M&A activity propped up by pensions, banks

Merger and acquisition activity edged higher in Canada in the third quarter, thanks to a wave of deals by pension funds and banks, says a report released Oct. 28 by PwC.

According to PwC’s Capital Markets Flash quarterly report, deal volume in the July-September period rose by 8% compared to the same quarter last year, and deal values climbed 1%. However, if not for large financial institution and pension fund buying, the last three months would have been rather bleak.

“A high level of activity by Canadian pension fund deal-making during Q3 2011 sheltered a broader Canadian market downturn,” the report says. “Canadian pension funds (as leads, co-leads or part of buyer/seller consortiums) were involved in deals worth more than $15 billion.”

Excluding a small number of large Canadian pension fund deals, the value of Q3 M&A was 25% lower than Q2. In what PwC characterizes as a Bay Street versus Main Street dynamic, less than 1% of Q3 transaction volumes contributed 59% to aggregate deal values.

“This quarter was characterized by opportunistic buying and selling by Canadian banks, pension funds and REITS,” says Kristian Knibutat, PwC’s Canadian deals leader. Notable deals in the quarter included:

• Cheung Kong Infrastructure Holdings Ltd.’s acquisition of Northumbrian Water Group plc from the Ontario Teachers’ Pension Plan (Teachers’) for approximately £2.4 billion—Teachers’ portion was worth an estimated £645 million.
• The $6.3-billion acquisition of U.S.-based medical technology company Kinetic Concepts Inc. by the CPPIB, the Public Sector Pension Investment Board and Apax Partners.
• The launch of an $180-million venture capital arm by OMERS, which, shortly after launch, provided $5 million of Series A financing to software company Wave Accounting.
• The $520-million acquisition of global shipping services company V. Group by OMERS private equity.

Overall, in Q3 2011 there were 756 Canadian M&A announcements worth close to $51 billion.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.