2015 was not the kindest to the Canadian dollar as it saw its value depreciate by 15% when compared with the U.S. dollar. Despite the weakening Canadian dollar, Canadian companies remained undeterred in their pursuit of foreign acquisitions. According to a recent Bloomberg study, in 2015, Canadian companies acquired $205 billion worth of assets, almost triple the prior year’s amount and almost double the previous peak of $112 billion in 2007.

Canadian institutional investors have been the primary driver of this activity. As a result of volatile market conditions and slow domestic growth, Canadian pension funds have sought to diversify. In particular, as noted in Crosbie & Co.’s 2015 Q4 M&A Report, Canadian pension funds have looked to acquire infrastructure and real estate assets in higher growth markets.

This strategy appears to have been effective. According to research by RBC Investor & Treasury Services Canadian pension funds achieved a return of 3.1% in Q4 of 2015 and finished the year with an annual return rate of 5.4%.

Whether this trend continues into 2016 is uncertain. On the one hand, the persistence of a low-growth environment should continue to push Canadian institutional investors to diversify globally. On the other hand, sustained slumping in the global leveraged-finance markets may inhibit overall M&A activity. Whatever the case, the relationship between the Canadian dollar and outward M&A activity is worth paying attention to in 2016.

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