 41.7 per cent over the same period.

Canada’s domestic market has seemingly not been affected by the downturn, as the total of USD27.7bn worth of domestic deals registered this year represent only a 23.9 per cent decline from the all time high of USD36.5bn worth of deals during the second half of 2006. The number is actually marginally higher than the USD27.1bn registered during the second half of 2008. According to mergermarket, the USD18.4bn combination of Calgary’s Suncor Energy and Petro-Canada, the largest deal of the year, is a good example of this trend.

Instead, it is the inbound and outbound activity that has slumped over the last 18 months. From January 2008 to date, Canada has seen inbound deal values of only USD42.5bn – compared to the USD72.4bn recorded during the second half of 2007 alone. Incidentally, this is also the time that crude oil prices began to rise dramatically from an average of USD67 per barrel during June 2007 to USD87.62 per barrel during December 2007.

Outbound deals have suffered from a similar slump, with only USD8bn worth of outbound deals in H1 2009, compared to USD45.9bn worth of outbound deals during the first half of 2007.

However, all is not doom and gloom as cash positive companies will continue to seize opportunities to make foreign acquisitions. Although values are down compared to previous years, the second quarter of the 2009 has seen an increase of 9.9 per cent in outbound deal values compared to the first three months of the year; a trend that is expected to continue into 2010.

While the vast majority of inbound deals have been in the energy, mining and utilities sector (73.8 per cent), Canadian companies have made their largest foreign investments in the industrial and chemicals space. The sector represents almost half of all outbound values at 43.9 per cent, despite most outbound activity (32.5 per cent) taking place in the energy sector.

RBC Capital Markets continues its solid showing on Canadian deals topping both the value and volume tables overall and for mid-market deals during the first half of the year. The firm worked on 15 deals with a value of USD38.7bn, eight of which were mid-market deals valued at just over USD1bn.

CIBC World Markets takes second spot for overall M&A values with USD23.7bn on 11 deals, just ahead of what is a revitalized Morgan Stanley. The firm finished 2008 15th in terms of values and has moved 12 places to round up the top three firms by value.

BMO Capital Markets is the second most active firm at the half way mark, working on 12 deals with a value of just under USD3bn – just ahead of CIBC, with 11 deals.

The report says the most surprising aspect of the financial adviser tables is the omission of last years top ranking firm, Bank of America Merrill Lynch. The company has only worked on two deals worth a mere USD370m, falling short of a top 20 ranking overall.

Like this article? Sign up to our free newsletter

MOST POPULAR

FURTHER READING

Featured