Oilsands exodus pushes M&A to decade high
Mergers and acquisitions in Canada are set for the strongest start in a decade as foreigners sell their oilsands investments.
There have been about US$132 billion of transactions recorded this year, the highest since US$156.5 billion in the first half of 2007, according to data compiled by Bloomberg. Local companies snapped up these energy assets, boosting domestic M&A to a record.
ConocoPhillips and Royal Dutch Shell Plc are leading the exodus amid a bear market for crude. However, Canadian producers are responding by pumping money into oil deposits in the remote boreal forests, which trail only Saudi Arabia and Venezuela in proved reserves but are more expensive to extract.
“From a relative opportunity perspective, these companies can invest anywhere and so you may be seeing a shift to the U.S. or other markets at the expense of Canada,” said David Rawlings, Canada senior country officer for JPMorgan Chase & Co., adding that domestic players have been quick to seize the opportunity.
“There’s a natural home-country bias. If you’re a large Canadian operator you know what can be done if you have more control of the asset,” he said.
JPMorgan was the top financial adviser on transactions involving Canadian firms through June 26, followed by Toronto-Dominion Bank, Goldman Sachs Group Inc., Royal Bank of Canada and Barclays Plc. Total M&A activity was eight per cent higher from a year earlier. Domestic M&A activity — Canadians buying Canadian companies or assets — reached an unprecedented US$48.2 billion during the period, up 124 per cent year-on-year.
The increase was driven by a record US$34.5 billion worth of domestic energy and utility deals. The largest of these was Cenovus Energy Inc.’s purchase of a group of Canadian conventional natural gas assets from ConocoPhillips in March for US$13.2 billion.
Part of the reason international players have been selling off their oilsands assets is because they, on a relative basis, are more expensive and difficult to operate, said Luke Gordon, head of Canadian mergers and acquisitions for the Goldman Sachs Group.
Canadian players appear to see different risk/return and upside potential from these assets, he said.
Outbound M&A fell to US$61 billion from last year’s peak of US$78.1 billion.
That’s still higher than the average $29.5 billion worth of transactions recorded over 2010-14 as Canadian companies sought growth abroad.
It’s too early to say whether outbound activity has stalled, according to Peter Buzzi, co-head of M&A at the Royal Bank of Canada, who says conditions remain strong for deals at the half-year point even though some of the big corporate Canadian buyers are still digesting big acquisitions.