In July, we published a blog post on the Canadian M&A landscape in the first half of 2013. As 2013 has now come to an end, it seems appropriate to recap what happened in the second half of 2013. McCarthy Tétrault advised on seven of Lexpert's top ten deals of 2013, published in the January issue of Lexpert. Below, we've highlighted some of the major trends and deals that transpired during Q3 and Q4 of 2013.
Second Half Sees Fewer but Larger Deals
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. As PWC reports, while the number of announcements decreased, deal value rose in Q3 of 2013 to $54.8 billion from $38.9 billion in Q2, a 41% increase in quarter-over-quarter deal value and a 1% increase year-over-year. The primary drivers for this increase in deal value were nine mega-deals (deals valued at more than $1 billion) announced during Q3. These nine deals alone totalled $35.7 billion, the highest total since Q3 of 2007.
Retail Steals the Spotlight
Retail mega-deals drove M&A in the second half of 2013. The trend towards consolidation in the grocery industry continued with Loblaw's announcement of its acquisition of Shoppers Drug Mart Corp. for $12.4 billion in Q3 following Sobey's announcement of its acquisition of Safeway Inc. for $5.8 billion in Q2. There was also a lot of M&A activity in the department store sector with Ares Management LLC and Canadian Pension Plan Investment Board's acquisition of Neiman Marcus Group for $6.1 billion and Hudson's Bay Company's acquisition of Saks Incorporated for $2.7 billion.
Mining Continues to Tumble
Although deal volume in Q3 remained fairly similar to Q2, total deal value almost halved between Q2 and Q3. As reported by KPMG, in Q3, there were only 14 mining transactions in Canada for a total deal value of less than $1 billion, mostly for non-core asset sales and strategic investments. Falling metal prices are not helping matters. In particular, the price of nickel fell about 20% in 2013 and the price of gold plummeted nearly 30% in 2013.
Pension Funds Enter Into Riskier Deals Seeking Higher Returns
Pension funds continue to be active. According to Bloomberg, in the first 10 months of 2013, the six largest funds were involved in at least four of the top 10 deals totaling $18.4 billion. In 2013, Canada's pension funds acquired companies from a diverse set of industries ranging from entertainment (OMERS Private Equity and Alberta Investment Management Corporation's purchase of Vue Entertainment Ltd., a UK cinema chain, for $1.48 billion) to real estate (Canada Pension Plan Investment Board and Dexus Property Group's acquisition of Commonwealth Property Office Fund, an Australian real estate investment trust, for $2.66 billion).
Real Estate Remains Hot
The real estate sector was again the most active sector, contributing 32% of deal activity and 38% of deal values in Q3. As reported by Crosbie & Company, there were 65 real estate transactions totalling $18.6 billion. In July 2013, in connection with the closing of the initial public offering, Loblaw sold a portfolio of 425 properties indirectly to Choice Properties Real Estate Investment Trust for a total purchase price of approximately $7 billion. In addition, Brookfield Property Partners L.P. was involved in several mega-deals including the proposed $5.1 billion acquisition of the remaining stake in Brookfield Office Properties Inc., the $1.1 billion acquisition of Industrial Developments International Inc. which owns and operates 75 industrial distribution facilities, and the $1.4 billion acquisition of a stake in General Growth Properties, the second largest mall owner in the U.S.
The Second Half's Significant Deals
Beyond the deals already mentioned, significant transactions from the second half include:
- In November 2013, Fairfax Financial and a group of investors completed the investment of $1 billion into Blackberry after Fairfax Financial scaled down a larger plan to buy the company outright for $4.7 billion.
- The largest energy deal of 2013 was St. John's based energy company Fortis Inc.'s bid to buy the Arizona based power company UNS Energy Corp. for $4.3 billion including the assumption of approximately $1.8 billion in debt. This deal was announced only a few months after Fortis' $1.5 billion acquisition of New York State energy transmission company CH Energy Group Inc. in June 2013. These two deals signal Fortis' continued desire to expand into the U.S. market to geographically diversify its business.
- Quebec-based Medicago, a clinical-stage biopharmaceutical company, completed a $357 million sale to Mitsubishi Tanabe Pharma, a Japanese research-driven pharmaceutical company. The deal represented almost a 47 per cent premium over the company's 30-day, volume-weighted average of 79 cents.
- On October 2013, Emco Corporation completed the purchase of RONA Inc.'s assets of its Commercial and Professional Market Division specializing in plumbing, heating, ventilation and air conditioning (HVAC) systems. The disposition resulted in cash proceeds of $214 million, subject to working capital adjustments. Chief Executive Officer Dominique Boies hopes that this sale will improve profitability by allowing the company to focus on its core retail and distribution business.
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