Looking into the Future: McCarthy Tétrault’s M&A team forecasts the trends
August 28, 2008
- The Canadian dollar will remain strong, but in the long run, par is likely not sustainable once the United States addresses its federal spending and credit market issues. There is now a window for US southbound deals to be done by Canadians, particularly in areas where valuations have fallen dramatically, such as real estate and real estate intensive industries like retail and financial institutions.
- Income trust conversions will lead to every board evaluating possible sale or merger opportunities. These are most likely to occur where strong market fundamentals can continue to support trust-like valuations. We will also see some of these trusts go private to avoid public company costs and scrutiny once their valuations drop to pre-trust levels.
- Forestry, automotive-related companies, and some manufacturing businesses dependent on a weaker Canadian dollar will struggle and will be a source of M&A, and some of them will almost certainly have to seek CCAA protection.
- Private equity will be more careful and be increasingly preoccupied with workout issues in their investee companies. At the same time, many companies in Canada, particularly in the mining sector, have huge cash balances, shifting the balance to strategic buyers (companies in the same sector that can achieve efficiencies through M&A) over financial buyers (private equity).
- Power projects of all kinds (nuclear, clean tech, etc.) will continue to attract capital.
- Global players will increase their interest in Canadian public companies that produce food ingredients, such as grain, or food related products, such as potash.
- Companies with exposure to nuclear power, whether it be in development of plants (Bruce Power) or producing inputs like uranium mining, will attract interest.
- Canadian mining companies will continue to be seen as cheap long-term investments by countries needing basic economy-building materials such as steel, copper, and zinc.
The foregoing article was prepared by McCarthy Tetrault’s Mergers and Acquisitions Group and was originally published in The Changing Dynamics of the Deal, a special information report published by The Globe and Mail Report on Business on June 16, 2008. Certain of the events or trends forecast in the article have started to be realized since then.