PwC: 2011 Was A Good Year For M&A, 3,173 Deals, $189 Billion

PwC just released their “Canadian M&A Retrospective and 2012 Outlook” today which takes a look at merger and acquisition (M&A) deals over the past year.  In 2011, a record 3,173 Canadianin M&A transactions worth $189 billion were announced during 2011.  We covered a number of then here on Profectio as part of our “Deal Flow” coverage, some of the technology related ones that PwC highlighted in their report include Zarlink Semiconductor, a portfolio of Nortel patents, MOSAID Technologies and Radian6 Technologies all being acquired in 2011.

Hot Industries For M&A Deals In 2011

The global recession had a tremendos impact, however according to their data 2011 still brought growth with M&A, last year, the top five Canadian M&A sectors were: metals and mining (19%), real estate (16%), energy (16%), financials (12%) and industrials (9%). These top five industries mirror 2007 market proportions.

The report shows that Canadian deals represented 10% of the global M&A market in 2011, up from 7% at the 2007 market peak. Also, for the first time in history, the value of Canadian acquisitions into the US outpaced the value of US-led deals in Canada.

PwC predicts that n 2012, Canadian M&A will likely move forward at a measured pace. The report says: “We anticipate Canadian M&A to outpace global M&A growth rates and end the year in-line or moderately below the 2011 domestic tempo.” PwC outlines five trends that will help to shape the 2012 deal market:

  • Low debt yields in North America will provide support for continued Canadian M&A. Demand for real assets, private companies and cash flow positive investments should be strong, especially in the real estate, infrastructure, utilities, extractive resources, timber and agriculture sectors.
  • Government austerity measures in the developed world will present unique investment opportunities for Canadian pension funds and specialized infrastructure and project finance firms (via government privatizations, equity reductions or P3 projects).
  • Public market volatility will create a bias for reallocating portfolios in favour of private investments. Mid-size undervalued public companies will be particularly attractive targets to private equity players hungry for take-private opportunities.
  • As more baby boomers retire and as a buyers’ hunt for good private middle market targets intensifies, the Canadian family succession wave will begin to gradually materialize
  • More emphasis on growth markets, and a more innovative “deal mindset” will emerge as the reality of anaemic growth in the west sets in.

Merger & Acquisition Trends in 2011:

Robust growth. As previously noted, deal volumes and values showed a positive trend, with many Canadian entities being in the enviable position of being able to pick up foreign carve outs. As well, the post-crisis renaissance of middle market M&A continued with 188 middle market transaction announcements worth $43 billion. Worth noting however, is that demand/supply imbalances in the market meant that the latter sector had two consecutive quarters of decline in 2011.

Motivated buyers. Not only did M&A volumes hit an all-time annual high, but the number of deal cancellations was at an all time low. We were also treated to some dramatic high profile bidding wars.

A rebound in deal multiples. This was not a “fire sale” market. Across North America, the average Leveraged Buy Out (LBO) EV/EBITDA multiple was 9.4x, just shy of the 2007 market peak (9.7x) and nicely recovered from 2009 crisis lows (7.7x). Multiples varied broadly across sectors.

Active private equity market. Last year was a busy year for PE funds. In Canada, domestic funds were involved in 215 deals worth $52 billion. This represented 28% of all Canadian M&A activity, measured by value, up from market share in each of the three years prior.

A more varied group of sectors were active. Post-crisis, extractive resources (oil, natural gas, gold, mining commodities, etc) have typically accounted for more than half of all Canadian M&A values. This year, these industries led by a narrower margin as a more varied group of sectors was also active. By measures of deal value the top five Canadian M&A sectors were: metals and mining (19%), real estate (16%), energy (16%), financials (12%) and industrials (9%).