Tag archives: interest rates

Investor uncertainty will continue to impact Canadian M&A momentum

Deal count reached a seven-year high in Canada last year, but there has been a loss of momentum in the first half of 2019. On-going trade conflicts and concern over a possible market correction have generated greater economic uncertainty, and the investment outlook for the second half of the year continues to be clouded by these factors.

Rising valuations have been partly attributed to favourable debt conditions. With stimulus measures like the central bank holding interest rates low, the financial environment has been conducive to growth in Canada – so why are some investors dubious? For one, the … Continue Reading

Borrowers, beware: Bank of Canada announces interest rate hike

Recently, Bank of Canada governor Stephen Poloz announced an increase in the interest rate from 1.25% to 1.5%. The increase comes as the Bank of Canada predicts a continued growth in the Canadian economy from exports and business investments. However, household spending may represent a smaller percentage of future economic growth due to the effects of a higher interest rate on consumers given that variable-rate holders may be forced to put their money elsewhere.

An increase from the Bank of Canada usually comes with increased costs for consumers. If precedent holds, the rise could lead to financial institutions increasing their … Continue Reading

Brace yourselves, a market crash is coming – or is it?

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 … Continue Reading

U.S. banking M&A on the rise and may extend to Canadian financial market

According to a recent article published by Pitchbook, this year has already shown a positive momentum for deal-making in the U.S. banking industry – a trend worth monitoring as it is expected to surge further as the year progresses and U.S. banks (especially those that already have a Canadian presence) may be looking to acquire financial assets and operations north of the border.

Most recently, Citizens Business Bank announced that it would acquire Community Bank, pursuant to which Citizens’ total assets will increase from U.S. $878 million to U.S. $12 billion. This acquisition represents one of 19 M&A transactions that … Continue Reading

The interesting thing about M&A is…

Many predicted that 2017 would be another record year for Canadian mergers and acquisitions (M&A). There are also currently some predictions that interest rates will continue to rise despite the recent announcement of a contraction in the economy. In this blog post we consider these two factors.

As depicted in Figure 1 below, while 2017 has seen a greater number of deals as compared to 2016, the value of these deals has generally been lower. Given the expectation of rising interest rates, this is consistent with our analysis that rising rates has little effect on the number of … Continue Reading

Overnight interest rate update: no change is good news for M&A activity

Today the Bank of Canada (the Bank) released its highly anticipated announcement regarding the overnight interest rate (the Rate). The announcement can be found in its entirety here. After previous successive Rate increases this past summer (as we reported on here), the Bank decided to maintain a steady course by keeping the Rate constant at 1 per cent, indicating a measure of return to normalcy. Apart from successive increases this past summer on the strength of the overall economy, the Rate had otherwise remained unchanged for the preceding seven years.

The broad implications of the decision … Continue Reading

Canadian M&A expected to rise in 2017

Fuelled by low interest rates, strong corporate balance sheets and stable finances, 2016 was a strong year for Canadian M&A. Looking forward, Citi Canada, in association with Mergermarket, surveyed a range of Canadian dealmakers to gauge their expectations for Canadian M&A in 2017. The results of this survey are set out in a recent report entitled Navigating Change: Canadian M&A in a period of global upheaval. Highlights of the report are set out below:

  • Deal volume. Two-thirds of respondents expect to see a rise in Canadian M&A volume in 2017 compared to 2016.
  • Free cash. The majority
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Bank of Canada maintains historically low overnight rates and reserved outlook for 2017 and 2018

On December 7, the Bank of Canada (the Bank) announced that it will be maintaining its overnight rate at 0.5%, closing out a year of historically low interest rates. The overnight rate is the interest rate at which large institutions, including banks, lend money amongst themselves and is one of the main levers that the Bank can pull in order to effect a particular monetary policy. It forms the basis for other interest rates throughout the economy and, in theory, low borrowing rates incentivize deal-making. We have blogged before about the effect of interest rates on M&A deals, including … Continue Reading

2017 M&A outlook

Business peopleAs 2016 draws to a close, Ernst & Young has released its 15th edition of its Global Capital Confidence Barometer (the GCCB), which looks forward toward the trends and expectations in the M&A market for 2017. The GCCB is survey of more than 1,700 senior executives, including 52 Canadian executives, from large global companies located in 45 countries around the world, representing 18 industry sectors.

This past year was an active time for M&A and according to the GCCB, this trend will continue into the new year. In total, 57% of all executives surveyed plan to make acquisitions … Continue Reading

Money makes the world go ‘round: lender protections in leveraged acquisitions

With Canadian prime and US federal interest rates maintaining an all-time low since the 1980s, the current market is well-positioned for leveraged acquisitions. Whether a purchaser does not have the liquidity to acquire a business or believes the potential growth of the investment will outpace any interest accumulating, the use of borrowed money to purchase a company is a shrewd business move.

Notwithstanding the favourable market conditions for leveraging, purchasers should expect that lenders will require certain lender protections in the acquisition agreement.

Xerox provisions

Introduced during the acquisition of Affiliated Computer Services, Inc. by Xerox Corporation (hence the “Xerox… Continue Reading

Dealmaking in a negative interest rate environment

buildings_680x220The term “negative interest rates” was introduced into the Canadian vocabulary on December 8, 2015, when the Bank of Canada announced that it would be willing to use this “unconventional monetary policy tool” in the event of economic crisis. With the current benchmark interest rate of 0.5% already near historic lows, this announcement suggests that it has the potential to drop much lower – even below zero. The Bank of Canada stated that the effective lower limit, or “lower bound”, is now set at negative 0.5%.

While the Bank of Canada stressed that there are no current plans to take … Continue Reading

Reflections on American M&A performance in the first half of 2015

As seen elsewhere in this blog, the volume of global mergers and acquisitions (M&A) in the first half of 2015 (H1 2015) reached near record-setting heights. According to a recent report from Deallogic, the total volume of M&A deals reached $2.28 trillion in H1 2015, second only to the $2.59 trillion recorded in the first half of 2007.

In particular, the volume of M&A deals targeting firms in the United States surpassed $1 trillion, which marks the first time any nation has eclipsed that milestone. In the second quarter of 2015 alone, the deal … Continue Reading

The effect of rising interest rates on M&A activity

In recent report entitled The conflict of interest? Rising rates effects on M&A, MergerMarket was commissioned by Toppan Vite to examine the effect of potential rising interest rates on the effect of M&A activity in the coming year.

U.S. M&A activity was at peak performance in 2014 as deal activity increased to over 5,051 deals worth $1.5tn U.S., up from 3,995 transactions worth $937bn U.S. in 2013. However, with a potential rise in interest rates coming in 2015 from the Federal Reserve, many are concerned about its effect on deal activity in the coming year. MergerMarket interviewed seven leaders … Continue Reading

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