Merger and acquisition activity in Canada resumed its slump in the first quarter, according to the latest data from Crosbie & Co.
The firm says that first quarter M&A activity was “lacklustre”, resuming a downward trend that began five quarters ago. It reports that there were 196 transactions in the quarter, which were worth $25.9 billion, down 35% in volume and 51% in value from the previous quarter.
With the sharp drop in quarter over quarter activity, Crobie says that the strong fourth quarter is now looking like an aberration. It says that the Q1 slump fits in with a longer-term trend to slower activity. Indeed, deal volume in Q1 was at the lowest level since the first quarter of 2009, and Crosbie says it has now “declined below the general range of quarterly activity observed since the financial crisis.”
Large deals (worth over $1 billion) also had their weakest quarter since Q1 2010, with only three transactions announced, for an aggregate value of $7.7 billion.
“The softness is in many ways counterintuitive,” says Colin Walker, managing director at Crosbie, “Conditions should be quite favourable for M&A transactions but obviously, something is holding the market back. Some of the culprits likely include the macro-economic uncertainty, the impact of low rates, as well as certain sector specific issues.”
Real estate was the most active industry sector in the quarter, Crosbie reports, with a total of 69 deals (worth $11.5 billion), representing 35% of total M&A activity. Consumable fuels was the second most active sector with 30 transactions for a value of $3 billion. Combined, the two top sectors accounted for over 50% of total M&A activity and 56% of aggregate value.
“The weakness in M&A activity this quarter was very broad, impacting most sectors outside of real estate and financial services,” notes Walker. “Of particular note is the weakness in both mining and consumable fuels which reflects the individual issues facing each of those sectors.”
Capital groups remained relatively active in the quarter, the firm says, with a total of 10 transactions over $100 million this quarter for an aggregate value of $8.1 billion. It says Canadian pension funds continued to be active, accounting for half of all the capital group announcements.
Additionally, Crosbie says that cross-border transactions accounted for 40% of all announcements in the quarter, with Canadian acquisitions of foreign companies exceeding foreign acquisitions of Canadian firms by a ratio of 2.2 to 1.
“Canadian firms continue to actively pursue attractive foreign acquisitions, which is a testament to the relative strength of Canadian firms and is an encouraging indicator in spite of the sharp decline in overall activity this quarter,” says Walker.