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low angle view of two businessmen shaking hands

George Doyle

Merger and acquisition figures crawled through the third quarter with the fewest new deals in three and a half years. While buyers continue to demonstrate interest, sellers dig in their heals. And the chief reason could be that they simply don't see anything else they want to do with their money.

"When you see the level of activity decline the way it has in the last couple of months it's easy to get the wrong impression that people are second guessing whether to buy companies," said Ed Giacomelli, managing director at Crosbie & Company Inc.

Some studies have linked the unmotivated sellers to uncertainty in the markets, but Mr. Giacomelli says that is really only part of the issue. "Our take on it is that if you sell your business, it's a life decision. What do you then do with the money? A lot of succession planning and estate planning goes into selling a business."

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That goes for smaller businesses and family-controlled companies, as well as for larger corporations, which may not want to face the question of whether to redeploy the capital after a sale, or give it back to shareholders.

Crosbie's recent report on M&A in Canada noted that there were just 195 transactions this quarter, and Mr. Giacomelli says that since many of the businesses are performing quite well, people believe they can afford to defer that decision a few years. "And when you look at how choppy investment returns have been, it's hard to say to someone you're better off selling your business and investing it in the stock market." These are the companies that will eventually come to market, but it doesn't have to be today. Reinvestment, beneficiaries and charitable donations can wait.

And what will it take to snap sellers out of this funk? Mr. Giacomelli says they play their cards pretty close to their chest, but when they look at the uncertainty in the markets and then at the volatility of their own business, the familiar seems more appealing. "So I do think all the talk about fiscal cliff and Europe has some effect, but I think it has less to do with that, and more to do with what they want to do with the money," he said.

The other thing that caught his eye was the takeover of Garda World Security Corp. by controlling shareholder (and founder) Stephan Cretier through a partnership with Apax Partners LLP for $1.1-billion. "That's a situation where a founder and owner took the company public, grew the business, the stock he clearly believes is undervalued and he's going to take it private – I'm always interested to watch going-privates to see whether that's going to be the start of some sort of trend," he said.

The Crosbie report drew attention to the 13 deals involving active capital groups (worth more than $100-million) in the quarter, with seven of those being buy-side transactions. They called it a bright spot.

In terms of industry trends, 8 of the 13 sectors Crosbie tracked saw a decline in activity. Real estate saw the biggest drop with 39 deals in the quarter from 58 in the period before. But even with this massive decline, real estate still managed to tie oil and gas for the most deal-hungry group. In terms of value, oil and gas was tops again, followed by industrial products.

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