February 23, 2017 | M&A Reports
Crosbie & Company Canadian Mergers & Acquisitions Report for Q4 2016
Canadian M&A activity (which we define as all M&A deals involving a Canadian company as a material counterparty) was tracked at 693 transactions in Q4 of 2016. Based on figures developed by Crosbie & Company using Capital IQ and other sources, activity in Q4 was up 8% from the same quarter last year and marked the third consecutive quarter where activity remained above levels observed in 2015. Deal value, however, declined to $49.6B, down 35% from $76B in Q4 2015.
Activity in the fourth quarter reflects a strong year over year recovery across the industry spectrum, with increases in activity in 8 of the 14 sectors. In particular, resource sectors (Metals & Mining, Precious Metals) and Financial Services showed considerable increases in activity. This activity was slightly offset however, against a decline in a historically active sector, Industrials. From a deal-size perspective, most of the year over year increase in activity can be attributed to the middle market (under $250M) category.
Domestic M&A Transactions
Figure 2 illustrates the increase in Canadian domestic M&A activity during Q4. There were 445 transactions involving Canadian targets (including both those with domestic or foreign buyers) in Q4, up 2% from 435 transactions in the same quarter last year.
There were 15 mega-deals announced in Q4, representing an aggregate value of $30.8B, down from the $58B in Q4 2015 and down significantly from the high water mark observed in the previous quarter.
The largest transaction of the quarter was Fairfax Financial’s announced acquisition of Allied World Assurance, a property and casualty insurance company, for $6.8B. The transaction marks another step by Fairfax to continue to expand its worldwide operations and further diversifies the company’s risk portfolio.
The second largest transaction of the quarter saw the announced disposition of PointPark Properties, a European logistics property owner and developer, by Ivanhoe Cambridge, in a transaction valued at $3.6B.
Financial sponsors remained active in the fourth quarter of 2016 on both the buy-side and sell-side with 16 transactions (in excess of $100M) valued in aggregate at $19.5B. Seven of the ten largest transactions in the quarter involved a financial sponsor, including two acquisitions by Onex Corporation. In the fourth quarter Onex acquired Parkdean Resorts, UK operator of caravan holiday parks for $2.5B and Moran Foods, doing business as Save-a-Lot, one of the largest discount grocery stores in the United States, for $1.8B.
Industry Sector Activity
Real Estate was the most active sector with 106 deals valued at $10.7B, in line with Q4 2015 in terms of activity. The largest transaction within the sector was the previously discussed PointPark Properties transaction. The second largest transaction within the sector was the acquisition of 4.5M Sq. Ft. of Office and Retail Space in India by Brookfield Asset Management for $1.3B.
Metals and Mining soared to 81 announced transactions with an aggregate value of $349M, up 76% from the 46 announced transactions valued at $149M in Q4 2015. Precious Metals also experienced a jump in activity in Q4, increasing 15% to 53 deals with an aggregate transaction value of $53M (compared to 46 deals valued at $372M in Q4 2015).
Financial Services experienced another active quarter, with activity increasing 50% to 48 transactions valued at $9.8B (compared to 32 deals valued at $3.8B in Q4 2015). The largest transaction within the sector was the aforementioned Fairfax Financial transaction, the largest transaction in the quarter.
Noteworthy declines in activity were observed in the Industrials and Energy sectors, which decreased 21% and 9% from the same period last year, respectively.
Breakdown by Transaction Size
While the aggregate transaction value for the quarter was largely driven by mega-deals (62% at announced transaction values), the bulk of the activity is driven from transactions with deal values under $250M.
As shown in Figure 4, the mid-market continues to account for the vast majority of Canadian M&A transaction volume with deals under $250M representing 90% of all the transactions with disclosed values. This is consistent with past trends in activity. In aggregate, the mid-market transactions were valued at $8.6B or approximately 17% of total M&A value.
In the fourth quarter of 2016, transaction size was not disclosed for 50% of the transactions, consistent with 52% in 2015. 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 Q4 2016, the provinces with the most announcements (in declining order of activity) were Ontario, British Columbia, Alberta and Quebec. These four provinces represent 85% of activity in the quarter.
The increase in domestic activity year over year (445 announcements in Q4 2016 vs 435 in Q4 2015), was partially attributable to increases in activity in Ontario, Quebec and British Columbia.
The most active province by number of targets was Ontario with 167 transactions and an aggregate value of $4.3B, consistent with recent M&A activity trends. The largest transaction with an Ontario target was the acquisition of Petro Canada Lubricants by HollyFrontier Corporations for $1.1B.
As the data in Figure 6 indicates, cross-border transactions continued to account for a significant proportion of activity with 40% of all transactions involving a foreign target or buyer, demonstrating the global nature of the Canadian M&A activity.
Canadian companies making acquisitions abroad (“outbound” transactions) outnumbered the number of foreign companies acquiring in Canada (“inbound” transactions) by a factor of 1.5 times. Additionally, the value of outbound transactions exceeded the value of inbound transactions in Q4 by almost 4 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. Inbound activity increased as foreign firms acquired more Canadian companies in Q4 compared to the same quarter last year (112 vs 95 in Q4 2015). Similarly, the value of inbound transactions increased 20% compared to same quarter last year ($4.6B vs $3.8B in Q4 2015).