Canadian M&A deals reach $93 billion in first half of 2018

16 August 2018 3 min. read
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Deal activity in mergers and acquisitions in Canada reached $66 billion in the second quarter of 2018, and a total $93 billion in the first half. According to PwC Canada, though deal volume stabilized somewhat at 1,546 deals for the first half, the results nonetheless remained robust.

Mergers and acquisitions activity continues to be strong in Canada, reports accounting and consulting firm PwC Canada in its 2018 M&A mid-year review. Though deal volume dropped in H1 2018 (1,546) compared to H2 2017 (1,726) and H1 2017 (1,728), PwC says that the number of transactions completed was still at a ‘healthy level.’  The report expects M&A activity to keep up its pace in the second half due to strong market dynamics like the availability of capital – despite the US-led trade war.

This half, outbound M&A deals from Canada into the US rose by 8% compared to H1 2017. PwC reports that there has been a trend of US outbound deal growth since 2014, as Canadian firms look to make money in the one of the globe’s highest-growth markets.Canadian deal volume and value, Q1 2015 - Q2 2018Nonetheless, uncertainty related to Canada-US trade talks has led to a dip in US inbound deals into Canada – which fell from a year ago. However, inbound and outbound volume between the US and Canada remains higher than in the period between 2014-2016, which may mean that cross-border M&A could remain hot despite freezing trade relations.

Meanwhile, outbound deal volume outside of North America has also been steadily increasing, with non-US outbound deals rising from 277 deals in 2016 to 303 in 2017, to already 161 deals in H1 2018. The most targeted industries have been real estate, telecommunications, and healthcare.

According to the report, Canadian dealmakers are trying to alleviate some of the risk of US tariff conflicts by diversifying their portfolios through deals with countries like Australia and the UK. "The growth in international outbound deals demonstrates that Canadian businesses are performing well and will continue to pursue growth opportunities at home and abroad," commented Dave Planques, National Deals Leader, PwC Canada.

"Canada has had a solid relationship with the US; however, the global geopolitical environment is creating greater uncertainty for dealmakers.  Diversifying portfolios or supply chains may help alleviate risk and expand market share."Canadian outbound deal volumesMeanwhile, M&A in Canadian healthcare saw very strong growth, with deal value rising by 233% and deal volume increasing by 48%. The heavy gains are mostly on the back of the cannabis subsector, which saw 48 deals in the first half, with a total disclosed value of $5.2 billion. With a currently fragmented cannabis sector, capital flush firms are buying up companies to gain economies of scale, secure strong brands, expand clientele, and enter new markets.

After legalization in October, PwC expects further consolidation of cannabis producers, as well as a dip in the number of industry players as projected oversupply bankrupts undercapitalized enterprises (and provides tasty acquisition opportunities for flush weed businesses).

According to the report, current tariffs are affecting only 3% of Canadian exports, and are unlikely to significantly impact the Canadian economy. However, dealmakers now need to review imports/exports and supply chains of potential targets to identify cost increase and opportunities.

“The biggest impact of these tariffs is the uncertainty they create at the prospect of a trade conflict,” added Planques. “Should this uncertainty continue, we are likely to see a movement of investment from Canada to the US, especially in capital intensive industries that just received a large effective tax reduction in the US.”

In another mid-year report, PwC found the Canadian initial public offering (IPO) market to be ‘slow and steady,’ reaching $1.1 billion in funds raised in the first half of 2018.