Crosbie & Company Canadian Mergers & Acquisitions Yearly Report for 2011

Overview

The Canadian M&A market improved for the third consecutive year in 2011 as it began to recover from the global financial crisis. Figures from Crosbie & Company and Capital IQ indicated that there were 3,004 announcements in 2011, a year over year increase of 6%. In terms of value, M&A announcements increased $36B to $193B in 2011, a 23% increase from 2011, largely due to increased mega-deal activity.

Mega-Deals

There were 37 mega-deal transactions (transactions in excess of $1B in value) for an aggregate value of $103B, an increase over the 31 mega-deals valued at $83B the prior year.

The largest transaction of the year was the sale of communications technology provider Skype by a group of investors, including Canada Pension Plan, to Microsoft for $9B. TD Bank acquired the MBNA Canada credit card portfolio from Bank of America for $8.6B. A portion of the wireless patent portfolio of defunct former technology titan Nortel Networks was purchased by a group of technology heavyweights, including RIM, Apple and Microsoft for $4.3B. 

Cross-Border

Cross-border transactions continued to account for a significant proportion of activity with 38% of all transactions involving a foreign target or a foreign buyer, demonstrating the global nature of the Canadian economy.

Canadian companies were active in making foreign acquisitions abroad, outnumbering foreign acquisitions of Canadian businesses by 1.7:1. Canadian companies also outspent their foreign counterparts by 2:1, which is the continuation of the trend observed recently where Canadian firms were both active abroad and spending more than foreigners acquiring Canadian companies. 

Eight of the top ten largest transactions in 2011 were cross-border deals.

Financial Sponsors

Financials sponsors continued to be a key driver of M&A activity in 2011 with 67 transactions (in excess of $100M), valued at $63B in total. Ontario Teachers’ Pension Plan, along with its co-investors, sold Northumbrian Water Group, a UKbased water utility, to a Chinese investment company for $7.5B. Canada Pension Plan and Public Sector Pension Investment Board acquired US medical technology company Kinetic Concepts for $6B.

Industry Sector Activity

The Metals and Mining sector was the most active sector, with 402 transactions announced for $24B. Although transaction volume declined 9% from 2010, deal value jumped 85% to $24B. Barrick Gold diversified away from gold by purchasing copper miner Equinox Minerals for $7.5B. US-based Cliffs Natural Resources acquired Consolidated Thompson Iron Mines for $5B and Quadra FNX Mining was acquired by Polish copper miner KGHM International for $3.5B. 

Energy continued to be a strong source of M&A activity with 372 transactions valued at $25B. Chinese companies were particularly active in the Canadian oil patch as Sinopec acquired Daylight Energy for $2.9B and CNOOC purchased OPTI for $2.1B. 

Real Estate experienced a 26% increase in transactions with 383 deals valued at $28B. 

Mid-Market 

The mid-market continues to be the cornerstone of the Canadian M&A transaction volume with deals under $250 million representing 91% of all the transactions with disclosed values. In aggregate, the mid-market transactions were valued at $41B or approximately 21% of total M&A value. Although mid-market deals have historically averaged close to 90% of total activity, the top 1% of transactions typically contribute over half of the total deal value.

In 2011, transaction size was not disclosed for 46% of transactions, in line with the 45% in 2010. While this limits the precision of inferences we can make about the size distribution of transactions, it is reasonable to assume most of the undisclosed deals are within the mid-market as we define it here.