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Lawyer Kevin Thomson believes that within the next few months, mergers in the resources sector will fire up again.Michelle Siu/The Globe and Mail

Bay Street has been suffering through a drought of big mergers and acquisitions that some say shows few signs of ending any time soon.

While smaller "strategic" deals – like Telus Corp.'s recent $380-million acquisition of Mobilicity – are still happening, blockbuster multibillion-dollar mergers are completely on hold, Bay Street deal makers say.

Senior lawyers who work on these deals blame the tumbleweeds on an uncertain economic outlook, a shaky mining sector and Ottawa's new restrictions on foreign state-owned enterprises in the oil patch.

"We're still in a dead zone," says Clay Horner, chairman of Osler Hoskin & Harcourt LLP in Toronto. "I think there's some thinking certainly going on, and there's some musing about doing strategic transactions. That said, do I see any coming on the immediate horizon? I don't. Not the right time."

Bay Street's investment bankers and brokers have also been feeling the pinch of the unsteadiness of Canada's mining sector, where shaky commodity prices have led to plummeting stock prices, asset write-offs, and career changes for chief executive officers. Raising money has become increasingly difficult for junior players.

Kevin Thomson, a senior law partner in the Toronto office of Davies Ward Phillips & Vineberg LLP, says "significant transactions" remain on his desk, but all are on hold as the market eyes slumping commodity prices.

Early in the year, he said, his team was scrambling with prospective deals, busier than they had been since 2007. But come March and April, everything ground to a halt. Still, Mr. Thomson believes that within the next few months, mergers in the resources sector are going to fire up again as commodity prices, driven by demand in China, pick up: "We are optimistic that this is just a lull."

The fundamental problem with the uncertainty surrounding commodity prices is that companies have trouble figuring out what they are worth, he said: "If you can't price it, you can't buy. And from the seller's side, if you don't know what your company is worth, you can't sell it."

Jamie Scarlett of Torys LLP said that if the U.S. markets hold their own over the summer, the confidence that companies need to make big acquisitions should return.

"Nobody wants to do an M-and-A deal and six months or a year later look like a goofball because they sold too low or they bought too high," Mr. Scarlett said. "People aren't feeling confident, and until they feel confident, it's hard to pull the trigger."

Admittedly, big transactions involving real estate, and real-estate investment trusts (REITs), have still been a busy area for Bay Street deal makers. U.S. private equity is said to be sniffing around Canadian mid-sized companies. And lawyers say their firms have kept legal fees flowing from other practice groups, such as those involved in defending corporations against the increasing number of class-action cases and those advising combatants in the recent explosion of proxy fights.

Everyone agrees that part of the merger slowdown problem is that state-owned enterprises, such as China's government-controlled oil giants, have been told they are unwelcome in Canada, with the new rules imposed last year by Ottawa after the controversial acquisition of Calgary-based Nexen by China's CNOOC Ltd.

But Mr. Thomson says the policy should not have any impact outside the oil patch, adding that he has at least three potential mining deals involving Chinese clients on hold.

And Mr. Horner says state-owned buyers will return to the Canadian market, despite the new rules that bar them from controlling interests in the oil patch: "I don't think it's that they are so spooked by things, but I don't see anything [large] on the horizon."

On the overall merger picture, Michael Gans of Blake Cassels & Graydon LLP is not as optimistic about the prospects for a return to deal-making this fall, suggesting we are entering a "new normal" of skittish buyers and sellers.

"I agree that if and when commodity prices stabilize and confidence stabilizes we will see more deal flow," Mr. Gans said. "But I also think it's very possible that we are just in a new era of uncertainty and choppiness in the financial markets and that translates into M-and-A activity."

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