Megadeals fuel ‘unprecedented’ merger, acquisition boom
Canadian companies involved in 729 deals valued at $158 billion
In the first five months of the year, the volume and value of mergers and acquisitions has already blown past 2020’s 586 deals at $36.2 billion during the same period, and is closing in on the 2019 high of 787 deals valued at a total $94.9 billion.
Cheap debt, high valuations and piles of cash have been spurring a mergers and acquisitions spree so far this year in Canada, with the number of deals valued at more than $1 billion far ahead of last year’s pace.
Canadian companies have been involved in 729 deals valued at a total of $158 billion as of May 31 according to FP Data. Even as the economy continues to struggle under pandemic-induced restrictions, the stock market boom and low borrowing costs are encouraging companies and private equity firms to chase big deals.
In the first five months of the year, the volume and value of mergers and acquisitions has already blown past 2020’s 586 deals at $36.2 billion during the same period, and is closing in on the 2019 high of 787 deals valued at a total $94.9 billion, according to FP Data.
When considering smaller transactions and foreign deal flow — FP Data excludes transactions valued at less than $5 million and those with both a foreign acquirer and vendor — the numbers are even higher. More than 1,985 deals involved Canadian companies as of June 16, the highest number in more than twenty years, according to data provider Refinitiv.
“The level of activity that we’re seeing right now is unprecedented and when I go back two decades, this is the most active M&A environment that we’ve seen,” Sarfraz Visram, head of the Canadian and international mergers and acquisitions group at BMO Capital Markets. “We have a market with historically low interest rates and very high equity valuations, so the pieces are all there to have a really strong M&A market.”
The pandemic brought M&A to a near halt in the spring of 2020. Many businesses put plans on hold, wary of travel restrictions, office closures and an impending economic downturn. By the fall, with some businesses thriving in the work-fromhome environment and plans for a vaccination campaign falling into place, the dealmaking began to accelerate again.
That has carried over into 2021, with megadeals fuelling the rebound in Canada. This year, 15 deals have exceeded $1 billion in valuation, dwarfing the tally of six deals as of the same period last year, according to FP Data.
Two of the biggest deals in a decade are leading the boom. Canadian National Railway Co.’s Us$30-billion proposed acquisition of Kansas City Southern tops the list, trumping Canadian Pacific Railway Ltd.’s previous $25-billion bid, followed by Rogers Communications Inc.’s $25-billion takeover of competitor Shaw Communications Inc.
“Historically, most M&A activity in Canada tends to occur at the mid-market level, but we’ve seen these very large, multi-billion dollar transactions which can drive the overall deal market,” said John Emanoilidis, co-head of the M&A group at Torys LLP. “They are the best indicators of overall confidence.”
“If financing continues to remain readily available and markets are strong, then this will continue through the balance of the year and, given the pipeline of deals that we have in the office, I would expect we’ll finish off the year as a very strong one for M&A.”
The frenzy spans across industries, but Canada’s energy, transportation and technology sectors have been among the strongest. Oil and gas deals clocked in at a total of $22.7 billion, towering over $811 million in the same period last year. Software takeovers hit $4 billion in total, overshadowing over $1 billion in the first five months of 2020.
In particular, the sectors that have seen the most activity are those that benefited from a shift in demand due to the pandemic, including medical technology, online education tools and ESG initiatives, according to Kim Le, a partner in the mergers and acquisitions and private equity groups at Stikeman Elliott LLP.
“Every auction that we’ve been part of over the past year has been extremely competitive,” Le said. “With the number of bidders increasing, the valuations have been off-thecharts high.”
But bidders are also touting their soaring share prices and easy access to financing to entice sellers with exclusive deals in an attempt to bypass the auction block altogether.
“Buyers are becoming more assertive in this environment and they’re pushing for exclusivity, particularly if they have a strong balance sheet and can deliver execution certainty,” Emanoilidis said. “There’s a great deal of money that’s chasing deals and you’re seeing very competitive auction processes, and buyers are aware of that, so if they can position themselves in a way to gain exclusivity, they’ll try to do that.”