The value of inbound (Canadian company as the target) mergers and acquisitions fell nearly 60 per cent year over year in 2015 to $40.5-billion, according to Bloomberg data. Energy and financials – the two biggest sectors – fell by more than half. Yet one of the savviest investment bankers on the Street is predicting that these two sectors will be the belles of the ball next year.
Here are three trends in M&A to watch in 2016:
Resources M&A to 'explode' in midst of 'pain'
Investment banker John Armstrong peppers the word 'pain' repeatedly into conversation when discussing the widespread annihilation that has decimated the Canadian resource sector over the past few years.
Resources, which historically carried much of the the load in mergers and acquisitions activity, got hammered in 2015. No surprise, given that crude oil and metals prices touched multiple multiyear lows.
For companies caught in the tempest, things are going to get worse he predicts.
"As the financial stress continues to increase, we see hedge books rolling over, the banks over time becoming less accommodating," Mr. Armstrong, head of Canadian M&A with BMO Nesbitt Burns Inc., said in an interview.
Despite that scenario – or maybe because of it – Mr. Armstrong believes that M&A in resources is "set to explode" in 2016.
Until fairly recently, the rout had forced companies to only sell their non-core, or "unwanted assets," Mr. Armstrong said. But that's changing. "Tier 1" assets are now being put up for sale by the majors. He pointed to Barrick Gold Corp. recently selling a 50-per-cent stake in its Zaldivar mine in Chile for $1-billion (U.S.) and Glencore PLC unloading a silver stream worth $900-million from its Antamina mine in Peru. Expect more of those kinds of prized-asset sales from debt-heavy majors in 2016.
"These are the types of assets that we believe are going to come to the fore as the financial pain begins to increase and the pressure gets ratcheted up," Mr. Armstrong said.
In the oil and gas sector, expect the opportunistic buyers of those Tier 1 assets to be pension funds and private equity (PE) companies for the most part.
"There's a lot of PE money chasing energy right now," Mr. Armstrong said. "We estimate the dry powder to be about $150-billion."
Canadian banks to buy independent fintechs
John Medland, a partner with Blair Franklin Capital Partners, a Toronto-based investment bank specializing in M&A advisory, predicts that "disruption" in financial services due to technological and regulatory change will be a major theme in 2016.
"All the incumbents recognize the landscape is changing and they're figuring out how to respond … whether that drives M&A activity or if it's organic," Mr. Medland said in an interview.
M&A will be centred around the independent, privately held robo-adviser and payments companies, he predicts.
Nest Wealth, Questrade and WealthBar are likely to be bought by big banks in 2016, according to Mr. Medland.
Wealthsimple, one of the largest independent robo-advisory firms, is already partly owned by Power Financial Corp.
Increase in 'northbound' M&A traffic
"Increasingly our auctions are becoming more global," Mr. Medland remarked when he reviewed a number of Blair Franklin's M&A advisory wins in 2015, which included Australian, French, U.S. and British buyers for Canadian assets.
In 2016, he predicts an uptick in "northbound" M&A traffic from the U.S. into Canada partly because the crash in our currency has left Canadian assets cheap in comparison.
"The lower dollar creates an environment where U.S. companies should be looking to Canada," he added.