Crosbie & Company Canadian Mergers & Acquisitions Yearly Report for 2012

Overview

The Canadian M&A market exhibited continued strength in 2012 as the effects of the financial crisis continued to fade. Figures from Crosbie & Company and Capital IQ indicated that there were 2,822 announcements in 2012, down 6% from 2011. However, in terms of value, M&A announcements increased $20B to $213B in 2012, a 10% year over year increase, largely due to increased megadeal activity.

Mega-Deals

There were 48 mega-deal transactions (transactions in excess of $1B in value) for an aggregate value of $123B, an increase over the 37 mega-deals valued at $103B the prior year.

The largest transaction of the year was the highly controversial $19.6B acquisition of oil sands producer Nexen Energy by CNOOC, a Chinese state owned enterprise. This transaction was only approved by the Canadian government after extracting significant concessions from CNOOC and establishing stricter acquisition rules for future acquisitions by foreign state owned enterprises.

In addition, Canadian agricultural giant Viterra was swallowed by the Swiss commodity trading behemoth Glencore PLC for $7.6B. 

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. Despite a number of large inbound M&A deals in the energy sector, Canadian companies continued to outspend their foreign counterparts by 1.3:1 times.

Eight of the top ten largest transactions in 2012 were cross-border deals.

Financial Sponsors

Financials sponsors remained active in 2012 with 58 transactions (in excess of $100M), valued at $62.6B in total. Investment in infrastructure was a continued theme as Canada Pension Plan and BC Partners acquired Cequel Communications, the 7th largest cable operator in the US, for $6.6B. In addition, BC Investment Management was part of a group of investors that acquired E.ON AG’s gas transmission assets in Germany for $4.1B.

Industry Sector Activity

The Real Estate sector was the most active sector, with 423 transactions announced for $33B. Transaction volume and value increased 10% from 2011. Notwithstanding the strength in the sector, there was not a single transaction in excess of $1B.

Canadian oil sands assets attracted significant attention from foreign buyers seeking to lock up long life reserves in the current high oil price environment. As a result, the Energy sector was the most active sector by value with 320 transactions valued at $66B. In addition to the Nexen transaction, another state-owned enterprise, Malaysian-based Petronas, made a major acquisition in the oil sands with the purchase of Progress Energy for $5.7B. A made in Canada deal saw Pempina Pipeline expand its natural gas liquids infrastructure by acquiring Provident Energy for $3.8B.

The Consumer Discretionary sector also saw a modest decline in activity despite a large uptick in value with 262 transactions valued at nearly $27B. Alimentation CoucheTard expanded its gas station and convenience store empire into northern Europe by acquiring Statoil’s retail fuel business for $3.5B. The consolidation trend continued in the Canadian media sector as broadcaster Astral Media was acquired by BCE for $3.4B.

Mid-Market 

The mid-market continues to be the cornerstone of the Canadian M&A transaction volume with deals under $250 million representing 90% of all the transactions with disclosed values. In aggregate, the mid-market transactions were valued at $41B or approximately 20% of total M&A value. Mid-market deals have historically averaged close to 90% of total activity.

In 2012, transaction size was not disclosed for 45% of transactions, in line with the 46% in 2011. 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.