Crosbie & Company Canadian Mergers & Acquisitions Yearly Report for 2013

Overview 

The Canadian M&A market took a step backwards in 2013 after several years of strong and steady deal volumes. Analysis prepared by Crosbie & Company using Capital IQ and other sources indicated 2,548 announcements in 2013, down 10% from 2012. In terms of value, M&A announcements declined $19B to $194B in 2013, a 9% year over year decrease.

The decline in activity was largely the result of weakness in the commodity sectors which have come under pressure with falling commodity prices amid slower global economic growth.

As highlighted below in this report, the decline in activity was relatively broadbased, occurring in 8 of 14 industry sectors. 

Mega-Deals

There were 33 mega-deal transactions (transactions in excess of $1B in value) for an aggregate value of $107B. This is down from 48 mega-deals valued at $123B in 2012.

The largest transaction of the year involved Brookfield Office Properties being taken private by its parent Brookfield Property Partners LP for $22B. The Canadian grocery and retail sector experienced significant consolidation as Loblaw Companies extended its reach into the pharmacy sector by acquiring Shoppers Drug Mart for $13.7B and east coast-based Sobeys established a national footprint by expanding into western Canada with the $5.8B purchase of Canada Safeway.

Cross-Border

Cross-border transactions continued to account for the vast majority of activity with 37% 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 1.4:1. Canadian companies also outspent their foreign counterparts by 1.4:1, which is the continuation of the trend observed recently where Canadian firms were both active abroad and spending more than foreigners acquiring Canadian companies. 

Financial Sponsors

To get a sense of financial sponsor activity, we track transactions in excess of $100M. Financials sponsors remained active in 2013 with 64 transactions, valued at $49.5B in total. Borealis Infrastructure, the infrastructure investment arm of OMERS, together with investment partners, acquired Fortum Distribution Finland, the largest electricity distribution network in Finland, for $3.7B. The Canada Pension Plan, along with a local partner, acquired Commonwealth Property Office Fund, a portfolio of office properties in Australia, for $3.3B.

Industry Sector Activity

The Real Estate sector was the most active sector for the second consecutive year, with 446 transactions announced for $69B in aggregate value. Although the number of transactions was up only 5% from 2012, deal value more than doubled from the prior year. In addition to the Brookfield transaction, Loblaw sought to unlock value by rolling over 400 corporate owned store properties into a real estate investment trust in a $7B transaction. Primaris REIT was acquired in a $4.5B transaction that saw H&R REIT play the role of white knight, trumping a hostile bid by KingSett Capital. 

The commodity sectors (Energy, Metals and Mining, Materials and Precious Metals) experienced significant declines in activity. Energy in particular saw a 25% decline in volume to 241 transactions and $18B, or 73%, drop in deal value. Metals and Mining activity fell 19% and deal value was off nearly 90% while Precious Metals activity declined 36% and deal value fell 50%. The largest commodity sector transaction was Weyerhauser’s $2.7B purchase of Longview Timber from Brookfield Asset Management. This deal sees Weyerhauser increase its exposure to a recovery in the US home building sector.

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 $40B or approximately 21% of total M&A value. Mid-market deals have historically averaged over 90% of total activity, consistent with 2013.

In 2013, transaction size was not disclosed for 44% of transactions, in line with the 45% in 2012. 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.