Megers and acquisition values in Canada reached their highest level in three years in the second quarter of 2004, with 250 announced transactions totaling $34.8 billion, Crosbie & Co. Inc. said Thursday.

Crosbie attributed the jump — the total dollar value of transactions hit levels not seen since mid-2001 — to significant activity in the oil and gas sector, a resurgence of mega-deals (transactions valued at more than $1 billion) and increased cross-border activity. In the first quarter of 2004, there were 203 transactions totaling $23.5 billion.

There were 10 mega-deals announced in the quarter, the most since Q1 2000, valued at a total of $16.7 billion, Crosbie reports. Oil and gas led the way, contributing four of the 10 mega-deals, including the largest transaction in the quarter, EnCana Corp.’s $3.6-billion acquisition of Tom Brown Inc. Other top transactions included Jean Coutu Group’s purchase of 1,549 Eckerd Drugstores from J.C. Penney Co. for $3.3 billion, Hollinger’s $1.8-billion sale of the Telegraph Group Ltd. to the Britain’s Barclay brothers, and Brascan Corp.’s $1.3-billion purchase of hydroelectric power assets from Reliant Energy Inc.

In addition to the significant number of mega-deals, the balance of the M&A market continues to show steady improvement with deals of less than $1 billion increasing for the third consecutive quarter, Crosbie says. Activity in this core segment of the market rose to 180 transactions valued at $18.0 billion in the second quarter of the year vs157 transactions totaling $11.9 billion in the first quarter.

“The broad-based strength of the Canadian M&A market in the second quarter was particularly positive given that global M&A activity declined in the second quarter following a strong recovery in the first quarter,” said Ian Macdonell, managing director at Crosbie, in a release. “High commodity prices and continued strong demand for transactions from private equity groups bode well for activity levels for the balance of the year. However, concerns over the staying power of the U.S. economic recovery could put a damper on transactions going forward.”

From an industry perspective, the market rally was relatively widespread, with 10 of the 13 TSX sub-sectors registering increased levels of transaction dollar volume in the quarter. The oil and gas sector led with 42 transactions valued at $12.5 billion, representing 36% of the total transaction value, as energy companies flush with cash from record high oil prices chose to grow through acquisition. Other active sectors by dollar value included merchandising at $4.3 billion and industrial products at $3.8 billion.

Energy trusts, income funds and real estate investment trusts remain a major factor in the Canadian M&A market, Crosbie notes, saying these vehicles were the acquiring party in 20% of all transactions in excess of $250 million in value for the quarter.

Cross-border transactions continue to represent a considerable portion of the Canadian M&A landscape, it reports. There were 112 cross-border transactions in the second quarter of 2004 with a total value of $27.2 billion, representing 78% of the overall activity by dollar value. Eight of the 10 mega-deals in the quarter were cross-border transactions including the six largest.

Canadian companies continued to have a strong appetite for foreign acquisitions, making 81 purchases worth $17.6 billion vs 31 acquisitions by foreign interests of Canadian companies totaling $9.6 billion.