Plenty of Canadian companies are planning M&A activity in the next 12 months, but many of them will do so without a financial advisor, according to new research from Greenwich Associates,

Greenwich says that a good chunk of Canadian corporations expect to be active in an M&A deal over the next year, but it also finds, “more Canadian companies are taking a do-it-yourself approach to mergers and acquisitions by moving M&A work in-house.”

The study reveals that nearly 45% of companies in the S&P/TSX 300 expect to hire an advisor on an international M&A transaction. “These numbers appear optimistic as an indicator of future economic activity,” says Greenwich Associates consultant Jay Bennett. “Digging a little deeper, about two-thirds of Canadian companies with a below investment-grade credit rating expect to be active in the domestic M&A market in the next year, as do half to two-thirds of companies in energy, media, telecommunications and utilities.”

As they examine M&A opportunities, large Canadian companies are internalizing many of the functions that they once relied on investment banks to provide, Greenwich says. Even when it comes to transactions worth $1 billion or more, more than 60% of the companies participating in the Greenwich Associates study said they now view the process of researching and generating M&A ideas as primarily an internal function, as opposed to a service provided by an external firm.

“What is even more surprising is the extent to which companies are internalizing nut-and-bolts execution work in these large M&A deals,” continues Bennett. “45% of larger Canadian companies say they manage most transaction execution in-house rather than delegating to an outside advisor duties like financial analysis, due diligence, price negotiation, and the coordination of accounting, legal and other specialists.”

“Companies first began to realize the extent of their ability to take some M&A-related tasks in-house when they began hiring former investment bankers for their expanding corporate development teams. When CFOs look at their internal teams today, they see people with many of the same skills that the investment banks offer, and they see a group of professionals with knowledge of their particular industry that in many cases exceeds that of any outside advisor,” Bennett explains. “When you combine these capabilities with the potential to save on M&A fees and preserve confidentiality, internalizing M&A work becomes a tantalizing proposition.”

The same survey also finds that, while fewer large publicly traded Canadian companies are telling Greenwich Associates they have seen declines in the number of sell-side analysts covering them, the country’s below investment-grade companies continue to report sharp fall-offs in analyst coverage.

The proportion of Canadian companies offering earnings and financial guidance appears to be leveling off, despite a slight decrease from 2004 to 2005. “We are actually seeing a divergence in the practices of strongly rated companies and those with lower credit ratings,” notes Greenwich Associates Toronto-based consultant Lea Hansen. “Almost 45% of investment-grade companies in Canada currently offer earnings and financial guidance, while the proportion of below investment-grade companies releasing this information has fallen from 65% in 2003 to slightly more than 45% last year and finally to just a quarter in 2005.”

Total 2005 cash compensation levels for the 66 Canadian chief financial officers that participated in the Greenwich Associates Study averaged nearly $365,000. For the 20 senior vp/vp of finance professionals surveyed, average total compensation levels were about $310,000, and average cash compensation levels for the 28 treasurers participating in the compensation study topped $200,000 for 2005.