Royal Bank of Canada was the top investment-banking adviser on Canadian mergers and acquisitions for the third straight year as retail dominated the slowest period for dealmaking since 2009.
Bank of America Corp.’s Merrill Lynch unit rose to the second spot, its highest ranking since 2004, while Goldman Sachs Group Inc. slipped to sixth from second, according to data compiled by Bloomberg. Morgan Stanley climbed to third and Deutsche Bank AG advanced to fourth in 2013.
“Energy and mining activity really fell off a cliff,” Peter Buzzi, head of mergers and acquisitions in Canada at RBC Capital Markets, a unit of the country’s second-largest bank by assets, said in a Dec. 17 interview. “Stepping up to fill in was retail. I don’t think next year we’re going to be back to the normal 60 percent mining-and-energy M&A market. I look out and I hope something steps up like retail or real estate, otherwise we’re going to have a pretty slow year.”
Canadian companies were involved in 2,325 announced deals valued at $158.2 billion in 2013, down 28 percent from $219.5 billion in 2012 and the lowest since 2009, the data show. The figures and rankings are as of Dec. 31 and are subject to change as more deals are recorded.
The biggest takeovers of 2013 were in retail, led by Loblaw Cos.’s July bid to buy Shoppers Drug Mart Corp., Canada’s largest drug-store chain, for $13 billion including debt, the data show. The $6 billion purchase of Neiman Marcus Inc., a Dallas-based luxury chain, by Canada Pension Plan Investment Board and Ares Management LLC was the second-largest, with Empire Co.’s $5.69 billion takeover of Safeway Inc.’s Canadian grocery stores ranking third.
Other retail deals included Hudson’s Bay Co.’s $2.7 billion purchase of luxury retailer Saks Inc., the data show. The acquisition by Hudson’s Bay, Canada’s oldest company, was the most recent in a string of retail consolidations that put Canadian companies on the offensive against U.S. rivals expanding in the country. Minneapolis-based Target Corp. opened stores in Canada in the past year, while Wal-Mart Stores Inc., based in Bentonville, Arkansas, added locations as competition for Canadians’ spending heated up.
RBC advised on the two largest deals in 2013, acting for Shoppers and in the deal for Nieman Marcus. Merrill Lynch advised Loblaw and Hudson’s Bay on their deals. A spokesman for Bank of America’s Merrill Lynch declined to comment.
RBC and Bank of Nova Scotia, the fifth-ranked dealmaker in 2013, were the only two Canadian investment banks among the top five. Bank of Montreal was seventh, followed by Canadian Imperial Bank of Commerce. Toronto-Dominion Bank was 10th, its lowest showing since 2009.
Joe Konecny, a spokesman for Scotiabank, and TD’s Laurrell Mohammed didn’t respond to requests for comment.
In 2012, RBC ranked No. 1 after advising on $74.6 billion of deals, followed by Goldman Sachs, with $50.9 billion. BMO Capital Markets was third, with $48.1 billion.
RBC fell 0.3 percent to C$71.17 at the close in Toronto. The shares rose 19 percent last year.
Mining deals totaled $10.3 billion in 2013, the lowest since 2004 according to the data compiled by Bloomberg, as gold slumped the most since 1981, nickel posted its third annual loss and copper slid 7 percent.
Canadian crude averaged about $24.50 a barrel below the U.S. benchmark through 2013 amid pipeline bottleneck concerns, lowering the value of energy transactions, including electric and gas utilities, to $29.4 billion. That’s the lowest since 2003, according to the data.
“Right now in Canada there are a lot of assets for sale in the energy sector, there are just not a lot of buyers,” Dougal Macdonald, president and managing director at Morgan Stanley Canada Ltd., said in a Dec. 31 phone interview. “We may see private equity re-enter the energy sector. Some of the logjam will clear up and those assets may finally get sold.”
The largest energy deal was Fortis Inc.’s bid to buy Tucson, Arizona-based power company UNS Energy Corp. for $4.3 billion including debt. The largest mining deal closed in October, when Russia’s state-owned nuclear company Rosatom Corp. bought shares of Toronto-based Uranium One Inc. it didn’t already own for $1.35 billion and took it private.
“Looking at 2014, it feels a lot like the start of 2013,” Goldman Sachs Canada Chief Executive Officer John P. Curtin Jr. said in a Dec. 16 interview. “There’s no reason to be wildly optimistic and no reason to be wildly pessimistic.”
Goldman advised Safeway on its sale to Empire and Saks selling to Hudson’s Bay. It also represented the Republic of Ireland on its sale of Irish Life Group Ltd. to Great-West Lifeco Inc.
The so-called Big Six Canadian pension funds were prominent in the top dealmakers’ chart last year, and bankers say the trend will continue into 2014.
“Not only have strategic buyers been making acquisitions outside of Canada, but a lot of our pension funds have as well,” RBC’s Buzzi said. “I think that’s going to continue as they try to diversify their returns and their assets.”
The six largest funds were involved in at least four of the top 10 deals last year. Canada Pension Plan and its peers participated in $18.4 billion of mergers and acquisitions in the first 10 months of 2013, according to data compiled by Bloomberg, more than double the amount of the three biggest U.S. buyout shops. It’s the first time since 2009 that the pension funds surpassed the private-equity firms.
While dealmaking may have slowed, financing for deals is increasing.
“Debt capital markets have never been deeper and you couldn’t have a deeper bank credit market in the world,” said Daniel Barclay, head of Canadian mergers and acquisitions at BMO Capital Markets. “All those conditions added up says M&A is going to be strong. What I can’t tell you is what sector and the timing.” The second half of the year will be stronger for deals than the first six months, he said.
“When you look at the broader macro environment, there’s lots of reasons for optimism,” Mike Boyd, head of global M&A for CIBC, said Dec. 18 by phone. “We’ve still got very, very strong debt markets, which is broadly speaking very positive for M&A.”
The retail deals reflect confidence in the economy and consumer spending in particular, John Emanoilidis, a partner at law firm Torys LLP in Toronto, said in a Dec. 31 phone interview.
“I’m hopeful it will have a spillover effect into other industries,” he said.