The pace of mergers and acquisitions among Canadian companies will pick up over the next year, forecasts Moody’s Investors Service in a new report; although it doesn’t expect the pace of dealmaking to be as strong as in the United States.
The rating agency says that with financing conditions favourable, but poised to tighten, it expects that M&A activity will pick up through 2015. The report notes that the prospect that the currently-favourable financing conditions will fade as the U.S. central bank withdraws monetary stimulus will push some companies to sign M&A deals sooner rather than later.
While Canada did not use quantitative easing (QE) to stimulate its economy, Moody’s expects that the coming end of QE in the U.S. will affect financing conditions in both countries, given that financial markets are closely linked.
It also notes that the Canadian macroeconomic environment, which features positive but somewhat subdued growth, is currently supportive of M&A. And, in general, the Canadian corporate environment is in good shape, it says, with strong corporate liquidity and there being little debt that companies need to refinance. Moody’s also expects the rate of Canadian defaults over the next two years to be low.
Notwithstanding the positive deal environment in Canada, Moody’s also suggests that the pace of dealmaking in Canada will lag that of the U.S. “Much of the U.S M&A activity involves companies in the consumer and business services sector, which is under-represented in Canada,” says Moody’s senior vice president, Bill Wolfe.
“Canada also has a smaller roster than the U.S. of B-rated companies, that is low non-investment grade, which tend to need stronger growth than the economy will provide, and Canada’s smaller roster means Canadian companies have less urgency than U.S. companies to seek growth by non-organic means,” he adds.