Canada Dealmakers Scour Globe With Foreign M&A at Record

Element Financial Corp.’s deal Monday for General Electric Co. assets propelled mergers by Canadian firms abroad to a record $66 billion in the first half of the year, almost triple the amount from the same period a year ago.

Easy credit, strong balance sheets, and lack of growth opportunities at home are the main factors driving Canadian money managers and companies on the unprecedented shopping spree, bankers said. They in turn, are becoming noticed on the global stage.

“What the pensions and asset managers have done is really position themselves as very credible buyers,” said David Rawlings, Canada senior country officer for JPMorgan Chase & Co. “Not only are they willing to be competitive in an auction process but there is also a comfort in closing.”

Overseas buying helped push all mergers and acquisitions involving Canadian firms to 1,065 deals worth $110 billion as of June 29, the highest since 2007, according to data compiled by Bloomberg. The figures are based on announced deals and subject to change as more transactions are recorded.

The deal streak has been so hot that Canada Pension Plan Investment Board’s $19.2 billion worth of purchases this year has eclipsed U.S. private equity firms such as Blackstone Group, which announced $12.7 billion of acquisitions, KKR & Co. which had $7.5 billion this year and the Carlyle Group, which has acquired $348 million.

Merger Wave

Canada joins a global M&A wave with industries from cable TV to technology racking up record or near record deals as confidence returns to the U.S. on better economic growth and bulging cash hoards. Global deals reached $1.6 trillion as of June 29, the highest since 2007, the data show.

JPMorgan was the top investment banking adviser for Canadian deals in the first half, working on $32 billion worth of transactions. It was followed by Royal Bank of Canada, Bank of Montreal, Citigroup and Bank of America Corp.

The largest transaction in the first six months of the year was Enbridge Inc.’s sale of its Canadian liquids pipeline business to Enbridge Income Fund Holdings Inc. for $14.6 billion. The purchase price is pro-rated for the 66 percent interest Enbridge already owns in the fund.

Stripping out that inter-party domestic transaction would have put outbound Canadian deals at 70 percent of all transactions, the highest level on record, the data show. Institutions like Canada Pension, Brookfield Asset Management Inc., Hudson’s Bay Co., and Royal Bank of Canada looked for growth outside Canada, primarily in the U.S. and Europe.

GE Deals

Canadian firms were big buyers of GE assets. Element agreed to buy the bulk of the U.S. company’s vehicle fleet-management business for $6.9 billion, the Toronto-based company’s biggest acquisition to date.

That followed Canada Pension’s agreement earlier in June to acquire GE Antares Capital Corp., which makes loans to buyout firms. The GE deal, valued at $12 billion, was the largest for Canada Pension and marked the first large-scale target the country’s largest pension fund manager acquired on its own.

Publicly traded companies are being applauded for their aggressiveness abroad.

“Shareholders are rewarding boards of directors who go out and do big deals,” said Grant Kernaghan, Citigroup Inc. managing director of Canadian investment banking. “That’s what they want to see.”

Hudson’s Bay has risen 7 percent since it announced the purchase of Germany’s Kaufhof chain from Metro AG on June 15. Element closed up 1.7 percent Monday.

IPO Market

The value of Canadian M&A in the first half might have been higher but for a series of well-received initial public offerings, said John Armstrong, head of mergers and acquisitions at BMO Capital Markets. Companies that may have been takeover targets in the past, or at least considered a dual track process -- where both a sale and IPO are considered -- are jumping at the high valuations being offered by the public markets, he said.

“Outside of resources, the appetite for IPO products has been quite staggering,” he said. “Even 12 or 18 months ago a dual track was standard fair. Now we’ve got a situation where it’s -- get to the IPO market as quickly as you can and we don’t have time for dual-track.”

Companies have raised C$1.35 billion from initial public offerings in Canada through 22 priced deals since the start of the year, according to data compiled by Bloomberg. The second quarter saw C$1.22 billion raised from 15 deals alone.

The momentum for M&A in the country in the first half of the year is unlikely to slow as the pipeline for deals remains robust, said Peter Buzzi, co-head of mergers at Royal Bank of Canada

“In the non-resource sectors, confidence has been pretty good,” Buzzi said in an interview. “The M&A market is all about confidence.”