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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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