A $1.1 billion play for B.C.’s Fission Uranium (TSX:FCU) and a $135 million offer for B.C.’s Jabob Brothers Construction are among the “green shoots” in M&A activity that PwC is expecting to see blooming this year in Canada.
Mergers and acquisitions activity in Canada has been flat for the last four quarters, but PwC is expecting it will pick up, partly due to expected interest rate cuts.
In a mid-year update to its 2024 M&A outlook, PwC says there were 952 deals in Canada totalling $72 billion between January and May.
Just two days ago, Australia's Paladin Energy announced it planned to acquire B.C.’s Fission Uranium for $1.1 billion. And on June 11, Bird Construction in Ontario announced it planned to acquire B.C. heavy construction company Jacob Brothers Construction for $135 million.
“I think the deals that we’re starting to see announced now is really a reflection of the green shoots starting to come through,” said Philip Heywood, PWC’s deals leader for B.C. “We’re starting to see indications that the M&A market is rebounding. We really think that’s the tip of the iceberg.
“What you’re not really seeing yet is all the conversations and strategic intent from clients that is going on behind the scenes, as they’re hunting for assets both inside and outside Canada.
“And as those transactions start to come through, I think over the next six months you’ll see a lot more deals get announced.”
There is a lot of private equity on sidelines waiting to be deployed, Heywood said. High interest rates, which mean higher borrowing costs, have been holding back some deals from being made, so future interest rate cuts could see some of that pent up capital deployed in mergers and acquisitions.
“I think in Canada it’s around $10.4 billion of dry power,” Heywood said. “About 26 per cent of that is over four years old, in terms of when the commitments were made, so that money really has to be deployed into transactions soon.”
Michelle Grant, PwC’s national energy, utilities, mining and industrials leader said the mining and financial sectors may be some of the more active sectors in terms of M&A activity.
“We’re seeing Canadian mining companies actively looking for deals outside of Canada,” Grant said. “We’re obviously seeing interest from foreign investors into Canada, and I think that theme is just going to continue.
“I think you’ll see quite a number of mining deals that get announced over the next six months and into 2025.”
Grant said banking is another sector that could be ripe for M&A deals.
She pointed to the recent announcement that the National Bank of Canada (TSX: NA) plans to acquire Canadian Western Bank (TSX:CWB) for $5 billion, as well as recent mergers of credit unions in Manitoba.
“I think we’ll see a significant run of credit unions consolidating to really drive down costs, as margins are under pressure,” Heywood said.
He added PwC is also seeing an uptick in tech sector deals, notably in AI.
“We are seeing significant investment going into SaaS businesses, AI driven businesses or AI IP type businesses. A local example would be Hootsuite with their announced transaction to acquire Talkwalker.”
One uncertainty that PwC has flagged that could affect M&A activity is the upcoming presidential elections in the U.S.
The Biden administration has been heavily incentivizing “green” industries, including electric vehicle and battery manufacturing.
It’s unclear to what degree a Donald Trump White House might reverse course on some of those incentives. And any Canadian company selling commodities and goods into the U.S. could be subject to new American tariffs.
“It will have a significant impact on all the initiatives around critical minerals and battery supply chain,” Grant said of the U.S. elections. “It’s the uncertainty. People just don’t know what’s going to happen on that front.”
“Until there’s a little bit of clarity on that, we might see some pullback in M&A activity into the U.S.,” Heywood added.
