More M&A deals expected

Despite the political and economic upheaval of 2016, merger and acquisitions (M&A) activity in Canada was strong. Think Enbridge’s US$43-billion acquisition of Spectra Energy and Fortis’s US$11.3-billion purchase of ITC Holdings.

Expect the wheeling and dealing to continue in 2017, with about two-thirds (66%) of M&A practitioners predicting a rise in Canadian mergers and acquisitions, reveals a study by Citi. In fact, none of the practitioners interviewed predicts a decrease in deals.

Deal expectations are especially positive for energy (60% of respondents), financial services (38%), and industrials and chemicals (36%). Recent high levels of outbound and domestic M&A are predicted to continue to drive deals in 2017.

Other key findings:

• The Asia-Pacific region offers the greatest potential for cross-border deal activity in the year ahead, with 72% of respondents saying the area will be one of the top-two regional sources of inbound M&A, while 62% expect it to be one of the top-two target regions for Canadian buyers.
• More than half of respondents (58%) think the lower price of oil is having a positive impact on Canadian M&A, as major oil and gas players consolidate, and vulnerable companies are pressured to sell up.

For commodity-rich Canada, the upward trend in metal prices supports M&A activity because it boosts the finances of Canadian companies, increasing their ability to compete for overseas assets. In contrast, oil companies’ high debt levels pose a challenge to M&A, though recent low prices tempted acquirers and forced consolidation.

Read: Oil leads positive outlook for commodities

Despite the positive outlook, the report warns of possible headwinds: Trump’s potential trade policies and volatile energy prices.

The study of 50 senior Canadian M&A practitioners — including executives, private equity leaders and advisors — was conducted in the second half of 2016.

Click here to view the full study.

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Staff

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