Canadian M&A market drops to US$73 billion in first half of 2019

08 August 2019 Consulting.ca

Deal volume fell by 5% in the first half of 2019 compared to the last six months of 2018, while deal value fell 11% from US$82 billion in H2 2018 to US$73 billion in H1 2019, according to a recent PwC Canada report.

Average deal value, meanwhile, fell slightly from US$192 million to US$184 million.

The PwC Canada mid-year M&A report cited global economic weakness, concerns about a US slowdown, and ongoing trade tensions inspiring more caution in dealmakers, though the report noted that activity still remained robust despite the first half dip in deal value and volume. PwC highlighted that capital remains abundant, but firms are more cautious and performing deeper due diligence.

Domestic deals fell from 41% in H2 2018 to 38% in H1 2019, while inbound deals rose one point to 23%, and outbound deals stayed at 36%.

The largest deal in the first half was Newmont Mining Corp.’s US$10 billion acquisition of Vancouver-based Goldcorp Inc.

Canadian M&A market drops to US$73 billion in first half of 2019

Corporate deals accounted for 71% of transactions, while pension and private equity deals were 29% – virtually unchanged from the previous six-month period. Private equity deals accounted for six of 14 deals above US$1 billion, while corporate transactions accounted for eight.

Tech deal volume slowed by 4% over H2 2018, while financial technology deal volume dropped a significant 20%. PwC relates that the drop followed several quarters of feverish dealmaking in the sector, and the drop could represent a pause to absorb and integrate previously acquired fintechs.

Retail saw an increase in M&A activity, with volume rising from 33 deals in H2 2018 to 53 deals in H1 2019, possibly as the result of firms targeting troubled or distressed assets.

More diligent due diligence

PwC notes that buyers are putting more time into due diligence, fueled by strong valuations, ongoing geopolitical and trade tensions, and the risks of advancing technology.

With the acquisition of tech businesses, companies want to ensure they fully understand what they’re buying, whether the technology will integrate well with their business, and whether it will endure in the face of advancements.

Buyers are also spending more time on technology-related due diligence to identify potential issues with intellectual property – as startups might fly under a patent holder’s radar, but once a big firm picks up the company, legal issues are likelier to ensue.

Cybersecurity risks are a big part of the increased due diligence, according to the PwC report, with buyers wanting to make sure targets have properly protected their data. Companies also want to make sure the transaction doesn’t open them up to regulatory risk from additional compliance obligations like GDPR.

Companies are also examining shortcomings in target firms’ cybersecurity practices to determine potential costs and time that can be priced into the deal. They’re also looking into the possibility of prior, undisclosed breaches that could impact relationships and bring about litigation, according to the report. Firms are also increasingly seeking stronger cyber-related warranties, indemnities, and cybersecurity insurance.

“The additional due diligence we’re seeing buyers carry out is a positive signal of financial prudence, strategic thinking, and careful risk management,” the report concludes.


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