Merger and acquisition activity heated up in the second quarter, according to data from Crosbie & Co. Inc.

The Toronto-based, mid-market investment bank reported 283 deals were announced in the second quarter of 2005, up from 201 in the first quarter, and 250 in the same quarter last year. The value of deals was also up, to $29 billion from $23.8 billion in the first quarter. This is down, however, from $34.8 billion in the same quarter last year.

“This year is shaping up to be an excellent year in M&A activity, so far the best since 2001,” said Ed Giacomelli, managing director at Crosbie. He said there is strength in both mega-deals (those valued at more than $1 billion) and smaller deals.

There were six mega-deals in the second quarter, totalling $13.2 billion in value. There were also six in the first quarter, valued at $15 billion. In the second quarter of 2004, there were eight mega-deals, worth $15.8 billion. Crosbie reported deals worth less than $100 million picked up notably in the second quarter, with 187 transactions of that size announced, up from 117 in the first quarter.

The oil & gas sector has been particularly active, representing 25% of deal volume and 36% of deal value. The group accounted for 71 deals in the second quarter, the highest total in 11 years. Giacomelli said firms are using their strong cash flows to grow by acquisition, and trusts are active buyers to fulfill their need for replacement reserves.

The industrial products sector was strong, with 50 deals in the quarter, followed by real estate at 39 deals. Financial services also contributed $4.8 billion in deal value, led by Ameritrade Holding Corp.’s US$2.9 billion acquisition of TD Waterhouse USA.

Cross-border activity such as this remains strong, accounting for 77% of deal value and 40% of deal volume in the first half. There were 195 cross-border deals in the first half, worth a total of $41 billion, up from $40 billion in the same period last year (albeit on 239 deals). Canadian acquisitions of U.S. companies outpaced transactions going the other way by a ratio of three to one, but in terms of value the reverse is true.

Crosbie also reported private equity firms and pension funds continue to be catalysts for M&A. They were involved in about 20% of deals in the first half of 2005, up from 15% for the same period last year. These sorts of financial buyers are posing a competitive challenge to traditional strategic buyers due to the increased availability of cheap capital, lower return targets and increased diversification into alternative asset classes.