Canadian M&A Activity in the United States Reaching Historic Levels in 2011

Despite continuing economic uncertainty in 2011, the pace of Canadian M&A activity in the United States so far this year has reached historic levels, according to a recent study published by PricewaterhouseCoopers (PwC).

Year to date (up to November 14, 2011), Canadian entities were involved in 385 acquisitions of US firms, representing a total transaction value of US$22 billion and a record pace for transaction volume. US M&A activity accounted for 40 per cent of all cross-border deals by value for Canadian firms, making the United States the most favoured foreign investment jurisdiction (the next closest was Australia, with only 16 per cent of cross-border deals by value).

For the first time in history, the value of deals completed by Canadian firms in the US was higher than the value of US acquisitions in Canada at a ratio of 1.16 to one. The number of Canadian acquisitions of US targets compared to US acquisitions of Canadian targets was also above the five year average (at a ratio of 0.9 to one), reaching close to a ratio of 1.5 to one this year.

PwC identifies several drivers of this growth in Canadian deal activity in the United States:

  • Scale & Scope – the US offers investment opportunities of a greater size (larger number of possible targets with higher valuations) and across a broader, more diversified range of industries, than are available in Canada.
  • Relative Risk Levels – even with the current difficult economic conditions in the United States, when compared to other jurisdictions and emerging markets in particular, the relative stability of and familiarity with investment conditions and potential risks involved in the US market is appealing to Canadian acquirors.
  • Equity Market Volatility – the recent volatility in the public equity markets may be driving pension funds and institutional investors to decrease exposure to such volatility by allocating a greater portion of their portfolios to private market investment through M&A activity.
  • Availability of Capital – the US market remains a source of commercially reasonable deal capital with the availability and cost of deal capital, as evidenced by the US high yield and leveraged loan markets, stabilizing since Q3 2011.

PwC also identified several “hot” markets for Canadian M&A activity in the US going forward, including energy, financials, healthcare, high technology, media and real estate.

Read more in PwC’s Capital Markets Flash:  Buy America?! Why Canadian Dealmakers still prefer the US Market.

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