Capital IQ and other sources show a total of 656 announced M&A deals in Canada for the first quarter of 2015. This number is down 7% from the previous quarter and 15% from the peak of M&A activity in 2014. The total value was $45B in the first quarter, a decrease of 46% from 2014.
Mega-deals (transactions of over $1B in value) accounted for over $26B in 2015. Two noteworthy deals were the sale of Fortum Distribution AB, a Swedish electricity business, to Borealis Infrastructure Trust for $8.9B and RBC’s acquisition of City National Corporation for $3.2B.
Industry Sector Activity
The Real Estate industry remained the most active sector by volume in Q1, with 104 transactions with value of $6.7B. Industrials was the most active sector by value with 80 deals valued at $11.3B. The second most active sector by value was Financial Services with $9B in announced deals. IT also had a strong quarter with 79 transactions valued at $2.2B.
Target by Province
As usual, domestic Canadian deals in Q1 were led by Ontario (40% of total deal volume), British Columbia, Alberta, and Quebec. These four provinces had 88% of the completed transactions in the country. Ontario saw the most improvement as it is up 10% from the same quarter last year.
Cross-border transactions continued to account to be significant in the beginning of 2015, as 42% of all deals involved a foreign buyer or target. In addition, Canadian companies making outbound transactions (domestic companies acquiring foreign businesses) surpassed the inbound deals (foreign companies acquiring Canadian businesses) by 1.5 times. Furthermore, the value of these outbound transactions was 9 times larger than the value of inbound transactions in the first quarter.
2015 Economic Outlook
According to the OECD, the economic growth forecasts for Canada in 2015 and 2016 have been reduced to 2.2 and 2.1 per cent, respectively. This is a result of a significant drop in prices for oil and other commodities since November of 2014. Previous forecasts estimated Canada’s GDP to grow 2.6 per cent in 2015 and 2.4 per cent in 2016
2015 Canadian M&A Outlook
The rising M&A activity trend is also supported by a recent KPMG survey of over 700 M&A professionals in the US, including investment banks, private equity firms and corporations. The study found that 82% of respondents are planning to make at least one acquisition in 2015, which is an increase from 2013 and 2014. This US trend is expected to permeate the Canadian M&A market in 2015.
2015 M&A Market Predictions:
Larger transactions will likely ensure the Canadian M&A market will have a higher total annual transaction value in 2015.
The weakening of the Canadian dollar means that there are greater possibilities for international buyers of Canadian companies. It also means that Canadian companies will probably be shifting their focus to more domestic transactions as sectors such as manufacturing enjoy the benefits of a strong US economy.
Key sectors for M&A activity in 2015 should be Real Estate, Energy and Power, Materials, and Retail. Also, as oil companies seek to lower their production costs due to the low oil prices, there could be an increase in Oil & Gas deal opportunities in 2015.