This is the year for Canadian companies to globalize. Although they are generating significant cash flows, the Canadian market is small and companies must grow outside the country. According to The Deal, Canadian companies are finding opportunities elsewhere.
While the U.S. remains the primary market for Canadian PE and M&A transactions, there is increased activity in such markets as the UK, Western Europe, Southeast Asia and Australia. Notable deals this year include the Ontario Teachers’ Pension Plan (OTPP) acquisition of SeaCube Container Leasing, an American company based in New Jersey, for $1.8 billion in April and the Public Sector Pension Investment Board’s investment of $148 million in the Gasometer 2 Office Towers in Brisbane, Australia.
The top sector for M&A activity by deal volume in Q1 2013 was mining and energy. However, the mining industry has slowed in the second quarter, making it difficult for smaller companies to find financing. Larger firms will wait out the slowdown. Russia’s ARMZ Uranium Holding Co. acquired the remaining 48.6% of Uranium One for C$1.3 billion in the most significant deal in the industry. According to Vice Chairman Jim Kofman of Cormack Securities Inc., “M&A [in mining] is declining and we think it’s going to be tough in 2013.”
Real estate M&A activity remains strong in Canada. For the past five years, the Canadian real estate market has been very attractive to investors after avoiding the financial collapse of 2008. According to PwC, the strong trend is likely to continue into 2013.
Looking to the future
Canadian inbound and outbound M&A activity will depend on the exchange rate and commodity pricing. The Deal predicts plenty of inbound M&A activity in Canada. Because the Canadian market is itself small, smaller companies in particular are attractive targets for Canadian companies who cannot penetrate the outbound market.