It was a slow summer for big deals in Canada, but it doesn't mark the beginning of an extended downturn, bankers say.
While the quantity of deals involving Canadian companies in the third quarter was higher than a year ago, they were worth a lot less: 672 mergers or acquisitions worth $37.8-billion (U.S.) were announced, down from 605 deals worth $105.3-billion a year ago, according to data released on Tuesday by Thomson Reuters.
"The third quarter was relatively slow, certainly compared to the first quarter," said Peter Buzzi, co-head of mergers and acquisitions at RBC Dominion Securities Inc. "The momentum has come out of the market a little bit."
Mr. Buzzi pointed out that the M&A market is notoriously lumpy, but he doesn't view the third quarter as the start of a protracted slowdown. Last year's third quarter figures were boosted by large transactions, including Enbridge Inc.'s $43.1-billion takeover of Spectra Energy Corp.
"Market conditions are still very strong," he said, thanks to strong equity and debt markets and a "reasonably good" outlook for the Canadian economy.
The slowdown comes as many Canadian acquirers have their hands full digesting previous large acquisitions amid a surging loonie, uncertainty around the North American free-trade agreement and tax reform, and high valuations. These are some of the reasons why deal activity in the second half of the year won't be as busy as the first half, predicts David Rawlings, chief executive officer in Canada for JPMorgan Chase & Co., which advised on the country's three largest transactions of the year, among others.
"On the one hand, you've got currency to buy things. On the other hand, what you're buying feels like it's at full valuation," Mr. Rawlings said. "Assets are expensive, it's hard to find value and auctions are competitive." And this will also keep even the most acquisitive pension funds and asset managers on the sidelines more often than not over the next six months, he added.
JPMorgan leads the year-to-date rankings for M&A, working on 20 deals valued at $47.1-billion. TD Securities Inc. and Goldman Sachs & Co. round out the top three financial advisers. Law firm Osler Hoskin & Harcourt LLP has advised on 81 transactions so far in 2017 worth a chart-topping $47.3-billion. Blake Cassels & Graydon LLP has worked on the most deals: 88 worth $40.3-billion.
The decline in big deals also had a knock-on impact in equity capital markets, with less money raised to pay for acquisitions during the summer. Underwriters raised $5.1-billion (Canadian) for clients during the third quarter compared with $9.4-billion in the same period last year.
RBC is the top bank for stock sales so far this year, leading $6.8-billion in deals, excluding self-funded raises. TD and BMO Nesbitt Burns Inc. are running in second and third. In corporate debt sales, RBC, TD and CIBC World Markets are the top underwriters.
As often happens in the summer, the initial public offering (IPO) market slowed considerably, with health products producer Jamieson Wellness Inc. being the only new offering on the Toronto Stock Exchange during the period. However, indications are that the IPO market, which started the year with a bang, is also set to end strongly.
Last month, clothing retailer Roots Corp. filed to raise about $200-million. The metals and mining sector is showing signs of life, with a handful of new IPOs on tap for Canada, including steel producer Stelco Holdings Inc., which recently emerged from creditor protection, Brazilian base-metals miner Nexa Resources SA, Vancouver-based Ero Copper Corp. and zinc exploration company Titan Mining Corp.