Deal Activity in 2019
Canada recorded $160 billion in deal activity in 2019, down 6 per cent from the $170 billion in deal value in 2018, according to a report from PwC Canada.1 Deal volume fell in 2019, down 20 per cent, from 2,278 deals to 1,816. While there were fewer deals, the average deal size rose 27 per cent to $217 million. The sectors with the most deal volume were high technology with 18 per cent of deal volume, health care 13 per cent, and industrials 12 per cent. According to PwC:
Contributing to the falloff in deal volume was a sharp drop in micro-cap deals and a less pronounced dip in large-cap deals. Micro-cap deals between [$]1 million and [$]50 million fell 35% in 2019, while large-cap transactions between [$]1 billion and [$]5 billion declined 14%.
There were three mega deals (valued at more than [$]5 billion) in 2019, compared with five in 2018. On the corporate side, the largest deals included Newmont Mining Corp.’s acquisition of Goldcorp Inc. and Ireland-based Flutter Entertainment’s friendly, all-share takeover of Stars Group Inc., an online gaming company.
On the private equity side, Power Corporation of Canada acquired the remaining stake in Power Financial Corp. Other private equity players and pension funds, including Blackstone Group Inc., Brookfield Asset Management Inc., Onex Corp., and CPP Investments, were active in large and notable deals valued between [$]1 billion and [$]5 billion.
Drop in Public M&A since 2016
Since 2016 there has been a sharp decrease in acquisitions of Canadian-listed public companies, according to a recent report by Davies Ward Phillips & Vineberg LLP.2 The report compared public M&A activity during 2016–2020 with that of 2012–2016 and found hostile takeover bids have declined by 50 per cent, friendly acquisitions are down by 24 per cent, and acquisitions by strategic purchasers dropped by 30 per cent. The report also found acquirors paid 30 per cent more on average in first-mover hostile bids and enjoyed better odds of success, while the average premium for friendly acquisitions fell by 16 per cent.
The report sought to assess the impact made by the “quite fundamental” changes to Canada’s takeover bid rules, says Davies partner Aaron Atkinson. In 2016, the Canadian Securities Administrators produced amendments to Canada’s takeover bid regime, which came into force in May of that year. The changes sought to give more leverage to target boards faced with takeover bids in order to address the issue that the system favored bidders, said the Davies’ report.
The CSA’s amendments tripled the minimum bid period from 35 to 105 days and gave the target board the discretion to reduce the period to as few as 35 days. The changes mandated that if all bid conditions are met, the bidder had to extend the bid by another 10 days, to give shareholders more time to tender an offer. The new rules also set a minimum tender requirement of more than 50 per cent of the outstanding securities that are subject to the bid.
If the rule changes were a factor in the decline in Canadian M&A activity, a reversal of the trend will, arguably, require a readjustment of the relative leverage between target boards and bidders, says Atkinson in Canadian Lawyer.3 If this happens, it will likely come from market conditions forcing target boards to reassess their leverage, rather than regulatory changes, he says. For example, in a recession, with a squeeze on consumer demand, long-term prospects may be compromised, shareholders may demand liquidity, and a weakening balance sheet may lead creditors to prefer consolidation, he says. Employees may want to be acquired by a larger company, to protect as many jobs as possible.
- “M&A Year in Review and 2020 Outlook.” PwC Canada. Accessed Sep 1, 2020. https://www.pwc.com/ca/en/services/deals/2020-mergers-and-acquisitions-outlook.html.
- Atkinson, Aaron J., Mathieu Taschereau, and Shane Freedman. “The Hostile Bid Is Dead. Long Live the Hostile Bid?” Davies Ward Phillips and Vineberg LLP. June 15, 2020. https://www.dwpv.com/en/Insights/Publications/2020/Hostile-Bids-Report.
- Macnab, Aidan. “Report finds drop in public M&A activity since 2016.” Canadian Lawyer. June 22, 2020. https://www.canadianlawyermag.com/practice-areas/corporate-commercial/report-finds-drop-in-public-ma-activity-since-2016/330728.