Global M&A is strong
In its recently released Mergers & Acquisitions Review for Q3 of 2014, Thomson Reuters proclaims this year's first three quarters to be the "strongest first nine months for worldwide deal making since 2007."
The volume of global M&A activity since the beginning of the year surpassed the volume for the same period in 2013 by nearly 60%. Despite a 22% decrease in deal volume compared with Q2, the value of Q3 M&A deals was $888 billion, making it still the highest third quarter in seven years, according to Bloomberg's Global M&A Market Review Financial Rankings, up 29% compared to a year ago.
Canadian market in an upswing
The Bloomberg and Thomson Reuters numbers also show that the Canadian market is in an upswing. The value of 1,256 Canadian M&A deals announced over the first nine month of the year is US$ 82,540.5 million, versus US$ 67,198.6 million in 1,235 deals announced in the first three quarters of 2013. This translates into an increase of 22.8% in volume with the increase of less than 2% in the number of announced deals.
These results seem to support the view of analysts who predicted that despite a rather tepid start to 2014, in part due to volatility in global commodity prices, the Canadian M&A market would see the increase of the value of the businesses being offered for sale.
A sellers' market
In an article published in the Canadian Business Journal at the beginning of Q3 2014, the managing directors at KPMG Corporate Finance observed that conditions are favorable for a sellers' market in the private mid-size business segment. Authors predicted that even with a healthy supply of private companies offered for sale, the demand for quality targets would not be matched and this would drive the value of businesses on the selling block higher.
According to the authors of the article, however, the market also has plenty to offer to byers, as many private companies that weathered the recession and are attractive due to their proven ability to manage costs and mitigate the impact of the strong U.S. dollar though the downturn are for sale. One source of acquisition targets comes from owners of the baby-boomers generation who are engaged in estate planning and are seeking to monetize their successes. Another source of companies for sale comes from corporations that are looking to shed non-core operations in order to focus on their core businesses.
Regardless, the Canadian Business Journal article predicted that the demand for quality private companies would continue to surpass the supply, as both public companies and private equity are eager to grow or invest, as the case may be, through acquisition.
The numbers reported by Bloomberg and Thomson Reuters are consistent with the predicted sellers' market characterized by a higher rate of growth in volume than in the number of deals. However, the overall high level of activity allows to view this not as indication of a lack of supply, but as a mark of a normal cycle in the life of a healthy, breathing, and growing market.
The author would like to thank Andrey Shamis, articling student, for his assistance in preparing this legal update.
Norton Rose Fulbright Canada LLP
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