Merger and acquisition (M&A) activity in Canada continued to experience a broad-based decline in the first quarter of 2015, according to the latest data from Crosbie & Co.
The firm reports that M&A activity involving Canadian companies declined for the third consecutive quarter in Q1, with the total number of deals down by 7% from the previous quarter.
Excluding cross-border M&A, domestic deal activity was relatively flat in the first quarter, the firm notes. And, within Canada, deal activity was up notably in Ontario, Crosbie says.
The value of announced transactions, which is often more volatile than the number of deals, dropped by 46% in the quarter to $45 billion. Crosbie notes that the decline was concentrated in smaller, sub-$100 million deals.
There were eight deals worth more than $1 billion in the quarter, which represented more than half, $26 billion, of overall deal activity. Although these big dollar deals drive the total value of M&A, the bulk of the deal activity comes from transactions worth under $250 million, Crosbie notesm as deals of this size account for 90% of all the transactions with disclosed values. These mid-market transactions were valued at $9 billion, or approximately 20%, of total M&A value, it reports.
By sector, Crosbie says that the drop in deal activity was relatively broad-based, with lower deal volume in eight of 14 industry sectors. The real estate sector continues to be the most active industry segment for M&A, although deal activity was down 11% in the quarter.
By value, the industrials sector ranks highest, with 80 deals valued at a total $11.3 billion; followed by financial services, with $9 billion in deals. The tech sector and consumer discretionary were also active players in the first quarter, the firm notes.
Financial sponsors, such as pension funds, continue to be active participants in M&A transactions in the quarter, on both the buy-side and sell-side, Crosbie reports. Indeed, it notes that five of the 10 largest deals in the quarter involved a financial sponsor, including several infrastructure transactions. “Pension funds continue to make significant infrastructure investments as part of their strategies to match their long term liabilities with investments in long term assets that to tend generate stable inflation-protected returns,” it says.
Cross-border transactions also continue to account for a significant proportion of overall deal activity, Crosbie says, with 42% of transactions involving either a foreign target, or a foreign buyer. Canadian companies making acquisitions abroad continue to outnumber foreign companies buying Canadian firms by a ratio of about 3:2. And, the value of outbound transactions is nine times the value of inbound deals, it says.