Canadian traders bet on major overseas purchases as market confidence returns
Canadian traders have become a major presence beyond their borders, completing a total of 361 outbound trades with a total value of US $ 117.3 billion in the first three quarters of 2021. This trade value has already more than doubled the annual value for 2020 (US $ 50.8 billion), which fell to the lowest figure since 2012 amid the global COVID pandemic.
M&A activity in value 2006 – 2021 [YTD] (excluding domestic transactions)
Target location: Global Bidder’s location: Canada Sectors: All sectors
The volume of transactions in Q1-Q3 alone exceeded The 2020 annual total of 327. The second quarter was particularly impressive, with Canadian traders participating in a record 139 cross-border transactions.
Canadian negotiators are also investing in larger deals abroad, having participated in four mega-deals (valued at over US $ 5 billion) so far this year. This compares to a single such deal announced in all of 2020. With this renewed confidence in costly deals, the value of outgoing deals could be on track to beat the record annual total of 2016.
The merger of the railways at the top of the list
The transport sector has attracted highest transaction value of Canadian bidders buying overseas, with the largest acquisition of the year by Canadian Pacific Railway for US $ 31.1 billion of the American company Kansas City Southern, which takes place in the sector. The merger of the two rail companies, announced in March, will create the first rail network connecting the United States, Mexico and Canada.
The deal follows a long bidding war in which Canadian Pacific pushed back a rival offer of US $ 34 billion from Canadian National. The deal follows the ratification of the United States-Mexico-Canada (USMCA) agreement last year, which replaced the North American Free Trade Agreement (NAFTA) and facilitated trade relations between the three countries. The USMCA is expected to boost cross-border freight traffic.
Canadian businesses seek clean energy abroad
The energy, mining and utilities sector attracted the second largest deal value since the start of the year from Canadian bidders. A total of 24.3 billion US dollars was invested in 49 transactions during Q1-Q3 2021.
The global shift to clean energy sources has catalyzed the conclusion of agreements in the sector, the Canadian government’s goal of increasing the share of zero-emission sources to 90% by 2030, prompting companies to seek capacities abroad.
The announcement of Algonquin Power & Utilities Corp’s acquisition of U.S. electric utility company Kentucky Power and Kentucky transmission company TransCo, valued at US $ 2.8 billion, reflects this tendency. Through the transaction, Algonquin will leverage Kentucky’s “greening the fleet” capabilities, with the ability to replace more than 1 GW of tariff-based fossil fuel production with renewable energy.
Another deal highlighting the shift in the global energy sector is Northland Power’s deal with Helia Renovable to acquire 540 MW wind and solar portfolio in Spain for $ 1.3 billion. US. The deal, which was concluded in August, positions the Canadian power producer among the top ten renewable energy operators in Spain’s attractive renewable energy market.
PE and pension funds join forces
The volume of private equity transactions involving a Canadian bidder abroad reached a record volume in Q1-Q3, with 103 transactions change hands. This already matches the previous record annual total of 2018, with three months of trading to record. A total transaction value of $ 36 billion, meanwhile, has already exceeded the annual figure for 2020.
Private equity firms partnering with pension funds have become a common feature of Canadian transactions abroad, as companies seek to increase their financing capacities in order to close deals. In August, the Canada Pension Plan Investment Board (CPP Investments) and BC Partners announced that they had agreed to acquire German manufacturer of technical ceramic materials CeramTec for 4.5 billion euros. US dollars from BC European Capital X and co-investors.
Another big deal that saw a PE house and a pension fund join forces was the sale by UK energy company SSE of its 33.3% stake in Scotia Gas Networks Ltd to a consortium of Ontario Teachers’ Pension Plan Board and Brookfield Super-Core Infrastructure Partners, valued at US $ 1.7 billion.
From survival to growth
The pickup in outbound activity reflects underlying confidence in the Canadian transaction market, as companies look to take advantage of improving market conditions after the pandemic.
After 18 difficult months, strategic and private buyers are now turning survival to growth by seeking new growth opportunities abroad. As the global economy continues to slowly emerge from the global pandemic and the global vaccine rollout takes effect, Canadian companies will continue to use acquisitions as a tool to expand into high-growth markets abroad.
The market is also helped by easy access to capital. The recovery of the Canadian economy and the abundance of liquidity south of the border encourage Canadian borrowers to benefit from U.S. high yield bond markets in increasing numbers.
As the United States continues to be the target of choice for Canadian businesses, European activity can be expected to pick up again, particularly in the much sought-after clean energy market, as the hunt for High growth assets push buyers further. Co-investments will become an increasingly popular feature of transactions as companies seek to increase their purchasing power and compete for transactions across their borders.[View source.]