Global M&A activity has been off to a record start this year. The overall volume has reached nearly $2 trillion as of May 21. While some may view this increasing trend with optimism, certain investors are skeptical of its longevity.
It has not gone unnoticed that the last couple of times global M&A volume reached similar levels was in 2000 and 2007 – periods where the market cycle peaked and was followed by a crash shortly thereafter. Business Insider recently noted a consistent factor between these periods is the “overexuberance being exhibited by investors.” The market activity experienced in the dotcom-era and debt and housing bubbles appear to be mimicked in the current market, which is experiencing historically low interest rates, and many on Wall Street forecast a downturn in the near future.
Nevertheless, it seems one group remains unconcerned: Canadian CEOs. A KPMG report revealed CEOs in Canada are more optimistic and confident about growth prospects when compared to their global peers. In fact, 82% of Canadian CEOs said they will certainly take part in an acquisition over the next three years, with over a third of those expected to have a “significant impact” on the overall organization.
Given that the Bank of Canada recently announced the overnight rate will remain unchanged at 1.25%, but warned that “higher interest rates will be warranted to keep inflation near target,” we will be keeping an eye on how Canadian CEOs and their companies’ M&A activity will react. This statement from the bank suggests an impending rate increase. Although it seems M&A activity has yet to react negatively to the last three increases, the rate was at a record low of 0.5% this time last year. Future increases may not be so easy to ignore. The bank’s next announcement is scheduled for July 11, 2018.
We will have to wait and see if history repeats itself or if Canadian M&A will emerge unscathed.
 For further information on the effect of such increases, read our previous blog posts: Additional interest: M&A activity following the Bank of Canada’s interest rate increase and Overnight interest rate update: no change is good news for M&A activity,
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