Trade fears dent Canadian M&A activity

TORONTO • Canadian mergers-and-acquisitions activity edged lower in the first half of 2018, weighed by trade uncertainty, investment bankers and lawyers said, in contrast to a surge in global dealmaking.

Year-to-date deal volume slipped 2.3 per cent to $130.3 billion from $133.3 billion in the same period last year, according to data released by Thomson Reuters on Thursday. Global M&A activity shot up 64 per cent to a record high.

Separately, equity capital market activity slumped 37 per cent to $16.9 billion in the first half of 2018.

Factors weighing on market sentiment include fears of a trade war between the United States and other countries, as well as a lack of a resolution of the North American Free Trade Agreement (NAFTA).

“NAFTA is obviously first and foremost in terms of issues out there, but there’s just general political uncertainty globally,” said Grant Kernaghan, Citigroup’s managing director of Canadian investment banking, adding that Citi’s pipeline remained robust.

Second-quarter volumes jumped from the first quarter, helped by a number of outbound deals. Bankers expect more such moves in the rest of the year.

“The Canadian economy is strong, corporate confidence remains very high and interest rates are conducive for M&A,” said Darin Deschamps, co-head of Wells Fargo Securities Canada.

“We will continue to see a high level of outbound M&A activity from Canadian pension funds and corporations.”

But “we could see muted inbound M&A activity because of the trade uncertainty,” Deschamps added.

Highlights in the first half include plans from a Blackstone Group-led consortium to acquire about 55 per cent of Thomson Reuters Corp’s Financial and Risk business for $17 billion, as well as Enbridge’s $11.4 billion deal to buy Spectra Energy Partners and Enbridge Energy Partners.

“Regulatory risk and uncertainty has become a stronger headwind that needs to be carefully considered in the formative stages of dealmaking,” said Emmanuel Pressman, chair of the corporate department at Osler, Hoskin & Harcourt LLP.