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The largest deal of the quarter was Brookfield Asset Management Inc.’s proposal to buy Australian power company Ausnet Services Ltd. for $2.29 a share.Mark Blinch/Reuters

After a red-hot first half of 2021, merger and acquisition activity in Canada’s capital markets plunged in the third quarter as fatigue in the markets set in and private equity players were less active than usual.

There were 940 M&A transactions in the third quarter, with buyers spending a total of US$76-billion on acquisitions, according to data compiled by market research firm Refinitiv. That’s down from 1,245 transactions in the first quarter, and 1,213 in the second quarter. Deal activity was particularly diverse, with major transactions spanning several sectors.

“In the 25 years I’ve been doing this, I’ve never seen such a broad-based level of M&A activity across the board,” said Sarfraz Visram, who heads the Canadian and international M&A group at BMO Capital Markets.

Despite the big drop-off in deals, he told The Globe and Mail that the quarter was highly active in historical terms, even if it seems slow relative to the first half of the year.

“Things are very busy, but [business] did trail off relative to what I would call deal frenzy in the first half of the year,” he said. While deal flow was slower compared to earlier quarters in 2021, the third quarter was strong when compared to the same period in recent years. There were more transactions in the third quarter this year than in any year between 2015 and 2019.

The largest deal of the quarter was Brookfield Asset Management Inc.’s proposal to buy Australian power company Ausnet Services Ltd. for $2.29 a share. Australian natural gas firm APA Group has made a higher bid for Ausnet at $2.38 a share.

The market for debt issuances and initial public offerings also cooled in the third quarter. According to Refinitiv, there were five IPOs in the third quarter, compared with 12 in the second quarter, and 20 in the first. There were 86 corporate debt deals in the third quarter, a drop from 139 in the second quarter.

HISTORICAL Q3 IPOs

Rank

Date (since 2015)

Ranking amount (billions)

No. of issues

3rd quarter 2020

$1.3

3

3rd quarter 2015

1.1

5

3rd quarter 2016

.467

2

3rd quarter 2018

.358

4

3rd quarter 2021

.332

5

HISTORICAL Q3 M&A

Date (since 2015)

Ranking amount ($US billions)

Rank

No. of deals

3rd quarter 2016

$99.9

608

3rd quarter 2021

75.4

940

3rd quarter 2018

68.9

882

3rd quarter 2019

50.7

807

3rd quarter 2015

43.2

628

TOP BANKS FOR M&A

Ranking value ($US billions)

Rank

Bank

No. of deals

BofA Securities

$88.2

16

BMO Capital Markets

64.7

29

TD Securities

54.6

31

Goldman Sachs

52.4

26

Morgan Stanley

51.2

18

TOP M&A DEALS

Ranking value ($US billions)

Rank

Target

Kansas City Southern

$30.8

Shaw Communications

21.9

AusNet Services

12.6

Inter Pipeline

12.2

Kirkland Lake Gold

9.9

THE GLOBE AND MAIL, SOURCE: REFINITIV

HISTORICAL Q3 IPOs

Rank

Date (since 2015)

Ranking amount (billions)

No. of issues

3rd quarter 2020

$1.3

3

3rd quarter 2015

1.1

5

3rd quarter 2016

.467

2

3rd quarter 2018

.358

4

3rd quarter 2021

.332

5

HISTORICAL Q3 M&A

Date (since 2015)

Ranking amount ($US billions)

Rank

No. of deals

3rd quarter 2016

$99.9

608

3rd quarter 2021

75.4

940

3rd quarter 2018

68.9

882

3rd quarter 2019

50.7

807

3rd quarter 2015

43.2

628

TOP BANKS FOR M&A

Ranking value ($US billions)

Rank

Bank

No. of deals

BofA Securities

$88.2

16

BMO Capital Markets

64.7

29

TD Securities

54.6

31

Goldman Sachs

52.4

26

Morgan Stanley

51.2

18

TOP M&A DEALS

Ranking value ($US billions)

