Canadian M&As hit 5-year low

Canadian merger and acquisition (M&A) activity fell 30% in the first half of 2010, according to a new report issued by mergermarket.

The report, H1 2010 Canadian M&A Round-Up, which was released mid-July, compiles data based on transactions over US$5 million announced between January 1 and June 30, 2010.

The following is a condensed version of the findings. To download a copy, visit www.mergermarket.com.

In Canada, money spent on M&As totaled US$29.6 billion for the first half of 2010, down from US$42.5 billion spent in the same period of 2009. This is the lowest half-year period since 2005.

Mega deals, which constitute a deal over US$500 million, followed the downward trend, with only US$18.1 billion changing hands in the first half of 2010. Despite this, M&A activity saw a spike in deals with 210 announced in the first half of 2010 in Canada. The fragile economy of the first half of 2009 saw 153 M&As.

Goldman Sachs and TD Securities battled for the top financial advisor by value — with Goldman Sachs coming on top with US$9.8 billion worth of deals, while TD Securities completed 28 transactions worth US$8.1 billion. This put TD Securities in first place for rakings by volume, up seven places from the first half of 2009.

Blake, Cassels & Graydon held steady as the most active law firm, with 36 deals worth US$18.36 million. While Osler, Hoskin & Harcourt racked up US$18.4 billion worth of deals.

Mergermarket also noticed a clear trend in investments in Canadian resources, with the United States and China being first in line to get a hold of Canadian companies and properties.

Some 78% of the money spent on inbound M&As came from China and the U.S. in the first half of 2010 as the two countries jockeyed for a stake in Canada’s array of natural resources. Energy, mining and utilities represented 65% of the total value of inbound deals.

Energy deals dominated M&A activity, in terms of value, representing 49% in the first half 2010. The industry saw 57 energy sector-related transactions.

Deals in energy, mining and utilities together represented 66% of overall Canadian deal value in the first half of 2010. About 37% or 77 deals were attributed to these sectors.

On the back of a stronger Canadian dollar, the industry has set its sight on the U.S., with 51 M&A outbound deals worth US$10.6 billion taking place between the neighbouring nations.

A weakened Sterling also garnered Canadian companies’ interest with 10 deals taking place between the commonwealth siblings worth US$866 million.

Although the largest outbound investments were in the pharma, medical and biotech sectors (US$3.8 billion or 27.8% worth) in the first half of 2010 — energy, mining and utilities came in second, with 19.5% of the value spent on deals being attributed to these sectors.

Overall, the first half of 2010 saw 89 Canadian outbound deals worth US$13.7 billion, the highest in value and volume since the second half of 2007.

Among the firm’s findings was the shift from investments in energy, mining and utilities towards alternative energy over the past two years. M&A activity in alternative energy rose from US$319 million in 2008 (a mere 0.7% of Canadian Energy deals) to US$3.9 billion or 7% in 2009. The first half of 2010 alone has already seen seven deals worth US$711 million.

The report also noted that between 2004 and 2009, the alternative energy sector represented 4.8% of all energy-related transactions in Canada. From 2009 to the end of the first half of 2010, that average increased to 11.5%.