Canada’s M&A activity reached a five-year high in 2017, according to PwC Canada’s Deals report, and 2018 could be even busier if valuations keep rising south of the border.
It remains unclear how U.S. President Donald Trump’s tax and trade policies will impact the broader North American economy, but that didn’t dampen M&A activity: there were 2,274 deals in 2017, up from 1,956 in 2016.
However, “mega deals” valued at US$5B or more decreased from seven to two in 2017.
The technology sector continued to be Canada’s most active industry sector in 2017, with a 34% increase in deal volume over 2016.
Outbound deals to the U.S. reached nearly 60% of all outbound deals in 2017, one of the highest levels since 2008. Of those, real estate saw nearly twice the number of deals year over year. Deals in the technology sector also increased by 45% from 2016, with the majority (90%) of those acquisitions coming from corporate buyers.
“Now that U.S. tax reform has been passed, providing a further stimulus to an already strong U.S. economy, we expect to see increased M&A activity in the U.S., and potentially U.S. outbound investment activity into Canada,” said Dave Planques, PWC Canada’s national deals leader, in a release.
Canadian CEOs driving activity
According to PwC’s 21st Annual Global CEO Survey, 44% of Canadian CEOs are planning to engage in M&A activity in the next year to drive corporate growth and profitability.
Three factors could significantly influence Canadian M&A activity this year, the report said, and those are:
- NAFTA uncertainty. Canadian companies could use U.S.-bound M&A as a way to establish or grow a U.S. presence. Theoretically, this could insulate them from protectionist legislation and provide easier access to the growing U.S. market. This uncertainty should prompt them to take a fresh look at their business strategies.
- U.S. tax reform. Businesses will be affected differently depending on their capital structure and industry. There are five critical provisions to consider: corporate tax rate reduction, territorial tax system/toll charge, immediate expensing (cost recovery), business interest expense, and international provisions.
- Technology as a catalyst for deals. Making deals with tech companies can add value by increasing access to highly skilled teams, new technology or intellectual property and new markets.
Read the full report here.
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