Robert M. Yalden, Emmanuel Pressman, Jeremy Fraiberg
Oct 25, 2017
When we surveyed the M&A landscape in Canada a year ago, we predicted that the decrease in the volume of M&A activity that Canada saw in 2015 would likely continue in the short term. The early part of 2016 bore out our expectations, as Canadian M&A continued its downward trend in the first quarter of the year, declining for the sixth time in seven quarters. However, Canadian deal-making rebounded in the second quarter of 2016 and soared thereafter, ending 2016 on a high note. Overall, some 2,685 deals were announced last year, up from 2,621 announced deals in 2015. Total transaction value remained high at C$331.5 billion, after reaching near-record levels in 2015, when it surged to C$349 billion from C$238 billion in the prior year. As these numbers suggest, 2016 was notable for the continued wave of mega-deals (over C$1 billion), but also for the resurgence of mid-market activity. For the fifth year in a row, the most active sector by deal count was real estate, with 381 transactions announced. However, the energy sector was by far the most active sector by deal value, largely due to several announced mega-deals, such as Enbridge Inc’s C$61 billion acquisition of Spectra Energy Corp, a Texas-based natural gas and crude oil pipeline company, and Transcanada Pipeline USA, LTD’s C$18.2 billion acquisition of Columbia Pipeline Group, another Texas-based company operating a vast network of natural gas pipelines. Activity in the industrials sector declined 29 per cent in the final quarter of 2016 after an otherwise strong year for this historically active sector, which featured one of the more notable transactions of the year: the C$24 billion announced merger of equals between agri-product heavyweights Agrium Inc and Potash Corporation of Saskatchewan Inc. Shareholders of both companies voted overwhelmingly to approve the proposed merger in the autumn of 2016 and, as of the time of writing, the parties expected the transaction to close in the third quarter of 2017.
M&A in Canada in 2016 also saw a continued surge in outbound M&A, as Canadian companies remained active internationally, seemingly undeterred by the volatility of the Canadian dollar relative to the US dollar. In addition to the above-mentioned Enbridge deal, Open Text Corporation’s C$2.1 billion acquisition of Dell EMC’s enterprise content division was illustrative of Canadian corporations looking abroad for strategic growth opportunities. Overall, about 43 per cent of all transactions in 2016 involved a foreign target or buyer (with Canadian outbound acquisitions outnumbering foreign inbound acquisitions of Canadian businesses by a ratio of approximately 1.4:1). Canadian pension funds and private equity sponsors continued to be active in striking larger deals abroad, particularly deals for global utilities and infrastructure assets offering greater exposure to stable returns. For example,one of the year’s notable deals involved Alberta Investment Management Company, Ontario Teachers’ Pension Plan and OMERS teaming up to acquire London City Airport Ltd for C$3.8 billion. Onex Corporation was among the most acquisitive private equity sponsors in 2016, acting as buyer in three separate deals valued at over C$1.5 billion each, including its C$4.7 billion acquisition of Thomson Reuters Corporation’s intellectual property and science business. After a down year in 2015, inbound M&A returned to levels more in line with those seen in 2014.
In the last edition of The Mergers & Acquisitions Review, we noted that the story of M&A in Canada in 2015 was that of the mega-deal, with mid-market activity seeing a year-overyear decline in 2015, dropping 21 per cent relative to the previous year. 2016 continued to see significant activity at the top end of the market, as some 57 transactions (with an aggregate value of C$255.1 billion) came in over C$1 billion (in contrast with 55 mega-deals in 2015 and just 42 mega-deals in 2014). However, the year also saw a remarkable resurgence of mid-market activity, with transaction volume for deals under C$250 million rising to 90 per cent or more of all transactions with disclosed values in three of the year’s four quarters. These trends helped make 2016 a better year than expected for Canadian M&A, as strong activity at the top end of the market continued to grow at a steady pace while mid-market activity, a traditional area of strength for Canadian M&A, returned to levels consistent with past trends in activity. Ultimately, the headwinds that appeared in early 2016 abated and M&A showed remarkable strength for the last three quarters of the year.
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Reproduced with permission from Law Business Research Ltd. This article excerpt was first published in The Mergers and Acquisitions Review, Edition 11 (published in October 2017 – editor Mark Zerdin).
Robert Yalden, Emmanuel Pressman and Jeremy Fraiberg would like to thank their partners, Patrick Marley and Shuli Rodal, as well as Chris Greenaway (an associate), for their valuable assistance with the preparation of this chapter. Data on M&A activity cited in this chapter are sourced from Crosbie & Company Canadian M&A reports.