A flurry of smaller deals in the Canadian M&A market during the first quarter of 2007 produced a number of new records, according to Crosbie & Co. Inc.

Crosbie reports that 483 transactions were announced in the first quarter, resulting in $66 billion in transaction value, establishing a new all-time high-water mark for the first quarter. Crosbie adds that the first quarter tends to be weaker than the subsequent quarters, so this record result puts the industry on track for another record year in 2007.

Crosbie notes that the market showed broad strength in the quarter, but it says the continued upswing in transactions of under $1 billion, which also set a new quarterly record, was an important reason for the record deal volume. Total value for the sub-$1 billion segment was $25.3 billion, representing an all-time quarterly high.

“We have seen a material increase in the contribution from the small to mid-cap segment over the past six quarters,” says Colin Walker, managing director of Crosbie. “This growth demonstrates how important M&A strategies have become for companies and shareholders across the entire economic landscape.”

“A confluence of positive factors is powering M&A,” Walker adds. “These include business forces such as globalization, demographics, multiple bidders which help drive attractive valuations, the availability of flexible and historically low-cost financing, and a relatively strong business outlook that gives buyers the necessary confidence. It remains an ideal time to get deals closed.”

The large deal segment of the market remained solid in the quarter with the announcement of 14 transactions of over $1 billion, valued at a total of $41 billion. This was up from four transactions worth $9 billion in the first quarter last year and 12 deals valued at $38 billion in the fourth quarter of 2006.

Cross-border transactions continue to be a key dynamic in the Canadian M&A market, Crosbie added. Cross-border deals represented 37% of the activity and 56% of the announced deal value for the quarter. However, at the larger end of the market, cross-border activity was more significant with 10 of the 14 announced mega-deals having an international component to them. The number of Canadian acquisitions abroad continued to exceed foreign acquisitions of Canadian companies by a ratio of 2.9:1, which is in line with prior periods.

Financial groups such as pension funds and private equity groups continued to be aggressive buyers and were a major factor in the market this quarter, the firm noted. Financial buyers participated in 23% of the deals valued above $100 million. Major private equity groups that were active in the quarter included Onex Corporation, Brookfield Asset Management Inc., Goldman Sachs Capital Partners, Morgan Stanley and Apax Capital Partners.

From an industry perspective, activity was fairly broadly based with transaction volume of over $3 billion in eight different sectors, Crosbie reported. Particularly active sectors included Industrial Products (90 deals, $15.8 billion), Financial Services (46 deals, $9 billion), Consumable Fuels (77 deals, $8.4 billion), Real Estate (98 deals, $7.5 billion) and Metals & Minerals (63 deals, $7.2 billion).

The sector with the greatest activity in Q1 was Real Estate, which reported 98 transactions (representing 20% of the activity but only 11% of the value), but Industrial Products was the most significant sector in the quarter, representing 19% of the activity and 24% of the deal value, Crosbie notes.