The total value of mergers and acquisitions completed by Canadian companies fell by 50% in 2008 from the previous year, an analysis by KPMG Corporate Finance has found.

There were 1,972 deals in 2008, down slightly from 2,098 in 2007. The total deal value amounted to US$131.5 billion — a sharp drop from the US$269 billion recorded in 2007.

Metals, mining, and oil and gas sectors dominated Canadian M&A activity, accounting for more than half of the 2008 deal value for Canadian companies.

Tight credit markets and the significant downturn in global equity values in the latter part of the year had a significant adverse impact on the M&A market. The lack of available debt capital has made acquisitions far more equity intensive from a financing point of view.

Globally, M&A deal value was down by roughly 33% from 2007, but the fall off was more severe in North America and parts of Europe, according to KPMG.

“The economic outlook and associated profitability concerns are the number one issues facing companies today, making deal pricing very difficult in this market. We expect that a significant amount of M&A activity in the immediate term will be of a defensive or opportunistic nature,” said Peter Hatges of KPMG Corporate Finance.

KPMG expects that going forward, companies will seek out merger partners to strengthen balance sheets and realize cost savings and other synergies, Hatges added.

“The objectives may be different, but the name of the game has not changed. Like every other cycle, a strong period of expansion is followed by rationalization and consolidation.”

Canadian companies kept up a reasonable pace of foreign acquisitions with 416 foreign takeovers valued at US$29.9 billion. The number of foreign takeovers of Canadian companies amounted to 440 deals for a value of US$37 billion, representing 28% of total Canadian M&A deal value.

The bulk of the M&A activity continues to be Canadian companies buying other Canadian companies, including Canada’s largest deal of the year: Teck Cominco’s acquisition of Fording Coal valued at US$13.6 billion.

TD Bank’s acquisition of Commerce Bancorp of New Jersey was the second largest Canadian M&A deal valued at US$8.6 billion.

Another major financial services industry deal was Royal Bank of Canada’s acquisition of RBTT Financial Holdings Ltd. in Trinidad and Tobego. At a value of US$2.2 billion, it was the 10th largest Canadian deal.

Canadian companies were the acquirers in six of the top 10 deals this year.

IE