Rank

Target

Kansas City Southern

$30.8

Shaw Communications

21.9

AusNet Services

12.6

Inter Pipeline

12.2

Kirkland Lake Gold

9.9

THE GLOBE AND MAIL, SOURCE: REFINITIV

HISTORICAL Q3 IPOs

Rank

Date (since 2015)

Ranking amount (billions)

No. of issues

3rd quarter 2020

$1.3

3

3rd quarter 2015

1.1

5

3rd quarter 2016

.467

2

3rd quarter 2018

.358

4

3rd quarter 2021

.332

5

HISTORICAL Q3 M&A

Date (since 2015)

Ranking amount ($US billions)

Rank

No. of deals

3rd quarter 2016

$99.9

608

3rd quarter 2021

75.4

940

3rd quarter 2018

68.9

882

3rd quarter 2019

50.7

807

3rd quarter 2015

43.2

628

TOP BANKS FOR M&A

Ranking value ($US billions)

Rank

Bank

No. of deals

BofA Securities

$88.2

16

BMO Capital Markets

64.7

29

TD Securities

54.6

31

Goldman Sachs

52.4

26

Morgan Stanley

51.2

18

TOP M&A DEALS

Ranking value ($US billions)

Rank

Target

Kansas City Southern

$30.8

Shaw Communications

21.9

AusNet Services

12.6

Inter Pipeline

12.2

Kirkland Lake Gold

9.9

THE GLOBE AND MAIL, SOURCE: REFINITIV

Mr. Visram said part of the relative slowdown is due to the completion of backlogged deals in the first half of the year that had stalled at the onset of the pandemic.

“There was a lot of catch-up activity that we saw the first half of the year,” he said. “I think a lot of that backlog has been cleared.”

Part of the drop in deal flow may have also been due to fatigue in the industry. While many Canadians struggled to keep up financially in the past 18 months, capital markets have been strong, with companies reaching high valuations amid ample deal flow. Bankers and lawyers have said that the heavy workload during the pandemic has been taxing.

Canadian IPO market heats up as Q4 resumes plans to go public, Copperleaf considers upsizing offering in face of strong demand, sources say

In recent months, Mr. Visram said, deal makers have become more concerned about inflation and rising interest rates when seeking takeover targets.

“There is more of a dialogue amongst our client base when they are modelling out the business impact of an acquisition or merger,” he said. A key question he says they ask: “What do we think the longer-term inflation [impact] is going to be in this space?”

Despite his expectation of higher interest rates, Mr. Visram expects deal flow to be strong for the rest of the year, and into early 2022.

“Our pipeline right now is just as heavy as it was this time last year,” he said, adding that remote work has transformed how he and his colleagues do deals.

“The biggest change that I see is the pandemic has taught us all to be a lot more efficient in executing M&A,” he said. “Now what we’re seeing is advisers making use of virtual arenas where there’s actually more information that gets shared. And I think in a lot of ways the relay of that information is a lot more efficient than what we used to do in person.”

Mr. Visram said this new approach to deal making could spur more cross-border activity. According to Refinitiv, global cross-border M&A activity totaled US$1.6-trillion in the first nine months of 2021, a 99-per-cent increase compared with a year ago and the strongest opening period for cross-border M&A since records began.

Many of the biggest deals of the quarter were done by businesses aiming to accelerate growth through acquisitions, rather than private equity and pension funds. Of the top 10 deals in the quarter, six of the acquirers were companies buying competitors or complementary businesses.

The second-largest deal of the quarter was the Agnico Eagle Mines Ltd. US$9.9-billion proposal to acquire Kirkland Lake Gold Ltd. Canadian insurer Great-West Lifeco Inc. – a subsidiary of Power Corp. of Canada – offered US$3.55-billion to buy the retirement business of Prudential Financial Inc. in the third-largest deal of the quarter.

“The pause that we’re seeing right now, I think it’s just temporary,” Mr. Visram said about the relatively quiet period for investment managers. “They’ve spent all their money from 2020. They’re raising new funds.”

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