Mid-market deals boost 2013 M&As

Mega-deals fell silent but mid-market activity took reign in the first quarter of 2013, says the PwC Capital Markets Flash Report.

The average deal size during that time was $85 million, with just four deals over $1 billion. Of the 570 tallied deals, 39 were over $100 million.

Read: Canadian M&A deals diminish in 2013

The report finds the Canadian real estate sector is responsible for the quarter’s largest M&A deal; this was the $4.5-billion deal between H&R REIT and KingSett Capital Consortium for the assets of Primaris REIT.

Real estate is also one of the most active sectors by both volume and value in Canada, with REITs accounting for over 90% of activity in the sector. This equates to a third of total deal value across all industries.

What’s more, Canadian real estate has been one of the steadiest areas for investors in the last five years.

“If you’re a quality REIT with a good track record today, you have easy access to capital,” says Don Fitzpatrick, president of PwC’s Deals real estate practice. “If most of the established REITs want to go to market to raise a few hundred million dollars, they can do so very quickly.”

Canadian pension funds also made an impression on the Q1 2013 stats. Their continuing global search for high quality assets produced overseas infrastructure acquisitions that were three of the largest deals during the quarter.

Read: Will REITs remain profitable?

“Canadian pension funds are looking to diversify their holdings away from their historical over-weighting in Canada,” says Richard Pay, Transaction Services Partner, PwC.

He adds, “They’re continuing to be more active and innovative in managing their funds than their global counterparts. This has been demonstrated by their investments across a wide range of asset classes, sectors and geographies.”

The report also indicates that debt-financing terms for high-quality businesses are back to pre-crisis levels. “There’s sufficient liquidity in the market for the right players, but it’s only for the right assets, which means strong cash-generative issuers that present little down-side risk,” says Nicolas Marcoux, Canadian Deals Leader, PwC.

The good news is Canadian CEOs are more bullish on acquisitions in 2013 than their global counterparts. They were more positive about growing their companies through acquisitions, joint ventures or strategic alliances this year, says the report.

Read: Canadian startups look for new exit strategies

These execs are also optimistic about forward economic prospects, largely because of the slow-but-sure improvements in the U.S.

“Recent economic uncertainty has led to many companies reigning in the more aggressive aspects of their growth strategies over recent years, says Marcoux. “Returning confidence, together with strong balance sheets and market liquidity, will continue to increase levels of M&A activity.”

Read the full report.