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May 02, 2017 | M&A Reports 

Crosbie & Company Canadian Mergers & Acquisitions Report for Q1 2017


Canadian M&A activity (which we define as all M&A deals involving a Canadian company as a material counterparty) was fueled by the mid-market as the number of announced transactions in Q1 surged to the highest level in the last 5 years.  Figures developed by Crosbie & Company using Capital IQ and other sources indicated 771 announcements in Q1, up 11% from the previous quarter and up 28% from the same quarter last year.  The quarter marks the fourth consecutive quarter where activity increased year-over-year.

Due to continued mega-deal activity (transactions in excess of $1B in value), the value of announced transactions increased 61% from last quarter to $80B in this quarter, back above the longer term quarterly average observed since 2012.

The strength in M&A activity during the quarter was spread across the industry spectrum, with 11 of the 14 sectors experiencing an increase in activity. However, the year over year increase in activity was primarily driven by three key sectors: Metals and Mining, Precious Metals and Real Estate.  From a deal-size perspective, most of the increase in activity can be attributed to the middle market (under $250M) category.

Domestic M&A Transactions

Figure 2 illustrates that Canadian domestic M&A activity soared in Q1. There were 505 transactions involving Canadian targets (including both those with domestic or foreign buyers) in Q1, up 24% from 408 transactions in the same quarter last year.


There were 17 mega-deals announced in Q1, representing an aggregate value of $66B.  Mega-deals accounted for over 83% of the total value of M&A activity for the quarter. 

The largest announced transaction was Cenovus Energy’s $18B acquisition of ConocoPhillips’ 50% interest in the FCCL Partnership, the jointly owned oil sands venture operated by Cenovus, as well as certain Deep Basin conventional assets in Western Canada.

The second largest transaction of the quarter featured AltaGas acquiring US based WGL Holdings in a transaction valued at $8.7B as the company becomes a larger and more diverse energy infrastructure company. 

Financial Sponsors

Financial sponsors remained active in the first quarter of 2017 on both the buy-side and sell-side with 12 transactions (in excess of $100M) valued in aggregate at $24.3B.  Seven of the ten largest transactions in the quarter involved a financial sponsor, including several Canadian pension funds who continue to pursue large transactions both domestically and abroad. However, a number of pension funds have started to raise concerns that intense competition has driven valuations too high for some assets, such as sought after infrastructure assets which can provide stable long term inflation-protected returns, fitting well with the nature of their liabilities.  

Noteworthy transactions by a financial sponsor in Q1 included the acquisition of GE Osmonics (GE Water) by Caisse de depot et placement du Quebec, together with SUEZ SA, for $4.5B; coveting the company’s stable   recurring revenue stream and high quality diversified customer base.  During the quarter, the Caisse also partnered with KKR & Co. and management to acquire USI Insurance Services from Onex Corporation for $5.8B. 

Industry Sector Activity

The most active sector by number of announced transactions was Metals and Mining with 123 deals valued at $1.9B, a 66% increase in activity from Q1 2016.  The sector’s largest transaction involved US based The Washington Companies’ acquisition of Dominion Diamond Corporation, a TSX listed Canadian mining company, for $1.7M.

Real Estate, historically one of the most active sectors, rebounded 23% from Q1 2016 to 90 transactions worth $8.7B. The largest deal in the sector involved Starwood Capital Group’s $4B acquisition of Milestone Apartment Real Estate Investment Trust, a Canadian publicly-traded REIT. 

The most active sector by deal value was Energy with 52 deals valued at $22.9B, largely due to the Cenovus Energy transaction mentioned above.  Another key transaction in the sector was the $3.4B acquisition of Marathon Oil’s Canadian operations to Canadian Natural Resources Limited and Shell Canada Energy Ltd.  

Utilities were also active from a deal value perspective with over $12B in announced transactions. Significant transactions included AltaGas’ acquisition of WGL Holdings, a US based gas utility, for $8.7B and AIMCo and AES Corporation’s $2.1B deal to acquire US based Sustainable Power Group, the largest independent owner, operator and developer of utility scale solar assets in the United States.

Breakdown by Transaction Size

While the aggregate transaction value for the quarter was largely driven by mega-deals, the bulk of the activity came   from transactions with deal values under $250 million.

As shown in Figure 4, the middle market continues to be the foundation of Canadian M&A transaction volume with deals under $250 million representing 91% of all the transactions with disclosed values.  This is consistent with past trends in activity.  In aggregate, the mid-market transactions were valued at $6.9B or approximately 9% of total M&A value.  

In the first quarter of 2017, transaction size was not disclosed for 53% of the transactions, consistent with 54% in 2016.  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 middle market as we define it here.

Target by Province

As shown in Figure 5, domestic M&A activity varies considerably by province.  In Q1 2017, the provinces with the most announcements (in declining order of activity) were Ontario, British Columbia, Quebec and Alberta.  These four provinces represented 85% of activity in the quarter.  

The increase in domestic activity year over year (505 announcements in Q1 2017 vs 408 in Q1 2016), was attributable to increases in activity in Ontario, British Columbia and Alberta. In Ontario, M&A activity increased 20% (185 versus 154 in Q1 2016); British Columbia increased 27% to 93 transactions; and Alberta increased 30% to 73 transactions.

Cross-Border Deals

As the data in Figure 6 indicates, cross-border transactions continued to account for a significant proportion of activity with 47% of all transactions involving a foreign target or buyer, demonstrating the global nature of the Canadian economy.

Canadian companies making acquisitions abroad (“outbound” transactions) outnumbered the number of foreign companies acquiring in Canada (“inbound” transactions) by a factor of 1.4 times.  Additionally, the value of outbound transactions exceeded the value of inbound transactions in Q1 by one and a half times.  In this quarter, we saw a continuation of the trend observed recently where Canadian firms were both more active abroad and spending more than foreigners acquiring Canadian companies.  However, inbound activity increased significantly as foreign firms acquired more Canadian companies in Q1 compared to the same quarter last year (152 vs 132 in Q1 2016). The value of inbound transactions was slightly below the same quarter last year ($18B vs $19.9B in Q1 2016).

Despite continued weakness in the Canadian dollar relative to the US dollar, Canadian companies remained active buyers south of the border, buying more US companies (133) for a higher value ($25.5B) than US acquisitions of Canadian companies (75 deals for $7.2B).

Crosbie & Company Inc.
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