Canada M&A activity improves, but dealmakers uncertain on H2 outlook

TORONTO  – Canadian mergers and acquisitions (M&A) volumes picked up in the second quarter driven primarily by some large proposed transactions, but dealmakers are cautious on the outlook for the rest of the year over global economic concerns and potential interest rate hikes.

The total value of Canadian M&A rose to $90.5 billion in the second quarter of 2023, from $69.4 billion in the second quarter of 2022, according to data from Refinitiv. The quarterly tally was also much higher than the first quarter of 2023, when $35.1 billion of deals were announced.

“I would say we haven’t seen too much of a rebound yet,” said Trond Lossius, head of Canadian M&A at Barclays. “I think it’s a little bit of big deals making up some lost ground as opposed to a general recovery.”

Glencore’s unsolicited $22.5-billion bid for Teck Resources was one of the highlights for Canadian dealmaking activity during the quarter.

Teck repeatedly rebuffed Glencore, before the latter submitted an alternative offer to buy Teck’s steelmaking coal business. Teck has said it is evaluating several proposals for the business.

Investment bankers and deals lawyers also pointed to a lack of boardroom confidence for dealmaking as the outlook corporate earnings remains muted.

“Visibility in terms of earnings, markets, equity pricing, cost of debt are key ingredients lacking a little bit right now and that’s why this whole recovery that we would have broadly expected in 2023 is still not there,” Lossius said.

Global M&A volumes during the second quarter rose 27 percent to $729.5 billion, compared with $574.7 billion during the first three months of the year, but down from $1.1 trillion a year ago, according to Refinitiv data.

Global mergers & acquisitions plunged in Q2 but dealmakers see green shoots

The Bank of Canada’s decision on policy tightening is due next week, and the consensus is divided on whether the central bank will hike interest rates by another 25 basis points or keep rates steady. The U.S. Federal Reserve is expected to raise interest rates later in July.

Higher interest rates make it tougher for large companies and private equity firms to borrow debt to finance acquisitions.

During the second quarter, Goldman Sachs Group, BMO Capital Markets, and Barclays took the top three spots in the Canadian financial advisory rankings, according to Refinitiv.

Canadian corporate debt issuance fell slightly in the second quarter. Total issuance stood at C$18 billion ($13.56 billion), down from C$18.8 billion in the first quarter of 2023.

“In general, active conversations are continuing amongst dealmakers but the urgency has slowed somewhat,” said Sarah Gingrich, a partner at law firm Fasken.

Some investment bankers said rate hikes could lead to more dealmaking in some instances.

“The flip side to higher interest rates is it can put pressure on business, so it’s a complexity that a lot of founders haven’t had to deal with in a number of years,” said Jim Osler, managing director at Origin Merchant Partners.

“They can actually envisage taking the proceeds from the sale, putting it into a pretty safe investment portfolio and having a good income stream for it,” he added.

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