Canadian M&A slides in third quarter, cannabis deals drop

TORONTO (Reuters) - Canadian M&A activity fell by 31% in the third quarter to its lowest in eight quarters and initial public offerings also slowed, according to Refinitiv data, with economic headwinds and a decline in cannabis deals among the drivers.

FILE PHOTO: Buildings are seen in the financial district in Toronto, January 28, 2013. REUTERS/Mark Blinch

M&A involving Canadian players totaled $49.7 billion (C$66.07 billion) in the three months to Sept. 30, the data showed, while IPOs raised $774 million in the quarter.

Deals in the first three quarters of 2019 slid to $157 billion, the lowest level since 2014, compared with $200.6 billion for the corresponding period in 2018.

Trade and economic uncertainties meant companies were “less confident and therefore less interested in acting,” said David Rawlings, Chief Executive Officer for Canada at JP Morgan Chase & Co, although he noted a high base for comparison.

“We’ve normalized from some really high activity a couple of years ago to a more normal run rate now,” Rawlings told Reuters. He said activity over the next 12 to 18 months could remain fairly consistent with the levels so far this year.

Most companies have healthy cash flow and balance sheets and access to financing, and investors are still active, Rawlings said.

Investment and private equity firms including Brookfield Asset Management BAMa.TO, Blackstone Group BX.N and Canada Pension Plan Investment Board were involved in four of the quarter's five biggest deals.

TD Securities led financial advisors with $36.3 billion of M&A deals. Osler Hoskin & Harcourt topped legal advisors with deals worth $41.3 billion.

A fall in cannabis deals also contributed to the decline in M&A activity. The biggest marijuana deal, Constellation Brands' $4 billion investment into Canopy Growth WEED.TO, was announced in the third quarter of 2018.

“In the cannabis space, there has been a significant (stock) market adjustment over the past few months,” said Jonathan Sherman, co-chair of law firm Cassels Brock’s cannabis group.

“From an M&A and deal-flow perspective, companies are also hesitant to dive into something given the political uncertainty you have right now,” he said, pointing to a Canadian federal election on Oct. 21.

The biggest deals announced during the quarter included Blackstone funds' $4.2 billion acquisition of Dream Global Real Estate Investment Trust DRG_u.TO and BC Partners' purchase of a 51% stake in Garda World Security.

Equity raisings doubled to $10.4 billion in the third quarter from a year earlier, while debt deals rose 12% to $42.8 billion.

Reporting By Nichola Saminather; Editing by Nick Tattersall