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Mergers on pause in Canada, top deal makers say

The recent announcement of Chinese oil giant Sinopec’s $2.2-billion deal for Calgary-based Daylight Energy Inc. is seen as another sign of China’s growing boldness on the acquisition front.


The uncertainty that hangs over both the European debt crisis and the U.S. economic recovery also hangs over the Bay Street lawyers who make their livings doing multibillion-dollar deals.

Several of Canada's leading merger-and-acquisition lawyers say they are cautiously optimistic they will have ample deals to close in 2012. But for now, many potential buyers are in a holding pattern, lawyers say, waiting for signs that at least some of the economic clouds are clearing.

No one is suggesting that interest in Canadian assets is going to dry up. Chinese companies are still expected to buy Canadian resource and energy firms. And relatively high commodity prices have produced piles of cash for mining companies, who are keen to spend it on acquisitions.

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Both of these factors could keep the country's elite M&A lawyers busy with marathon boardroom sessions and midnight conference calls. Still, things could change quickly, as happened last year. The first half of 2011 was very busy for Bay Street's top deal makers, before Europe's debt soap opera scared many clients off big acquisitions in the year's second half.

"The first half of 2011 felt as if we were back in the good times," said Jeremy Fraiberg of Osler Hoskin & Harcourt LLP. "… Then things did slow down considerably in the second half."

He also points out that there has not been a Canadian "megadeal" – with a price tag north of $10-billion – since Suncor Energy Inc.'s acquisition of Petro-Canada in 2009.

"When there is uncertainty in the marketplace, no one wants to do a bet-the-farm," Mr. Fraiberg said, adding that companies might undertake less risky deals in the face of uncertainty.

Shlomi Feiner, of Blake Cassels & Graydon LLP, said that China, and the oil-and-gas and mining sectors, will keep driving Canada's merger-and-acquisitions business. But the pace of activity could slow, he added.

"We have been busy but there's many different balls in the air between Europe, the U.S. recovery, what the Asian markets are doing, what the Asian economies are doing," Mr. Feiner said. "We're obviously hopeful it will be a very busy year. But it's hard to tell. As we've seen from last year, things can change very quickly."

Kevin Thomson, of Davies Ward Phillips & Vineberg LLP, said his firm saw a slowdown about halfway through 2011. But he said business picked up as the year drew to a close, building to a frenetic pace.

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"It was next to impossible to find a boardroom to work in here," he said, adding that Davies is ramping up its hiring of young lawyers, banking on more work to come.

Still, he acknowledged that after a rush of deals before the end of 2011, clients now appear to be taking a wait-and-see approach: "My desk is full of files. The question is, who's going to pull the trigger?"

One change in the M&A landscape is the new assertiveness of Chinese state-owned enterprises and sovereign wealth funds, which, according to Blakes, have poured $30-billion into Canadian companies in the past five years.

Chinese buyers used to seek only minority stakes or small companies, to avoid creating controversy or attracting the attention of federal regulators. But now, even in the wake of the "chilling effect" some warned would follow Ottawa's 2010 rejection of the foreign takeover of Potash Corp. of Saskatchewan Inc., China is starting to go after entire companies, and big ones.

Many point to Minmetals Resources Ltd.'s failed $6.3-billion bid for Toronto's Equinox Minerals Ltd. – a rare hostile bid from a Chinese company – as a sign the country's companies are getting more aggressive. And the recent announcement of Chinese oil giant Sinopec's $2.2-billion deal for Calgary-based Daylight Energy Inc. is seen as another sign of China's growing boldness.

For Bay Street's law firms, which have been scrambling for Chinese clients for years, this new attitude could be good for the bottom line.

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David Woollcombe, leader of McCarthy Tétrault LLP's business law group, said Chinese companies are not as affected by the European debt crisis as North American firms are.

Chinese companies "do not seem to be as spooked about Europe," he said. "They seem to take a long view of things."

Still, many say even Chinese companies, despite a seemingly bottomless reserve of capital from their country's banks, are not interested in risky acquisitions when markets nervous about Europe have stock prices oscillating wildly.

The other bright spot for deal makers will be mining, many predict, as smaller companies look to giants for the money they need to develop properties into profitable mines.

Neill May of Goodmans LLP says that, despite the current pause in the action, the mining sector is expected to be a strong source of deals. Companies are now kicking the tires of potential purchases, he said.

There is a lot of talk in the business, he says, about impending mining mergers. Commodity prices are still relatively high and rising, giving the industry's global titans big cash reserves to buy up smaller firms.

"The money is burning a hole in their pocket," Mr. May said. "The chatter is incessant and, in fact, deafening."

He adds that he doesn't think Chinese buyers will limit themselves to stereotypical Canadian assets like mines and oil wells, based on his Chinese clients' tastes: "I don't think China's on the prowl, like in the press, just for energy and commodities. I think it is on the prowl for anything and everything."

Despite this, no one is predicting a banner year. Richard Clark at Stikeman Elliott LLP doesn't see the European trouble forcing buyers off to the sidelines, and says private equity is back in the marketplace, while banks have loosened up their purse strings. But he still sounds cautious.

"I would say it's going to be slow and steady, almost like the economy," Mr. Clark said. "I'm certainly not expecting a boom year. … We'll manage to do okay."



Canada's top merger-and-acquisitions law firms say 2011 was a mixed bag, with a busy first half followed by a slower second half as concerns about Europe put some transactions on hold.


Value of deals in U.S. dollars

No of deals

Change in no. of deals from 2010

Blake Cassels & Graydon LLP




Osler Hoskin & Harcourt LLP




Torys LLP




McCarthy Tétrault LLP




Davies Ward Phillips & Vineberg LLP




Stikeman Elliott LLP




Norton Rose OR LLP




Sullivan & Cromwell (U.S. firm)




Allen & Overy (British firm)




Goodmans LLP




Source: Thomson Reuters M&A Legal Advisory Review, deals with any Canadian involvement announced in 2011.

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About the Author
Toronto City Hall Reporter

Jeff Gray is The Globe and Mail’s Toronto City Hall reporter. He has worked at The Globe since 1998. From 2010 to 2016, he was the law reporter in Report on Business, covering Bay Street law firms and white-collar crime. He won an honourable mention at the National Magazine Awards for investigative journalism in 2010. More

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