April 19, 2021

Canada to See Robust M&A Pipeline as Mid-Market Deal Flow Builds on 1Q Mega Deals – Mergermarket Canadian M&A Forum

by Rachel Stone and Sydney Halleman 

  

After a couple of mega deals in the first quarter, mid-market deal flow in Canada is expected to be strong for the rest of the year, industry experts said during Mergermarket’s Canadian M&A Forum. 

Panelists do not expect mega deals to continue at the pace seen in the first quarter: Two of the five largest takeovers worldwide were launched by companies in Canada — Canadian Pacific Railway’s [TSX:CP] [NYSE:CP] bid for Kansas City, Missouri-based Kansas City Southern [NYSE:KSU] at an enterprise value of USD 29bn, and Rogers Communications’ CAD 26bn bid for Shaw Communications. Deals of that size are scarce, but panelists expect an increase in meaningful mid-market deals, they said. 

Datasite is up 60% year over year in new projects across the Americas, with March posting a record month for new projects in Canada, said Sean Dainty, vice president of Canadian sales at the company. As a software-as-a-service (SaaS) provider for the financial services industry, Datasite has a leading indication on deals, so its data bodes well for announced deals in the latter half of the year, he added. 

Technology and healthcare companies, which have performed well through the COVID-19 pandemic, are becoming very acquisitive, said Senia Rapisarda, managing director at the private equity firm HarbourVest Partners. She expects M&A activity and IPOs to pick up over the next six-12 months. 

Increased M&A likely stems in part from pent-up demand of deals that would’ve closed last year, said Salil Ratnaparkhe, associate vice president of corporate development at Sun Life Financial [TSX:SLF]. He expects a recovery in deal values, which took a hit last year, if interest rates remain low and banks are willing to lend capital. 

Metals and mining will see “a bit of catch up” from deals that were challenged last year because teams could not visit sites to do due diligence work, said Jeff Swinoga, co-leader of national mining and metals at EY Canada. 

With metal prices moving higher and fuel prices remaining relatively low, Canadian producers have high margins and are generating significant amounts of cash, Swinoga said. The sector expert said he was expecting a “healthy” junior market and potentially deals in the mid-tier sector, which hasn’t seen much activity recently, he said. 

The mining industry saw some big mergers a couple of years ago with Barrick Gold’s [NYSE:GOLD] all-stock takeover of London-based Randgold Resources in 2018 for around USD 6.5bn, and Newmont Mining’s acquisition of Goldcorp — the combined company is now called Newmont Goldcorp [NYSE:NEM] — in 2019 in a USD 10bn stock-for-stock transaction. 

The majors are likely focused on replacing their reserves and resources rather than acquiring for scale, Swinoga said.  

Increased regulatory scrutiny won’t slow M&A 

Panelists were largely bullish on continued strong transaction activity this year, even amid closer scrutiny from the Canadian government on deals involving foreign investment. 

The Canadian government rejected Chinese state-owned Shandong Gold Mining’s [SHA:600547] [HKG:1787] CAD 210m bid for Toronto-based TMAC Resources [TSX:TMR] on national security grounds last December. The gold producer announced in January an agreement to be acquired by Toronto-based metals miner Agnico Eagle Mines [TSE:AEM]. 

The metals and mining industry may see more regulatory scrutiny, Swinoga said, though deals will be considered on a case-by-case basis. 

Rapisarda noted that these rules have always been there to protect Canadian national security interests and intellectual property, but she is seeing “a kind of pre-clearance” now.  

“I don't think this will necessarily delay M&A; it will just put an extra step [in the process],” Rapisarda said. 

Distressed assets could be on the horizon 

Although the Canadian market hasn't seen a large amount of distressed assets on the block, divestitures may increase as government funding dries up, Datasite’s Dainty said. 

“After government intervention subsides, we may see more bankruptcies and restructurings in the second half of this year, some of which may or may not be on the larger side,” he said. 

Distressed assets could also come to the table if the COVID-19 pandemic has an even longer runway, Rapisarda said. Some companies may have enough cash to weather another 12 months of the pandemic, but many don’t have enough to last 24 months, she added. 

Additional stock market volatility or a worse economic outlook could prompt companies to divest assets, Sun Life’s Ratnaparkhe said, but he doesn’t expect either of those in the near term. 

Contacts

Media Relations
Marta Carraro

Vice President, Communications

212.367.6162

marta.carraro@datasite.com

Investor Relations
Jennifer Percy

651.632.4009

jennifer.percy@datasite.com

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