Canada's recent merger boom helped the country set new deal records in the third quarter, according to data from Thomson Reuters released Thursday.
The high values stand out against the backdrop of slower global deal making and muted economic growth. Worldwide merger and acquisition activity declined 22 per cent in the first nine months of the year from the year-earlier period – down to a three-year low – while large corporate tie-ups propelled Canadian deal makers to new heights.
Investment bankers and lawyers worked on more than $101.6-billion (U.S.) worth of M&A deals involving a Canadian buyer or seller in the third quarter of the year, breaking the previous record in that time frame. The only quarter that has seen a higher M&A tally was the beginning of 2000, bolstered by BCE Inc.'s spinoff of part of Nortel Networks Corp.
This activity made Canada a beacon at a moment when economic growth and business investment globally has weakened and the spectres of geopolitical risk and deflation hang over many countries.
"The world has had to adjust to a slower growth rate," said Bruce Rothney, head of Barclays Canada, which advised on the country's two largest deals of the year, among others.
He said Canada has performed relatively well on the economic front, with a couple of quarters of oil balancing out and some improvements in the mining industry. "You've had more stable markets, and that tends to give investors a little more encouragement to go further out on the risk-reward spectrum. And they are looking for growth."
September brought forth blockbuster deals such as Enbridge Inc.'s move to acquire Houston-based Spectra Energy Corp. in a transaction valued at $43-billion that would create a massive energy infrastructure company. This was one of several significant cross-border deals where Canadian firms sought acquisition targets in the United States.
Potash Corp. of Saskatchewan Inc. shopped at home, striking an agricultural super deal worth $18-billion for Calgary's Agrium Inc.
Both of these mergers, as well as many other deals and financings, gave the market plenty to digest this fall.
But these ultrahigh merger values contrast against the volume of deals recorded, which has largely been trending downward over the past few years.
In the three months until the end of September, there were 492 deals announced, worth $101.6-billion; in the same quarter of 2010, there were more than 800 deals announced, worth less than half as much.
Mr. Rothney expects to see more deals coming from the country's largest sectors, such as energy and power, telecom and financial services. The Canadian banks will likely pursue more personal and commercial or wealth management acquisitions, he said. In late June, Canadian Imperial Bank of Commerce struck a deal for Chicago-based PrivateBancorp Inc., for example.
Making a comeback in the third quarter was the initial public offering market, with fashion brand Aritzia LP announcing plans to list on the Toronto Stock Exchange – the first significant IPO of the year.
Mr. Rothney said this could pave the way for more new issuance, but said listings would likely come through at the beginning of 2017.
Foreign investment banks continued to be significant beneficiaries of the M&A deal flow. Morgan Stanley led the rankings for M&A, working on deals valued at $94-billion, Thomson Reuters data show. Barclays and RBC Dominion Securities rounded out the top three.
Investment banks raised $38.8-billion (Canadian) for companies in the first three quarters of the year by selling stocks, as large energy-related share sales from TransCanada Corp., Suncor Energy Inc. and, in the third quarter, Encana came to market.
TD Securities was the top underwriter of stock sales, leading $7-billion in deals in the first nine months of the year, excluding self-funded deals. RBC and CIBC World Markets placed second and third. In debt sales, National Bank Financial, RBC and TD were the top underwriters.
Editor's Note: A previous version of this story and accompanying chart misstated CIBC World Markets' equity issuance during the third quarter due to erroneous information provided by Thomson Reuters. CIBC placed third with $5.2 billion and 32 issues, rather than fourth with $4.8 billion and 29 issues as originally stated.