Global banks taking bigger slice of Canadian M&A pie
OUTBOUND 2016 VOLUME HIT US $128B AND THE TREND IS EXPECTED TO CONTINUE
Apush by Canadian companies and pension funds to aggressively pursue overseas acquisitions is helping global investment banks to win a bigger share of M&A advisory mandates and prompting once-dominant domestic rivals to beef up their international operations.
Canada’s outbound M& A volume hit a record US$ 128 billion last year. Bankers expect the trend to continue as sluggish economic growth at home, and a highly- concentrated market, make domestic M& A less appealing.
Enbridge’s US$ 28- billion acquisition of U. S.- based Spectra, announced last year, was the biggest outbound deal ever by a Canadian company.
In two of the last three years, international banks grabbed four of the top five spots in the M&A advisory rankings, according to Thomson Reuters data. Their share of M& A advisory fees climbed to 47 per cent of total fees in 2016 from 35 per cent five years ago, estimates from Freeman & Co. show.
Morgan Stanley, Bank of America, Barclays, RBC and JPMorgan rounded up the top five spots in M&A advisory in 2016, a shift from a decade ago when domestic banks dominated the top rankings.
“There was a time when it was unusual for global banks to be in the top three for Canadian M&A advisory because M& A activity was dominated by domestic deals,” said Dougal Macdonald, head of Morgan Stanley Canada. “It’s now unusual if they aren’t because of the volume of crossborder deals.”
Global investment banks have topped the M& A league tables rankings in each of the last three years, ending a nine- year winning streak for Canadian investment banks RBC, BMO and CIBC. RBC took the No. 1 spot six times in the last 20 years.
Macdonald added that international banks benefit from better knowledge of the target; having staff on the ground; understanding of local laws; and the expertise to finance acquisitions in local currency.
J PMorgan and Goldman Sachs were the No. 1 M& A advisers in 2015 and 2014, respectively.
Robust share prices have made Canadian companies willing to strike overseas deals.
“When you take the fact that many Canadian companies have strong currencies, have ready access to low- cost debt, and are feeling more confident about their sectors and prospects, M& A is clearly on the radar screen again in 2017,” said Trond Lossius, head of Canadian M& A at Barclays.
Meanwhile, Canadian banks, which look to take advantage of deep relationships with Canadian clients, are expanding into global markets and strengthening some coverage areas.
“We’re doing a number of things to capitalize on this trend,” said Mike Boyd, head of M& A at CIBC. In the past year, CIBC has added i nvestment bankers to serve its pension fund and private equity clients, he said.
Both RBC and BMO have more investment bankers in the United States than in Canada as a result of their recent expansions. TD is also boosting its U. S. capital markets unit.
Moves such as BMO’s acquisition of U. S. M& A advisory firm Greene Holcomb Fisher last year can help Canadian banks establish niches, said Jeffrey Nassof, director at Freeman & Co.
“The cross- border acquisitions space is an under- served market,” Nassof said. “There’s not a l ot of firms that have global capabilities and local coverage of the middle market.”
Canadian pension funds are among the world’s biggest dealmakers as they look at ways to put their capital to work. CPPIB bought 40 per cent of Glencore PLC’s agricultural unit in 2016 and GE Capital’s private equity lending portfolio for US$ 12 billion in 2015.
“The universe of opportunities for them to deploy capital of scale is really outside of the borders,” said John Armstrong, head of Canadian M& A, BMO Capital Markets. “I don’t see that dynamic changing in the near future.”