Canadian merger and acquisition (M&A) activity reached a post-financial crisis high of $210 billion in 2012, led by a series of high-profile energy and real estate megadeals.

Although M&A deal volume fell by 9.6% last year, the total value of announced M&A deals climbed by 10.5% to the highest amount since the market peak of 2007, according to statistics compiled by PricewaterhouseCoopers LLP (PWC) in Toronto.

Megadeals – acquisitions valued in excess of $1 billion – accounted for $123 billion in 2012, more than half of the total deal value for the year. The value of megadeals in 2012 exceeded 2011 megadeals by $30 billion, according to PWC’s 2012 review.

“The key driver behind this growth has been a resurgence of activity in deals valued at more than $1 billion,” says Nicolas Marcoux, PWC’s Canadian M&A deals leader. “With our economy so dependent on oil and gas and mining, deals [in those sectors] can skew the numbers, big time.”

The energy sector provided the most fertile ground for M&A activity in 2012, accounting for 29% of published transaction values. The most notable transactions involved Nexen Inc. (acquired by China-based CNOOC Ltd. in a $15-billion deal) and Calgary-based Progress Energy Canada Ltd. (acquired by Malaysia’s state-owned energy company in a $6-billion deal).

Other transactions in that sector included the $2.6-billion acquisition of Calgary-based Celtic Exploration Ltd. by affiliates of Exxon Mobil Corp.; and a joint-venture agreement between Calgary-based Encana Corp. and China-based PetroChina Co. Ltd., in which PetroChina paid $1.18 billion for a 49.9% stake in Encana’s Duvernay shale oil and gas play.

Low interest rates also have caused investment to flow into the real estate sector, which accounted for 15% of target activity in Canadian M&A in 2012.

“With real yields on treasuries at or below zero,” Marcoux says, “investors are scrambling to find other classes of yield assets, and real estate M&A is a clear beneficiary of this.”

The other major sector for M&A activity in 2012 was metals and mining, which made up 11% of M&A value for the year. That sector finished with a bang, thanks to Vancouver-based First Quantum Minerals Ltd.’s $5.1-billion hostile bid for Toronto-based Inmet Mining Corp. in the fourth quarter. That deal still has not been wrapped up, as Inmet’s management has urged shareholders to reject the bid.

Beyond the headlines, 2012 saw a flurry of activity in the “upper middle market” rank of deals, worth between $150 million and $500 million.

Regardless of the size of transactions, it is safe to say that Canadian firms are increasingly looking abroad for opportunities.

“What has been interesting in 2012,” Marcoux says, “is Canadian companies being interested in markets that are challenged.”

That includes Montreal-based CGI Group Inc.’s $2.7-billion acquisition of Britain-based technology company Logica PLC. Because IT spending is down in Europe, Marcoux says, CGI is positioning itself for the eventual recovery.

Other deals that conform to this overseas buying trend include Montreal-based Couche-Tard Inc.’s $2.7-billion purchase of Norway-based Statoil Fuel & Retail (with its retail network across Scandinavia, Poland, the Baltics and Russia), as well as Calgary-based engineering firm Genivar Inc.’s $438-million acquisition of Britain-based WSP Group PLC.

“We have seen a lot of our clients look to the U.S. as well,” Marcoux says, “again, trying to benefit from the U.S. markets when it picks up.

“Canadian companies in 2012,” he continues, “were smart to look at areas of the globe that were a little more challenged than Canada has been, so they have basically positioned themselves for the recovery. That is the first thing they teach us in finance: ‘buy low and sell high’.”

M&A deal flow has been propelled by Canadian financial institutions, which relaxed their lending standards in 2012.

“From a leverage perspective,” Marcoux says, “banks have basically come back to pre-crisis levels and default rates are almost zero. So, that means the portfolios of the banks are relatively clean.” And that has prompted them to be more aggressive lenders.

Marcoux expects the trend toward slow and steady growth, which has characterized Canada’s post-crisis economy, to be reflected in M&A activity in 2013.

“We see growth vis-à-vis 2012,” Marcoux says, “but not growth like what we had seen in 2006 and 2007. We are positive at PWC about 2013, and we think that there will be some growth but not crazy growth. I think we will beat the 2012 (M&A) number.”

Marcoux predicts more M&A activity this year in sectors such as consumer goods, technology and building products, which all could benefit from further U.S. and European economic recovery.

Domestic M&A accounted for about 40%, by value, of activity in 2012. The top three sectors – energy, real estate, and metals and mining – represented more than 57%, by dollar value, of all domestic transactions last year.

The value of M&As in 2012 in which Canadian firms looked overseas saw the fourth consecutive year of growth and reached a post-financial crisis high.

Foreign-based companies’ acquisitions of Canadian companies accounted for 27% of total M&A activity in 2012. Companies in five countries were responsible for 89% of those deals, led by China (39%), the U.S. (20%) and Switzerland (12%).

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