Canadian M&A jumps 28% in third quarter, but market volatility could slow deals

• Canadian mergers and acquisitions activity for the third quarter hit its highest since 2016 as historically low interest rates and strong equity markets helped companies to revive transactions that were put on hold due to the pandemic.

Dealmaking rose 27.7 per cent to US$76.6 billion in the third quarter of the year, but was significantly down from the record US$120.3 billion recorded in the first three months of the year, according the Refinitiv data.

Bankers said while factors underpinning M&A exists and pipelines are strong, equity market volatility could slow the deal momentum.

“Higher deal flow in the third quarter was driven by a combination of factors including strong equity markets, historically low borrowing costs and market confidence in a gradual COVID-19 recovery,” said Jake Lawrence, Group Head and CEO, Global Banking and Markets, Scotiabank.

However, he said shortterm inflationary and supply chain concerns are unlikely to have a material impact on deal flow given investor focus on long-term strategic considerations.

Transportation and infrastructure-focused deals led activity in the third quarter, with US$33.6 billion in M&A activity, including Brookfield Asset Management’s A$9.57 billion (US$6.95 billion) bid for Australia’s Ausnet Services, and Brookfield’s US$3.4 billion planned takeover of Dexko Global Inc.

Higher inflation in Canada and the United States has stoked worries about central banks dialing back pandemic-era liquidity support and prospects of higher interest rates. That has increased stock market volatility.

“I guess the big threat that’s overhanging the M&A landscape is the threat of rising interest rates,” said Sarfraz Visram, head of Canadian and international mergers & acquisitions at Bank of Montreal.

Despite the strong stock markets, equity offerings fell for the second consecutive quarter, almost halving in the third quarter to $6.8 billion from the previous quarter.