M&A activity heats up

Canadian mergers and acquisitions activity soared in Q2 2006, as a result of a boost by rapid consolidation within the mining sector, according to a report released by investment banking firm Crosbie and Company.

There were 480 deals announced in Q2, matching the number of transactions in Q1 and up from 420 in the same period in 2005. The total value of these deals soared, however, hitting a record $86.1 billion, compared to $27.4 billion in the first three months of 2006 — on the same number of deals. In Q2 2005, total transaction value was $33.6 billion. The previous record was set in Q2 2000 — the height of the tech boom — and was broken by $7 billion.

The explosion in total deal value stems from an increase in so-called “mega-deals” with a value in excess of $1 billion. There were 11 such transactions, accounting for $63.1 billion, or 73% of the total deal value.

By comparison, the same quarter last year included just six mega-deals worth $13.2 billion, while Q1 of this year saw only five mega-deals for a total of $9.9 billion.

Private equity and pension funds played an increasingly significant role in the market, accounting for 16% of deals by value, up from 13% for all of 2005.

The Crosbie report includes deals that were announced in Q2, even if they did not close in that period. As such, mining was the dominant sector, with the bidding wars erupting over Falconbridge and Inco starting in May.

The minerals sector was home to 50 deals, worth a total of $39.5 billion, but that value might well be revised higher, as it was based on initial estimated values. For example, the estimated value of the Falconbridge deal is listed in the Crosbie report as $19.2 billion. The winning bidder, Xstrata plc, eventually drove the price up to about $23.8 billion.

The estimated value of the Inco takeover was listed as $18.8 billion, but shareholders are currently considering the merits of a $19.4 billion bid from Brazil’s CVRD.

Based on Crosbie’s estimated values, mining still made up 46% of the transaction value in the quarter.

“What a time to maximize value,” said Ed Giacomelli, managing director at Crosbie. “With the presence of domestic and foreign strategic and financial buyers, and the emergence of bidding wars, this market has it all.”

Oil and gas takeovers made up the next most valuable sector, with 116 transactions valued at $15.8 billion. Penn West Energy Trust’s $3.1 billion buyout of Petrofund Energy Trust was the largest single deal, followed by Shell Canada’s takeover of Blackrock Ventures for $2.4 billion.

Among industrials, there were 127 transactions, up from 90 in the previous quarter. Total deal value rang in at $3.7 billion, up slightly from $3.0 billion in Q1 2005 and $1.5 billion in Q2 2005.

Cross-border deals represented 71% of value and 38% of all transactions. There were 360 such deals worth $80.2 billion in the first half of 2006, up significantly from 222 transactions worth $43.3 billion for the same period last year.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.