(Reuters) – Canada’s mergers and acquisitions activity slumped almost 57% in the first quarter from a year ago, to its lowest level since 2015, as dealmakers grappled with the fallout of the novel coronavirus outbreak while bracing for a massive slowdown over the coming months.
With many countries in lockdown and economic growth coming to a standstill, bankers are seeing some opportunities in rescue deals and distressed M&A.
“We may see an uptick in certain kinds of strategic investments for companies that are cash-strapped and could use a Warren Buffett-like injection,” said Jeremy Fraiberg, chair of M&A at law firm Osler, Hoskin & Harcourt.
“For General M&A, non-distressed M&A, and IPO activity for the foreseeable future until we have a better handle on things, it seems like all bets are off,” Fraiberg told Reuters.
Deals dropped to $27.75 billion in the first three months of 2020 from $63.74 billion a year ago, according to Refinitiv data. That was down almost 69% from the previous quarter ended in December.
Canadian initial public offerings rose to C$7.10 billion from $C6.51 billion in the final quarter of 2019.
Global mergers and acquisitions activity plunged 28% in the first quarter to its lowest level since 2016.
Bankers see risks to financing deals due to the dislocation in equity and debt market.
“Debt is a lot more expensive than it was and equities a lot cheaper… For transactions that are maybe not quite as far advanced, it is very hard for buyers and sellers to agree on a price,” said Grant Kernaghan, managing director for Canadian Investment Banking, at Citi (C.N).
“It is very hard for anyone in this market to know what the true price of something is … it is very unlikely that people are going to spend a lot of time starting new transactions,” he added.
Canada’s main stock index .GSPTSE fell 21.6% in the first quarter, its worst fall since the final quarter of 2008.
Interactive graphic on Canada deals – here
Moreover, private equity players, usually drivers of big M&A deals, will need to divert capital to ensure portfolio companies are well looked after, which means they will be unable to take advantage of depressed prices.
On the bright side, regulators will not want to stand in the way of deals that can help struggling companies survive, industry sources said.
“Once we have stability in the equity markets, then I think we’ll see a slow return to M&A. I don’t think there’s going to be this massive rush,” said Kernaghan.
Interactive graphic on Canada equity deals in Q1 2020 – here
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