Energy and agribusiness sectors, Western Canada, big winners as Canada's M&A up 24% in Q1 2012

Canadian M&A up during slowest quarter of global M&A in ten years

TORONTO, April 26, 2012 /CNW/ - Against a backdrop of the slowest first quarter of global M&A in ten years, Q1 2012 Canadian deal values and volume were up 24% and 7% respectively compared to Q4 2011. Overall, 776 Canadian M&A transactions worth $48.7 billion were announced in Q1 2012, with domestic buying activity rising by 38%.

"The Canadian M&A market now represents 10% of all global M&A and continues to defy gravity.  But this is a very different market than pre-crisis.  Emerging market demand for resources, changes in regulation and government policy and disruptive technology were the common themes driving many deals this quarter." says Kristian Knibutat, PwC Canada's national deals leader.

The firm's Capital Markets Flash newsletter www.pwc.com/ca/quarterlydeals, noted:

• The energy sector was the clear frontrunner in Canadian M&A, representing 28% of all deal value, up 90% over 2011 proportions. In all, there were 116 Canadian energy transactions worth $13.8 billion in Q1 2012. A slump in natural gas prices has prompted many players to utilize M&A to find new markets, shift production, improve capital efficiencies or access enabling technology.
  
  
• The agribusiness sector had a 15% M&A market share in Q1, making PwC's top five industries list. The growth is largely due to the pending $6.1 billion acquisition of Viterra by Glencore. The deal did not come as a surprise to the market, which was expecting takeover activity in the Prairies after the federal government's move to deregulate the Canadian Wheat Board.
  
  
• Real estate and mining were the third and fourth most active sectors, although both saw market shares drop by 20% and 50% respectively. An extremely busy Q4 2011 of M&A in these sectors may have left many large players busy digesting acquisitions. However, the newsletter supports continued robust mining and real estate activity for the remainder of 2012.

The Q1 report shows that Western Canadian provinces are quickly becoming the investment destinations of choice in Canada. The resource-rich West was home to 67% of all Canadian M&A targets in Q1, including 15 of the top 20 Canadian acquisitions. Despite Ontario's eroding market share of takeover value, however, it is still home to 29% of Canadian M&A takeover volume, moderately higher than Alberta's 22% share.  This geographic shift is, not surprisingly, the result of a flurry of activity in Canada's resource sectors.

PwC also notes that while M&A volumes and values were robust in Q1, the Canadian middle market experienced a fourth consecutive quarter of contraction. In the $100-$500 million transaction size segment, 42 Canadian transactions worth $9 billion were announced, 11% and 6% lower than the prior quarter respectively. The single most significant pocket of weakness was the commercial real estate ("CRE") sector. Middle market CRE M&A values in Q1 were down 57% to $1.6 billion.  Absent CRE, the middle market actually registered a 26% increase in deal values.

As a percentage of total Canadian deal value, private equity transactions were a meagre 8% in the first quarter. This was the lowest contribution to Canadian M&A by private equity since the first quarter of 2010 when private equity deals represented 13% of total activity. It is also well off the post crisis high of 48% in Q4 2009.

Deal activity continues to show that Canadians are lagging their developed market counterparts in capitalizing on M&A opportunities in emerging markets. This quarter there was a sharp slowdown in outbound M&A to emerging markets. Transaction values nosedived 75% quarter over quarter to their lowest levels since Q4 2009 and were 82% lower than their post-crisis peak in Q3 2011. Volumes saw a more modest decline, falling 8% from Q4 2011 and 15% from peak volumes seen in the Q1 2011. Says Knibutat, "Canadian buyers continue to miss the mark in growth markets. Together with Canada's leading regulatory, analysts and policy makers, we believe this trend needs to change in order to ensure Canada remains competitive and prosperous."

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, the PwC Canada Deals Team is your gateway to an exciting new world of emerging M&A opportunities.

About PwC Canada

PwC Canada helps organizations and individuals create the value they're looking for. More than 5,700 partners and staff in offices across the country are committed to delivering quality in assurance, tax, consulting and deals services. PwC Canada is a member of the PwC network of firms with close to 169,000 people in 158 countries. Find out more by visiting us at www.pwc.com/ca.

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