Crosbie & Company Canadian Mergers & Acquisitions Report for Q1 2024

Market Adaptation Leads to M&A Activity Increase

Canadian M&A activity in Q1 2024 displayed a modest recovery after two consecutive quarters of declining deal volume and aggregate deal value. Announced deals increased by 11% to 606 from 546 in Q4 2023, though still down 16% year-over-year. Total deal value for the quarter reached $41B, an increase from $40B in the previous quarter. Despite the tepid economic environment, characterized by high interest rates and reduced availability of debt financing, the uptick in both deal volume and value suggests a cautious optimism among dealmakers. This quarter's performance, although below historical averages, indicates a potential stabilization in the market as participants adapt to the new economic realities.

“First quarter M&A activity remained stable, suggesting a bottoming with evidence of a potential recovery forming as financial sponsor activity increased and capital markets conditions improved,” said Stephen Ng, Managing Director of Crosbie & Company Inc. “Businesses and dealmakers continue to adapt to the prevailing interest rate environment while the proposed increase in capital gains taxes in Canada could be a near-term catalyst for M&A discussions and activity.”

Cooling inflation and the prospect of lower interest rates in the back half of 2024 are expected to boost deal activity, bolstered by the substantial dry powder held by private equity firms eager to deploy capital. Stabilizing economic conditions are likely to continue driving the rebound in the M&A market. 

There were seven mega-deals (transactions with values above $1B) in Q1, representing a combined value of $32.1B. Of these, three involved Canadian targets and four involved international targets. The Canadian target transactions announced this quarter included Blackstone Real Estate’s $11.9B take-private of Tricon Residential, AstraZeneca’s $3.3B acquisition of Fusion Pharmaceuticals, and Chord Energy Corporation’s $5.4B acquisition of Enerplus Corporation.

The year began with the mid-market (represented by transactions with values below $250M) continuing its downward trend that started in Q2 2023. In Q1, 203 deals with disclosed values were announced, representing 93% of all such transactions and accounting for 13% of the total deal value for the quarter.

From a sector point of view, deal flow in Information Technology saw the largest increase in deal activity (+40), mirroring the strong start to the year in the broader stock market and the AI surge. On the flip side, Consumer Staples (-10), Financial Services (-11), and Industrials (-9) all saw marked decreases in deal volume.

Canadian firms made 442 acquisitions this quarter, with 307 (69%) involving domestic targets. Cross-border transactions represented 44% of overall activity, with 57% of these deals involving Canada and the U.S. The value of inbound cross-border M&A saw a significant increase of 137% from the previous quarter, fueled by several mega-deals on Canadian soil.

Overview

• Deal activity rebounded in Q1 2024 with 606 announcements, up 11% from the previous quarter, marking the first increase in two quarters
• Deal value remained relatively stable, staying within the range of the last three quarters with an aggregate deal value of $41B, up 1% quarter-over-quarter.
• Cross-border M&A activity increased by 13% to 267 announced transactions representing $30B in value (73% in aggregate deal value)

Mega-Deals 

• There were 7 mega-deals (those over $1B) announced in the first quarter of  2024, the lowest for a quarter since the pandemic, totaling $32B in deal value
• The largest deal was the take $11.9B take private of Tricon Residential inc. by Blackstone Real Estate Partners X, adding 38,000 single-family rental homes to its portfolio
• The Energy sector remained active with Calgary headquartered Enerplus Corp. being acquired by Chord Energy Corp. for $5.4B, as well as California Resources Corporation’s $1.3B acquisition of Aera Energy LLC.

Industry Sector Activity

• Large deal count increases were witnessed in Information Technology (+40); Healthcare (+14); Consumer Discretionary (+12); Real Estate (+11); Energy (+9)
• Deal count decreases were seen in Industrials (-9); Financial Services (-11); Consumer Staples (-10)
• Real Estate and Energy generated the largest deal values at $13.8B and $9B, respectively, as a result of several large transactions

Breakdown by Transaction Size

• Mid-market transactions (those with values below $250M) with disclosed values comprised 93% of the quarterly activity and 13% of quarterly value
• The mid-market experienced a decline in quarterly value (-19%) compared to the broader market which was bolstered by several larger transactions

Canadian Domiciled versus Foreign M&A Targets

• Acquisitions involving Canadian targets increased moderately to 439 (up 10% from the prior quarter)
• 167 were acquisitions made abroad (up 13% QoQ)
• Canadian firms made a total of 442 acquisitions in Q1 2024, of which 307 (69%) involved domestic targets with the remainder being foreign targets.
• The most significant change from the previous quarter was the shift in deal values from Canadian buyers acquiring domestic targets ($19.B to $4B) to foreign buyers acquiring Canadian targets ($10B to $23B)

Cross-Border Deals

• Cross-border deals accounted for 73% of total deal value, a significant increase from 45% in the previous quarter
• The outbound-to-inbound ratio continued to decrease to 1.02, accompanied by an unusually low deal value ratio, a result of less active Canadian buyers.
• Canada/US cross-border activity continued to represent the bulk of cross-border transactions (57%) and deal value (73%)

Deals by Provincial Domicile

• Domestic deal activity increased 10% but aggregate deal value fell quarter-over -quarter with fewer mega-deals to start the year
• Ontario, as expected, remained the most active province by deal count (186)