Surging markets and confidence have Canadian companies doing deals at a much faster pace than a year ago, leading to a big jump in business for investment banks.
Investment banks raised $20.8-billion for companies in the first half of the year by selling stocks, a 43-per-cent jump from the $14.5-billion in the first half of the last year, according to figures from Thomson Reuters. Huge stock sales such as Bank of Nova Scotia's disposition of a stake in mutual fund company CI Financial and the initial public offering of PrairieSky Royalty Ltd., one of the biggest IPOs in Canadian history, drove much of the gain.
The value of mergers and acquisitions involving Canadian companies soared to almost $90-billion (U.S.) from about $65-billion last year. There were large deals such as the sale of AltaLink, an Alberta power-line owner, to Warren Buffett's Berkshire Hathaway, as well as many more small deals. Finally, the amount of debt sold rose to about $91-billion (Canadian) from about $85-billion, as companies pushed to refinance before any signs that interest rates might be on the rise.
Unless markets hit a very rough patch, there is no sign of a slowdown in transactions, bankers say. Corporate executives are feeling confident, which is driving merger activity. That in turn leads to financings. And there is a sense of urgency to get deals done while markets are conducive.
The pipeline of deals for coming months is full, in large part because "all facets of the capital markets are probably in the best shape we have seen them in 12 to 18 months," said Tim Kitchen, the head of investment banking for Barclays in Canada.
"It feels really good," Mr. Kitchen said. "Since I have been here, this is the busiest the Calgary and Toronto offices have been."
In mergers and acquisitions, Barclays led the rankings, followed by Goldman Sachs and Morgan Stanley. The prevalence of global banks at the top of the league tables points to the cross-border nature of many of the largest transactions in the first half. Transactions such as Amaya Gaming's $4.9-billion takeover of the owner of PokerStars and the AltaLink transaction got the biggest headlines, but there were plenty of smaller deals.
RBC Dominion Securities was the top underwriter of stock sales, leading $3.18-billion in deals. The investment banking arms of Canadian Imperial Bank of Commerce and Bank of Montreal rounded out the top three. In debt, RBC, TD Securities and CIBC World Markets ranked one, two and three.
The energy and financial sectors were the busiest for stock underwriting, in large part due to the CI and PrairieSky sales. Look for the activity to continue in those areas, which are the dominant sectors in the Canadian stock market, but also to broaden out to more sectors in the second half.
"I think we will see a very active second half as well," said Kirby Gavelin, head of equity capital markets at RBC. "There's a reasonably strong calendar [of transactions] and acquisition levels continue to be robust."
One area that has yet to regain its lustre is mining. With gold unable to gain significant ground, gold miners have not yet been able to return to the markets in a big way. The merger business for mining has also been relatively quiet, with assets on the market but not too many deals completed. It's not clear that will change any time soon.