Crosbie & Company Canadian Mergers & Acquisitions Report for Q2 2022

M&A Activity Retreats to Pre-COVID Levels - Mid-Market Proves Resilient

In Q2 2022, Canadian M&A decelerated sharply, falling back from the highs reached in 2021 toward activity levels seen in the pre-pandemic period. In the second quarter, there were 747 announced transactions representing deal value of $54B, down 12% and 19% from Q1 2022, respectively. In the first half, there were 1,598 transactions, representing a decline of 20% from the same period last year.

“It’s been an unusual period with several factors surfacing that we could not have foreseen just a few months ago,” said Richard Betsalel, Managing Director of Crosbie & Company Inc. “These include inflationary concerns and the heightened possibility of recession in the coming quarters, which are weighing on valuations and buyer psychology. The impact of these factors is greater for larger transactions as well as those in cyclical sectors such as Consumer Discretionary and Metals & Mining, as well as interest rate sensitive sectors such as Real Estate. Notwithstanding the shift we’ve seen, many fundamentals remain intact, including good access to capital for many companies and strong demand from both strategic players and financial sponsors.” 

There were 11 mega-deals (transactions with values above $1B) in Q2 worth a combined value of $35B, of which six involved a Canadian target. Notable strategic acquisitions include TELUS Corporation’s announced $2.9B acquisition of LifeWorks Inc., which furthers their expansion into healthcare services, as well as Rogers and Shaw conditionally divesting Freedom Mobile Inc. to Quebecor Inc., as they attempt to satisfy regulators on their proposed merger ambitions and providing Quebecor with a national presence in wireless services.  

The mid-market, represented by transactions with values below $250M, comprised 89% of total deals with values disclosed and 15% of the aggregate value for such deals.  At 272 announced transactions representing $8.2B in value, the mid-market declined -11% from Q1 2022 in terms of activity, but only a modest -4% in terms of disclosed value.   

Cross-border transactions continued to be a key driver of overall M&A activity representing 49% of total announcements and 61% of aggregate value, down from 51% and 70% in the first quarter, respectively. The bulk of the decrease in cross-border activity was due to a decline in outbound M&A   (-21%), whereas inbound M&A remained relatively resilient (-4%).

Financial sponsors remained active players on both the buy and sell side, including TorQuest Partners and Caisse de dépôt et placement du Québec’s successful $2.4B exit of Barrette Outdoor Living, a manufacturer and distributor of fence, railing and decking products, as well as consumer-focused private equity group JAB Holding Company acquiring Fairfax Financial Holdings pet insurance and pet healthcare services portfolio company for $1.8B.

Deal count increases were witnessed in Industrials (+18 deals); Precious Metals (+10); Energy (+5), whereas the largest declines were seen across Real Estate (-34 deals), Consumer Discretionary (-30) and Metals and Mining (-19). Industrials and Precious Metals generated the largest aggregate deal values at $14.1B and $13.4B, respectively, as a result of several large transactions.

Overview

• Deal activity slipped further in Q2 2022 with 747 announced transactions, a 12% decline compared to Q1 2022 and slightly below the longer-term trend line
• Aggregate deal value ($54B) was off by -19% relative to Q1 2022 but remained significantly higher than 2020, which saw $41B in average quarterly transaction value
• Cross-border M&A activity decreased by 15% to 366 announced transactions representing $33B in value (61% of aggregate deal value)

Mega-Deals 

• There were 11 mega-deals (deals surpassing $1B in value) announced in Q2 2022 representing $35B in value
• The largest deal this quarter was South Africa-based Gold Fields Limited $11B acquisition of Ontario-based Yamana Gold Inc., creating a top-4 global gold major
• Rogers and Shaw reached an agreement to conditionally divest Freedom Mobile to Quebecor Inc. with the aim of satisfying regulators on their proposed merger. In pursuit of their healthcare services strategy, TELUS announced their intention to acquire LifeWorks Inc., a leading provider of employer healthcare services

Industry Sector Activity

• Deal count increases were witnessed in Industrials (+18 deals); Precious Metals (+10); Energy (+5) 
• The largest deal count declines were seen across Real Estate (-34 deals), Consumer Discretionary (-30) and Metals and Mining (-19) 
• Industrials and Precious Metals generated the largest aggregate deal values at $14.1B and $13.4B, respectively, as a result of several large transactions

Breakdown by Transaction Size

• Mid-market transactions with disclosed values (deal value below $250M) comprised 89% of quarterly activity and 15% of quarterly value
• Declines in quarterly deal value were minimal in the mid-market (-4%) compared to the broader market (-19%)

Canadian Domiciled versus Foreign M&A Targets

• Acquisitions involving Canadian targets declined to 483 in Q2 2022, representing a 11% decrease from Q1 2022
• Canadian firms made 551 acquisitions in Q2 2022, of which 334 (61%) involved domestic targets ($41M average deal value) and the remainder targeted foreign firms ($77M average deal value)

Cross-Border Deals

• Cross-border deals represented 49% of total activity and 61% of total value in Q2 2022
• The bulk of the decrease in cross-border activity was due to a decline in outbound M&A (-21%), whereas inbound M&A remained resilient (-4%)
• Canada/U.S. transactions represented 52% of cross-border deals and 43% of value, down from 62% and 61% in Q1 2022, respectively

Deals by Provincial Domicile

• Ontario remained the most active province by deal count (203) and represented 74% of all transaction value in Q2 2022
• Quebec (86) and Alberta (54) activity remained flat relative to Q1 2022, with the latter receiving a boost in value due to several energy deals 
• Domestic aggregate deal value significantly increased quarter-over-quarter (+75%) as 6 mega-deals involved Canadian targets