The Canadian M&A market got off to a solid start in the first quarter with $25 billion in announced transactions, according to data from investment banker Crosbie & Co. Inc.

The total number of transactions announced during the first quarter was 424, the most active start to a year in over 10 years, Crosbie says. This compared to 264 deals in the same period last year and 463 deals in the record fourth quarter of 2005.

The total value of the announced transactions, $25 billion, is down a bit from the $26 billion in deals done in the first quarter of 2005, and well down from $61.9 billion in the previous quarter. “Judging by the strength in Q1, the outlook for M&A activity bodes well for 2006,” said Ed Giacomelli, managing director at Crosbie.

The action was led by strong activity in the mid-market (transactions between $1 million and $500 million). Mid-market activity during the first quarter accounted for 327 transactions totalling $12.5 billion, 50% of transaction value, significantly higher than the 201 transactions valued $8.7 billion, 34% of transaction value, in the same period last year. “The mid-market is a dynamic part of the Canadian M&A landscape,” said Giacomelli, “Increased globalization has made M&A more important to Canadian mid-market companies from a strategic standpoint.”

The strength in the mid-market was partially offset by a decline in mega-deals (transactions greater than $1 billion), with only four mega-deals valued at $8.6 billion in the first quarter of 2006 versus six mega-deals valued at $15.0 billion during the same period last year and ten mega-deals worth $44.1 billion in the prior quarter. All four mega-deals during the quarter had an international component to them, with three of the deals involving the acquisition of Canadian companies by foreign firms, Crosbie noted.

Crosbie explained that the resource sectors, fuelled by record high commodity prices for oil & gas, precious metals and base metals, have been a key driver of M&A activity, accounting for 38% of the transactions and 42% of the dollar volume. This compares with 23% of the transactions and 31% of the dollar volume in the same period last year. Oil & Gas was the most active sector by transaction value with 85 transactions valued at $5.8 billion, lead by the Carlyle/Riverstone Global Energy and Power Fund’s acquisition of five EnCana Corporation gas storage facilities for $1.7 billion.

Metals & Minerals saw 55 transactions valued at $3.8 billion, lead by Glamis Gold’s $1.2 billion acquisition of Western Silver Corp. “Look for the resource sector to continue to lead M&A activity,” said Giacomelli. “Resource companies are willing to pursue aggressive M&A strategies.”

The largest transaction in the quarter occurred in the Merchandising sector, with Fairmont Hotels & Resorts Inc. being acquired by Colony Capital LLC and Prince Alwaleed’s Kingdom Hotels International for $4.5 billion after initially being put in play by U.S. corporate raider Carl Icahn.

Financial Services saw a surge of activity during the quarter, Crosbie noted, with transactions worth $2.8 billion lead by the $1.25 billion purchase of FirstCaribbean International Bank Limited by CIBC and Barclays Bank PLC.

Financial sponsors continued to compete aggressively with strategic buyers in the M&A market in first quarter, Crosbie reported. Three of the seven largest deals in the first quarter and over 29% of the total transaction value involved financial sponsors, up from 13% of transaction value in 2005. Colony Capital, Carlyle Group, Riverstone Holdings, Caisse de dépôt et placement du Québec, Onex Corporation and CAI Capital were all active in the market during the first quarter.

Cross-border activity also continued to be an important driver of Canadian M&A activity, with 39% of all M&A transactions and, more importantly, 90% of total M&A value having an international component. In line with historical trends, Canadian acquisitions of foreign companies outnumbered foreign acquisitions of Canadian corporations by a ratio of nearly three to one.

Acquisitions of foreign companies by Canadian companies made up 73% of all cross-border transactions, whereas the value of those transactions made up only about 34% of total cross-border M&A transactions. The U.S. remained Canada’s main cross-border M&A partner. During the first quarter of 2006, 44% of Canada’s 122 foreign acquisitions were in the U.S., similarly the U.S. represented 57% of the 44 foreign acquisitions of Canadian companies.