Private equity investors helped drive a hefty jump in Canadian merger and acquisition activity in 2019, and the momentum is expected to carry over this year with interest rates remaining low and global trade tensions appearing to ease.
Over all, the number of M&A transactions in the public markets rose last year after a three-year dip, and, because of some multibillion-dollar transactions, the overall value jumped 85 per cent to $96-billion, according to a new report from Bay Street law firm Torys LLP.
That was the richest tally in at least 10 years, driven by such deals as Newmont Mining Corp.’s US$10-billion takeover of Vancouver’s Goldcorp Inc., Kirkland Lake Gold Ltd.’s $4.9-billion acquisition of Detour Gold Corp. and Canadian Natural Resources Ltd.’s $3.8-billion purchase of Devon Energy Corp.’s oil sands business.
More than one-fifth of deals were worth more than $1-billion, compared with 16 per cent in 2018 and 7 per cent in 2017, Torys said. Mining and energy have traditionally been fertile ground for takeovers, and the mining industry delivered in 2019. But the oil patch’s well-worn financial woes kept a lid on activity in that sector. Big deals were also done last year in high-tech, airlines and retail.
In 2019, political and trade uncertainty – from Canadian and U.S. friction with China to concerns about the impact of Britain’s exit from the European Union – had threatened to keep buyers on the sidelines, so the brisk activity was a surprise, said John Emanoilidis, M&A lawyer with Torys.
“Any one of them could have had a chilling effect on deals,” Mr. Emanoilidis said. “There’s just a large amount of money chasing deals, so we’re continuing to see robust M&A activity.”
Indeed, the law firm’s list of potential transactions in 2020 remains long, and there are number of corporate auction processes under way now, he said.
At the same time, interest rates remain low and some of the macro worries appear to be subsiding, with the new United States, Mexico and Canada free trade agreement nearing completion and the trade war between U.S. and China easing. The long-term impact of the coronavirus remains a wild card, although it has already hit commodity and currency markets around the world.
The average value of private-equity-driven deals, meanwhile, doubled to $605-million in 2019, also the highest in at least a decade. Big transactions included Onex Corp.’s $3.5-billion takeover of WestJet Airlines Ltd., Blackstone Group Inc.’s $3.3-billion buyout of Dream Global Real Estate Investment Trust and Northern Private Capital’s $1-billion acquisition of Canadarm maker MacDonald, Dettwiler and Associates Inc.
The acquisitions were accompanied by busy fundraising in Canadian private equity, pointing to more deals ahead as companies seek investments. Last year, 30 buyout specialist companies closed funding rounds, raising $21.1-billion, up 22 per cent from a year earlier, according to a separate report by Refinitiv, the financial data company. Last week, Brookfield Asset Management Inc. closed the biggest fund in its history, raising US$20-billion for infrastructure investments.
Canadian private-equity funds went on a buying spree outside of Canada last year. Canadian investors participated in 239 transactions valued at a record $154-billion, Refinitiv said.
Mr. Emanoilidis said the action mirrors that by private equity around the world, where, according to global investment data provider Preqin, a record US$1.45-trillion of uninvested money – known as dry powder – is available for transactions.
Canadian acquisitions by foreign buyers doubled in value to $85-billion last year, with the takeover of Goldcorp Inc. by Denver-based Newmont Corp. being the largest. More than half came from the U.S., despite frequent complaints in the Canadian business community that the country’s regulation and tax regimes make it noncompetitive.
Another trend in 2019 was transactional activism, where investors push back against corporate deal plans, and such corporate battles could be waged this year as well. TransAlta Corp., Hudson’s Bay Co. and Canfor Corp. all became targets of investors opposed to either mergers or outright buyout proposals by majority shareholders – often balking at the price.
“Activists will seize on process issues or disclosure deficiencies as a way to gain leverage. Certainly parties that are negotiating transactions need to be prepared for this, and it’s beneficial for all sides for a transaction to result from a robust process,” Mr. Emanoilidis said.
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