In its Q2 2014 Capital Markets Flash: Canadian M&A Deals Quarterly, PricewaterhouseCoopers forecasts moderate growth in Canadian economy in the next year and a half. It predicts the rate of real economic growth in 2015 to be 2.5% compared to 2.2% in 2014 and 2.0% in 2013; it projects that government spending will increase 1.5% in 2015, compared to 1.0% and 0.4% in 2014 and 2013, respectively; and it anticipates that the biggest change will be in business investment growth, which is anticipated to be a significant 4%, compared to 1.5% in 2014 and 1.4% in 2013.
In the report, PWC explains this moderate pace of recovery by citing certain recent geopolitical changes, including a strong US economic recovery and the slowing down of the growth of China’s economy. It is instructive to see how these global trends impact the niche sectors most expected to be key factors propelling the growth of Canadian economy.
In the context of the Energy sector, PWC focuses on the British Columbia’s Liquefied Natural Gas (LNG) market, which heated up earlier this year due to an influx of sizable investments. Investors remained undeterred by the recently struck 30-year Russia-China supply deal, citing the fact that even a deal as big as this cannot satisfy China’s enormous need for energy.Another point of optimism is that Canadian LNG suppliers offer reliability over the long term, a valuable commodity in times of geopolitical uncertainty. PWC’s experts stress that if Canada wants to be a player in the international LNG market, it needs to move quickly, as the cost of transporting natural gas across long distances remains a significant obstacle to Canadian suppliers.However, this obstacle can be overcome by innovation and improving technology of liquefying natural gas.
Another hot market is developing in the Food industry, as investors hop on the latest weight-loss fad for protein-rich diets. Unlike most other goods which may be produced more cost-effectively in Asia, meat production remains most profitable in developed markets, and especially in North America due to its highly regulated standardized farming industry. Players on the protein market are highly competitive and acquisition is a model favored by strategic players and private equity alike.
Transportation, a related sector, is experiencing a recent increase in M&A activity, which is most prominent in the trucking industry. The recent spike in the number of deals — most of which are in the middle market, ranging from $20 to 200 million — is explained by the competition for qualified drivers. According to Mark Seymour, Chairman of the Canadian Trucking Alliance, companies are interested in safety, discipline and compliance. Acquisition, as always, is a proven strategy, and there is a significant supply, as mid-size owner-operators who were putting off selling their companies during the recession are now looking to retire. However, acquirers should be aware of the challenge of motivating the acquired companies to maintain and improve the excellence of their personnel in an industry where the importance of hands-on management cannot be overemphasized.
The author would like to thank Andrey Shamis, law student, for his assistance in preparing this legal update.