Canadian companies are becoming increasingly attractive to American and European companies as targets of foreign investment according to a recent article from the Lexpert Special Edition on Canada’s Leading Corporate Lawyers, published within the June edition of The Globe and Mail’s Report on Business Magazine. The Lexpert article states that both U.S. and U.K.-based investors in particular are increasingly turning their attention to Canada for M&A opportunities.
According to the Lexpert article, which surveyed leading Canada’s leading M&A corporate lawyers on the topic, American companies are the main source of cross-border deal activity, due in large part to a strong U.S. dollar and healthy balance sheets. A trend to watch is the role of U.S. private-equity funds finding deal opportunities in the Canadian middle-market. The article indicates that this trend is on the rise due to Canada’s middle-market being less expensive than its U.S. equivalent. These are not necessarily blockbuster deals per se but in the aggregate they are contributing to an increase in M&A cross-border activity. Lexpert also points to a growing trend of the baby boomer generation seeking to sell their companies and smaller U.S. private equity firms having the cash to take advantage with a view to build the firms’ investment portfolios.
U.S. private equity is also finding attractive targets in Canada’s oil and gas sector. The Lexpert article does however warn of potential regulatory issues with the federal government possibly wanting to protect especially strategic assets.
The market is seller-friendly, with sellers becoming increasingly demanding in deal negotiations. In particular, the article details how some sellers are negotiating limited recourse and indemnification terms and as a result there has been an increase in the use of rep and warranty insurance for buyers, which up until recently, while being popular in the U.S. market, was limited in Canada.
The U.S. is not the only region seeking M&A opportunities on Canadian soil, the article points to the U.K. as being a source of funds not only from Europe, but also from the Middle East. Canadian companies appear to be in the limelight going into the summer, with various foreign players finding attractive M&A opportunities here in Canada.