After a record-breaking year for mergers and acquisitions, Canaccord Genuity Group Corp. CEO Dan Daviau expects another strong year for dealmaking, potentially driven by global supply-chain issues.
The Toronto-based investment bank is coming off a strong fiscal third quarter, generating an $84.6-million profit on $550-million in revenue for the three months ended Dec. 31. The company’s profit increased 7.2 per cent compared with the same period last year, while revenue rose 3.3 per cent.
Canaccord said $153.3-million of its revenue came from its M&A advisory business, a new record for the company.
“Our M&A business now, in a quarter, is bigger than where it was in a year a couple of years ago,” Mr. Daviau said in an interview.
Canaccord, like many investment banks, fared well in 2021, when there was a record-high US$349-billion in deals in Canada across 4,558 transactions, according to data from Refinitiv. That figure tops the previous record set in 2007, when deal value amounted to US$312.2-billion.
Mr. Daviau said he expects 2022 to be strong because buyers have plenty of cash on their balance sheets.
“All the private equity firms have more capital than they’ve ever had, the corporate balance sheets are rife with cash, and the banks are pushing to put money in.”
While inflationary concerns and imminent interest-rate hikes have whipped volatility into the equity markets, the Canaccord chief said those factors aren’t strong enough to turn off buyers, and that his own shop has a robust pipeline for deals.
“Everyone thinks rates are going up … they’re not going up in the double digits, they’re going up a couple of points here and there,” he said. “It doesn’t really affect people’s fundamental thinking.”
The economic factor that he thinks could spur more dealmaking is the supply chain crunch that has challenged several sectors in finding the products they need at a good price – or at all.
“You can’t build stuff today,” Mr. Daviau said. “If I’m a car manufacturer and I want to get into the motorcycle business, I can’t go and build a motorcycle plant. There’s no supply of metal, there’s no supply equipment … . Everything has got very long lead time, so if I really want to be in something, I have to go out and buy it.”
Canaccord has been making acquisitions of its own lately: In December, it bought New-York based M&A boutique Sawaya Partners and British wealth manager Punter Southall Wealth for $278.7-million. Mr. Daviau said Canaccord’s growing wealth business adds stability to the firm because it is less tied to the capital markets than its other divisions.
Even in a volatile market, Mr. Daviau said he sees opportunity for Canaccord to reap a profit. It is a leading underwriter in the mining sector, where assets such as gold can thrive as interest rates rise. If there are fewer issuances on the market, he says, they can make up the revenue on the trading desk.
“We trade a lot more when markets are choppy,” he said. “So we lose the new issue revenue a little bit, but we get all this other revenue.”
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Jaren Kerr