Now that we have entered the second half of 2015, it’s helpful to take a look at M&A numbers from the first half of the year and predictions for what lies ahead. A report recently published by MergerMarket provides a number of key data points and dealmaker survey results that may be a barometer for the direction of Canadian M&A.
In Q1-2015, the aggregate value of Canadian M&A deals was US $8.6 billion, spread over a total of 112 deals. This is the lowest quarterly aggregate deal value since Q4-2008, when a total of only 78 deals worth US $7.4 billion were recorded. Inbound M&A activity into Canada was also slow, with only 55 deals worth an aggregate of US $4.2 billion during Q1-2015, being the lowest quarterly aggregate inbound deal value since Q1-2009. Overall, in the first five months of 2015, there was an 18% decline in year-on-year M&A volume (for a total of 215 deals) and a 35% decline in year-on-year M&A value (for a total of US $23 billion).
Although these figures are sobering, the survey results show that dealmakers are predicting that Canadian M&A activity will increase in the coming months. 76% of survey respondents expect that M&A will increase “significantly” or “somewhat” in the next year. Only 16% of respondents predict stagnant M&A levels, with a slim 8% expecting that M&A will decrease.
Perhaps not surprisingly, the majority of respondents (80%) expect that the Energy, Mining and Utilities sectors will continue to be the busiest areas of M&A activity in the next year, as prospective acquirers take advantage of undervalued Canadian assets. A depressed economy and a low Canadian dollar may create M&A opportunities, as Canadian businesses with strong fundamentals lose value and become attractive acquisition targets.
In terms of deal size, 76% of respondents predict that lower and middle market (i.e., between US $26 to $100 million) deals will continue to dominate M&A, in part because smaller deals are more affordable and there is still room for local industry consolidation. However, the remaining 24% of respondents expect that deals in the higher end of the market (i.e. between US $101 to $500 million) will prevail, based on the expectation that foreign acquirers with strong balance sheets will take advantage of undervalued Canadian targets.
While none of these predictions are certain, such optimism signals that dealmakers may be preparing for increased M&A activity in the months ahead.