The banner years for equity financings and mergers and acquisitions driven by the pandemic are at risk of disappearing, with deal activity slowing significantly in the first quarter – particularly for Canadian share sales.
The value of Canadian equity financings tumbled 81 per cent in the first quarter of 2022 to $3.9-billion, according to Refinitiv, down from $20.9-billion during the same period last year. While the year-over-year comparison is a tough one, because early 2021 was when markets soared, the total value of share sales hasn’t been this low in more than a decade.
Central banks slashed interest rates to their lowest levels possible early in the pandemic to shore up the economy, sending stock prices soaring, and spurring share sales.
Much of the cooling stems from a recent dearth of technology financings. Last year, the sector accounted for roughly one-quarter of all share sales – and tech initial public offerings were particularly popular. So far this year, technology deals have been virtually non-existent because of a market rout in the sector. The tech-heavy Nasdaq Composite is down 12 per cent year to date.
TOP UNDERWRITERS FOR EQUITY FINANCINGS
Rank
Underwriter
Proceeds from deals ($ billions)
No. of issues
BMO Nesbitt Burns
$763
13
TD Securities
635
9
RBC Dominion Sec.
541
6
CIBC World Markets
401
5
Scotia Capital
261
6
TOP M&A LEGAL ADVISERS
Rank
Law firm
Value of deals* ($US billions)
No. of deals
Torys
17.7
16
Sullivan & Cromwell
16.2
5
Simpson Thacher/Bart.
14.2
7
Davis Polk & Wardwell
13.8
2
Kirkland & Ellis
12.4
13
TOP M&A FINANCIAL ADVISERS
Rank
Adviser
Value of deals* ($US billions)
No. of deals
Morgan Stanley
20.4
13
JP Morgan
18.5
5
TD Securities
16.6
8
Goldman Sachs
10.8
8
Lazard
9.9
9
TOP UNDERWRITERS FOR DEBT FINANCINGS
Rank
Underwriter
Proceeds from deals ($ billions)
No. of issues
RBC Dominion Sec.
10.7
37
National Bank Financial
9.2
27
TD Securities
8.7
34
BMO Nesbitt Burns
8.0
33
CIBC World Markets
7.9
32
THE GLOBE AND MAIL, SOURCE: REFINITIV q1 2022 *including net debt
TOP UNDERWRITERS FOR EQUITY FINANCINGS
Rank
Underwriter
Proceeds from deals ($ millions)
No. of issues
BMO Nesbitt Burns
$763
13
TD Securities
635
9
RBC Dominion Sec.
541
6
CIBC World Markets
401
5
Scotia Capital
261
6
TOP M&A LEGAL ADVISERS
Rank
Law firm
Value of deals* ($US billions)
No. of deals
Torys
17.7
16
Sullivan & Cromwell
16.2
5
Simpson Thacher/Bart.
14.2
7
Davis Polk & Wardwell
13.8
2
Kirkland & Ellis
12.4
13
TOP M&A FINANCIAL ADVISERS
Rank
Adviser
Value of deals* ($US billions)
No. of deals
Morgan Stanley
20.4
13
JP Morgan
18.5
5
TD Securities
16.6
8
Goldman Sachs
10.8
8
Lazard
9.9
9
TOP UNDERWRITERS FOR DEBT FINANCINGS
Rank
Underwriter
Proceeds from deals ($ billions)
No. of issues
RBC Dominion Sec.
10.7
37
National Bank Financial
9.2
27
TD Securities
8.7
34
BMO Nesbitt Burns
8.0
33
CIBC World Markets
7.9
32
THE GLOBE AND MAIL, SOURCE: REFINITIV q1 2022 *including net debt
TOP UNDERWRITERS FOR EQUITY FINANCINGS
Rank
Underwriter
Proceeds from deals ($ millions)
No. of issues
BMO Nesbitt Burns
$763
13
TD Securities
635
9
RBC Dominion Sec.
541
6
CIBC World Markets
401
5
Scotia Capital
261
6
TOP M&A LEGAL ADVISERS
Rank
Law firm
Value of deals* ($US billions)
No. of deals
Torys
17.7
16
Sullivan & Cromwell
16.2
5
Simpson Thacher & Bartlett
14.2
7
Davis Polk & Wardwell
13.8
2
Kirkland & Ellis
12.4
13
TOP M&A FINANCIAL ADVISERS
Value of deals* ($US billions)
Rank
Adviser
No. of deals
Morgan Stanley
20.4
13
JP Morgan
18.5
5
TD Securities
16.6
8
Goldman Sachs
10.8
8
Lazard
9.9
9
TOP UNDERWRITERS FOR DEBT FINANCINGS
Rank
Underwriter
Proceeds from deals ($ billions)
No. of issues
RBC Dominion Securities
10.7
37
National Bank Financial
9.2
27
TD Securities
8.7
34
BMO Nesbitt Burns
8.0
33
CIBC World Markets
7.9
32
THE GLOBE AND MAIL, SOURCE: REFINITIV q1 2022 *including net debt
Merger and acquisition (M&A) activity has also cooled in Canada, with US$66.6-billion worth of deals announced during the first quarter, including debt, according to Refinitiv, down 45 per cent from the same quarter last year.
The trend is playing out around the world, with the global value of M&A deals down 23 per cent, according to Refinitiv. However, the pace of mergers and acquisitions is still relatively healthy compared to prepandemic years.
Macroeconomic pressures are the leading factors behind the recent changes. “We are living with heightened volatility and uncertainty,” said Nitin Babbar, global co-head of equity capital markets at RBC Dominion Securities.
Inflation sparked the uncertainty last fall, which led to a growth-stock selloff that pummelled the tech sector. Those fears haven’t abated, and now geopolitical concerns hover over everything. Minutes from the latest meeting of the U.S. Federal Reserve were released on Wednesday, and they showed that Fed officials wanted to start hiking interest rates aggressively, but decided to go slow because of the economic ripple effects from Russia’s attack on Ukraine.
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The economic shift is making investors reconsider what types of stocks they want to own. “At the heart of it is a rotation from growth sectors into value sectors,” said Sante Corona, head of equity capital markets at TD Securities. “It’s playing out in the broader market, and it’s playing out in the new-issue market as well.”
One of the reasons the M&A market hasn’t been nearly as hard hit – at least so far – is a difference in who is doing deals. Share sales are subject to public market enthusiasm, while many mergers and acquisitions are now driven by private investment vehicles – and these buyers are flush with cash. “The private equity community continues to have plenty of capital to put to work,” said David Rawlings, chief executive officer of JPMorgan Chase & Co.’s Canadian arm.
Despite the growing uncertainty, many of the share sales that launched in the first quarter of this year were successful. Bank of Montreal BMO-T recently sold $2.7-billion worth of stock to help pay for its acquisition of Bank of the West, for one, and the deal was well-received by investors. “We haven’t seen issuers who really want to [raise money] and we have to say, ‘you can’t,’” RBC’s Mr. Babbar said. “It’s just a question of issuer need.”
For M&A, surging financing costs will be a major question. Interest rates have been very low for the past two years, helping to fuel deals that are partly paid for with debt, but bond yields have jumped now that a growing number of economists think the Federal Reserve could do back-to-back increases in its key interest rate of 50 basis points each.
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Tim Kiladze