A retrospective look at 2017

In Canada, 2017 had the highest number of mergers and acquisitions (M&A) deals in the past five years. There were a total number of 2,274 deals carried out in 2017, compared to 1,956 in 2016. The number of “mega deals”, however, did not see an increase in 2017. “Mega deals” are categorized as deals that have a value of US $5 billion or more. The number of these types of transactions went down from seven in 2016, to two in 2017.

For 2017, PwC noted the following three common M&A trends:

1) Increased number of deals and value

Both the cumulative amount and value of Canadian M&A deals increased substantially in 2017. Apart from “mega deals”, deal activity flourished due to a variety of factors. For instance, sellers wanted to capitalize on high stock prices to receive significant gains and engaged in succession planning for their family businesses. Buyers, on the other hand, engaged in M&A as a result of their confidence in the economy, their sufficient cash reserves, having securities that could easily be liquidated and the existence of prolonged low interest rates.

2) Strength in technology M&A

This past year also surpassed 2016 in terms of the volume of Canadian M&A in the technology sector, as evidenced by the 34% increase that was reported. Most of the deals in the technology industry related to IT services and consulting deals, in addition to software deals. In 2017, the number of software deals increased by 25% from 2016, while IT services and consulting M&A deals increased by a remarkable 63%. It is believed that these findings indicate that Canada is heavily involved in developing, buying, expanding and selling technology companies.

3) Prevalence of outbound deals

Perhaps unsurprisingly, deals involving the US still accounted for a significant amount of M&A outbound deals. Outbound deals are ones that involve a Canadian buyer and a foreign target. This finding may not be surprising, since the rate of outbound deals to the US has been increasing every year since 2008. In 2017, 60% of Canada’s outbound deals involved the US. These findings show that the US is the most promising region for Canadian acquirers.

A forward glimpse at 2018

According to PwC, ­­the surge of M&A in Canada that we saw in 2017 will likely continue carry through 2018. A survey found that 44% of Canadian CEOs plan on engaging in an M&A transaction this year. However, three factors were listed as likely influencing the fate of Canadian M&A activity this year, including the unpredictability surrounding NAFTA, the US tax reform and the technology sector continuing to be an impetus for deal activity.

The author would like to thank Monica Wong, Articling Student, for her assistance in preparing this legal update.

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