TORONTO, July 26, 2013 /CNW/ - Despite a 62% increase in M&A activity in
value terms over the previous quarter, Q2 2013 was the second quietest
quarter since Q2 2010, according to the latest PwC Capital Markets Flash. Deal volume was only up by 10%, the value increase being driven by the
return of big deals (over $1 billion) and an increase of 23% in average
reported deal values excluding the big acquisitions.
While real estate continued to be the top target industry by value in
Q2, Sobeys' C$5.8 billion purchase of Safeway's Canadian assets- the
quarter's biggest deal - and two deals over $1 billion in the forestry
industry, resulted in these two sectors becoming the second and third
most active industries by deal value. Loblaws' C$12.4 billion
acquisition of Shoppers Drug Mart stores announced on July 15 will keep
the food retail among the top sectors in Q3.
Commenting on the food retail sector, Calle Johnson, Deals Director, PwC, says "These deals are necessary to demonstrate growth in a mature
market and compete against the big box retailers from the US. The
market is looking at the remaining Canadian competitors and a number of
potential retail targets in both grocery and pharmacy across Canada, as
this wave of consolidation is not yet complete."
Regarding the forestry sector, two of the largest deals come from
Brookfield and associated investors returning timber assets into the
hands of strategic buyers. Weyerhaeuser picked up Longview Timber for
$2.65 billion and Kapstone Kraft Paper took Longview Fibre Paper and
Packaging for $1.03 billion.
Ringing in with telecom
While announced in a previous quarter, Q2 saw Bell finally obtain
regulatory approval for its acquisition of Astral Media in exchange for
a commitment to support the Canadian broadcast sector to the tune of
almost $250 million.
"What the regulators required of Bell to protect the market is
groundbreaking," says Ken Goodwin, Deals Partner and member of PwC's Media and Telecom team. "The regulatory environment certainly swayed in favour of consumers
and away from capital markets and shareholders."
The bigger story in the sector hit at the end of June when Verizon
erupted in the media with a C$700 million bid for WIND Mobile, in a
move clearly not unrelated to the 700MHz spectrum auction slated for
January 2014. "The possible entry of Verizon is the biggest potential
disruption in the sector -challenging The Big Three incumbents across
all aspects of the Canadian wireless market, while providing extra
cellular options for consumers," says Goodwin.
Pension funds - the global search for yield
Canadian pension funds continued to be one of the country's most active
investors in Q2 - having purchased a German airport, a European movie
theatre chain, and a variety of Australian real estate assets.
"The world is taking notice of the Canadian pension funds' performance
and referencing their model, while others are looking to team up with
them," says Richard Pay, Deals Partner, PwC. "The opportunity to partner with global counterparts will enable them
to make innovative investments and mitigate the risk of acquiring
assets in emerging markets or locations in which they don't have direct
Julian Brown, Deals Partner, and PwC Corporate Finance Leader for the
Americas, says "While Q2 was a welcome uplift from Q1, we are still well below
post-crash levels of activity in the Canadian M&A market in value
terms. Given the importance of the natural resources sector to our
economy and the expected lack of relevant transactions in this sector
in the near term, other sectors will have to make up a lot of ground if
we are to return to normal activity levels."
PwC's Capital Markets Flash Report is available at http://www.pwc.com/ca/deals. A copy is also available from the media contacts. Note, all dollar
values are in American in the Capital Markets Flash report unless
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About PwC Canada
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1Source: Kennedy; "Business Advisory Services Marketplace 2012" © BNA
Subsidiaries, LLC. Reproduced under license.
SOURCE: PwC Management Services LP
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