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Canadian M&A activity was down sharply in Q3, but the proposed $15.1 billion takeover of Nexen Inc. by China National Offshore Oil Company Limited drove the overall value of deals up 23% over Q2 and 16% over Q3 2011.  PricewaterhouseCoopers (PwC) recently released its report, Capital Markets Flash: Q3 Canadian M&A Deals Quarterly, which outlined the following developments:

  • Q3 2012 saw 599 announced Canadian M&A transactions worth $58.6 billion.  Volumes were down 17% from Q2 2012 and 21% from the same period last year.
  • Domestic M&A activity slumped 47% from Q2 and 50% when compared to the same period last year.
  • Foreign acquisitions by Canadian entities continued to be strong, totalling $18.9 billion in Q3% 2012, a small decline of 13% compared to Q2 but still 23% ahead from Q3 2011.
  • The US replaced Europe as the dominant target for Canadian suitors, with over $13.8 billion, or more than 73% of the Canadian outbound acquisition dollars, heading south of the border.

According to PwC’s Canadian deals leader, Nicolas Marcoux, “The drop off in activity is attributable to an absence of targets in the market, rather than an absence of demand for deals.”

The mining and metals sector, the most targeted industry for M&A activity in 2011, was particularly vulnerable to the downturn in Q3 and has fallen from the top five most targeted industries for M&A activity.  This is due in large part to a slowing Chinese economy and the related decrease in demand for commodities.

With some deals in the pipeline, such as Exxon Mobil Corp.’s $2.6 billion offer to acquire Celtic Exploration Ltd., investors should be cautiously optimistic that Q4 M&A activity may correct the disappointment of the Q3 results.