Global deals shine, while Canada lags behind in Q1 deal activity: PwC
TORONTO, June 6, 2011 /CNW/ - A significant increase in merger and
acquisition (M&A) volume and value in Q1 2011 signals a positive
outlook for global industrial manufacturing (IM) deal activity.
According to a new PwC report, the last quarter saw 36 deals above
US$50 million take place globally, amounting to US$16.6 billion. This
is a significant increase of 157% in volume and 622% in value from the
same period in 2010, which saw 14 deals totalling just US$2.3 billion.
"We're seeing two interesting trends in deal activity with Canada on one
side of the spectrum and global results on the other. Canada is holding
steady with recent years with a moderate level of deal activity, yet
deal volumes and values globally took off this quarter," says Damian
Peluso, partner in PwC's deal practice.
Canadian results show domestic IM companies are dragging their heels on
M&A activity when compared to their global counterparts. Canadian M&A
activity remained flat with recent years this past quarter with 15
announced deals valued at US$69 million. This is similar to Q1 2010
when there were 15 transactions with a combined value of US$78 million.
The largest Canadian deal of the quarter was a private equity exit with
Clairvest Group Inc. and Clairvest Equity Partners selling Van-Rob
Inc.—a supplier to major automobile manufacturers—to Germany's
Kirchhoff Automotive for US$35.8 million.
So far in the second quarter, however, Canadian deal activity has
mirrored the global trend of large deal values. Q2 2011 has seen two
large Canadian deals valued at more than US$500 million take place. The
first was Berkshire Partners and OMERS' announced acquisition of Husky
Injection Molding Systems for US$2.1 billion. The other was Chemtrade
Logistics Income Fund's acquisition of Marsulex Inc. for US$546
million. Both deals were exits of private equity investments.
"The outlook looks positive for continued deal activity in the coming
months both in Canada and certainly on a global-scale," says Calum
Semple, national industrial manufacturing leader, PwC. "The rising
Canadian dollar and shrinking profit margins due to rising commodity
prices may drive more consolidation in the Canadian industrial
PwC expects four key themes for the Canadian IM sector for the remainder
1) Strength of Canadian dollar means greater purchasing power: According to Peluso, "The strong Canadian dollar should allow Canadian
manufacturers to go shopping for new equipment to re-tool plants and
automate manual processes. Both steps could lead to gains in
efficiency and profit margins."
2) Knock on effects from the Japanese earthquake and tsunami: The continuing effects from the natural disaster in Japan are expected
to impact domestic auto production until at least mid 2011. As a
result, North American auto manufacturers are seeing an increase in
demand for their products, which could make them more attractive
takeover targets. Production delays are expected to moderate by
mid-year as several Japanese auto manufacturers are anticipating
significant improvements in parts supply.
3) M&A to combat declining margins and to get back in the driver's seat: The rising Canadian dollar and high commodity prices have squeezed
profit margins in the manufacturing sector. "We expect firms to pursue
M&A in an effort to cut costs and to become more competitive on a
global scale," says Peluso.
4) Trend of shedding non-core assets to continue: Canadian manufacturers are expected to continue to shed non-core assets
in a bid to improve operating margins and performance. These may be
legacy assets or are no longer central to the business model. With
some companies having held on to these assets since prior to the
downturn, the uptick in valuations presents an opportunity to obtain
fair value for these assets.
For a copy of Assembling Value, PwC's quarterly analysis of M&A activity in the global Industrial
Manufacturing sector, visit:
About PwC's Deal Team
PwC's Deal Team (www.pwc.com/ca/deals) helps clients to achieve deal success—from concept to close and
beyond. As part of the world's largest Transaction Advisory practice ,
and with our global Corporate Finance group being 2010 Upper Mid Market
M&A Advisor of the Year , the PwC Canada Deals Team is your gateway to
an exciting new world of emerging M&A opportunities.
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Tel: 613 755 8706
Kiran Chauhan, PwC
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