Canadian Treasurer

December 28, 2010

Canadian companies poised for acquisition spree?

Due to their record cash positions, Canadian companies are poised to increase their M&A activity both domestically and internationally, says the 2010 Canadian Investment Banking Study from U.S.-based consultancy Greenwich Associates.

Canadian corporations’ strong financial position is the result of a booming bond market and the eagerness of banks to provide credit at favourable rates, says Greenwich. Its study is based on interviews with chief financial officers, corporate development officers, and treasurers at large Canadian companies between April and June 2010. In all, 107 executives in debt capital markets and 105 in M&A and equity capital markets were interviewed for the study.

“The improvement in corporate access to bank financing has been dramatic over the past 12 months,” says Greenwich Associates consultant Jay Bennett. The number of companies which said they had no difficulty accessing bank credit went up from 30 percent in 2009 to 70 percent in 2010, the study found.

Corporate bond boom

Canadian companies have also been taking full advantage of low interest rates and strong investor demand in the corporate bond market. Two-thirds of Canadian companies with investment-grade credit ratings tapped the corporate bond market from 2009 to 2010, as did more than a third of Canadian companies overall, Greenwich says.

As a result, large Canadian companies have more than enough capital to fund the limited investment opportunities emerging in this period of tepid economic growth, Bennett says.

And some of these companies are looking for potential domestic and international M&A activity. In 2011, 42 percent of large Canadian companies expect to be active in domestic M&A, compared to the 28 percent of companies that were active in domestic M&A transactions from 2008 to 2009 and 31 percent in 2009-2010.

International M&A by Canadian companies is also expected to grow in 2011, with more than a quarter of companies participating compared to 20 percent in 2010, the study says.



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