Flush balance sheets in corporate Canada spell M&A potential
New York, US (PRWEB) October 04, 2013
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The improving financial outlook in corporate Canada is now seeing many companies sitting on stash of excess liquidity, amidst increasingly positive economic circumstances.
This situation has created prime conditions for a surge in mergers and acquisitions by these comfortably-off companies – and it is no new situation. As far back as August 2012, the then governor of the Bank of Canada (BoC), Mark Carney, (who has since crossed the Atlantic to become governor of the Bank of England) said that Canadian companies needed to start taking action over their growing cash levels in order to help to boost the national economy.
In the year since, the new BoC governor, Stephen Polz, has somewhat dialed back Carney’s comments, stating that some excess cash on balance sheets is a good idea. But many companies are now reaching a point where acquisitions and purchases are now the most reasonable next step for their business growth.
M&A among Canadian businesses has been steadily rising since the start of the economic downturn in 2008, seeing consistent rises in deal volume, although the collective value of the deals is still catching up. The number of transactions carried out in 2012 – 2,841 – was nearly at the same level as the pre-economic crisis 2007, and the prospects for 2013 so far indicate that it is on course to surpass the 2007 number of deals. While the number of deals is rising, however, the total CA$201 billion value of the 2,841 deals from 2012 is still significantly less than the CA$396 billion value of the 2007 deals. The year-so-far figures for 2013 indicate that while the number of deals carried out in the first half of the year is up by 82 per cent compared to the first half of 2012, the value stands only at CA$157 billion so far.
A sector that has seen a particularly high number of deals in the last year is aerospace and defense (A&D). Initiatives like the National Shipbuilding Procurement Strategy have been encouraging companies in the sector to invest in efforts to bolster equipment, staff, labor, skills and equipment. The strategy has seen CA$33 billion allocated to the manufacture of large vessels in the country, CA$2 billion on small vessels and CA$500 million on maintenance for Canadian Navy and Coast Guard vessels. M&A in the sector nearly doubled in 2012, up to 22 deals from only 12 in 2011. The rise in deals is an example of how the retained earnings that have accumulated on their balance sheets in the last few years are now steadily being released and invested, allowing them to capitalize on bountiful deals when the right one arises. Consumer demand for cars is also expected to remain strong in the mid-term future, providing a boost to the automotive sector via the inherent vehicle replacement cycle. The positive effect that this will have on the engineering and manufacturing sector will see the spreading of boundaries of operation and the further enhancing of funding for M&A.
With steady economic growth predicted for the next few years – 2.2 per cent in 2014 – and the global economy predicted to reach 3.8 per cent growth next year, many sectors are now giving indications that they are preparing to pursue growth through acquisitions. KPMG’s 2013 Canadian Manufacturing Outlook stated that 55 per cent of Canadian manufacturing firms are looking at pursuing M&A over the next two years, positioning their businesses for the future and preparing their products and services that the growth they are likely to encounter in the imminent future.
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