The Western provinces are taking a bigger share of Canadian business investment as a result of the global commodities boom, a PricewaterhouseCoopers (PwC) report on mergers and acquisitions shows.
Ontario and Quebec continue to be the top investment destination, according to the report Deals Quarterly Special Feature, but the two Central Canada provinces are losing market share to the West. The report looks at merger and acquisition activity province-by-province over the last 10 years.
“There is certainly a shift, a trend,” Kristian Knibutat, PwC Canadian deals leader, said in a teleconference on the report Friday.
He said the geographic shift comes as no surprise, given the “super cycle” that commodities have been experiencing over the decade.
The PwC report shows that on the sell side of M&As — companies being acquired — Ontario dropped from 37 per cent of the volume and 47 per cent of the value in M&A activity in 2000, to 32 per cent of volume and 31 per cent of value by 2011.
In contrast, B.C., grew from 17.5 per cent of the volume and five per cent of the value in M&A sell-side activity in 2000, to 20 per cent of volume and 16 per cent of value by 2011.
On the buy-side, however, Ontario has dominated M&A activity. The volume of deals where an Ontario company was the acquisitor, slipped from 44 per cent to 37 per cent, but the value spiked from 41 per cent to 70 per cent.
“Mining has become a No. 1 target sector for each of Ontario and British Columbia,” said Knibutat. “They certainly benefited significantly from the commodities super cycle. In 2000, Ontario and B.C. had about seven or eight per cent each activity in mining. Today, the percentages for Ontario would be closer to 20 per cent and for B.C., 54 per cent.
“That’s driven in a large part by the fact that both Toronto and Vancouver are global capital market centres and recognized as such for the resource industries, and mining has become the No. 1 targeted sector in both of these provinces.”
Knibutat added, however, that much of the deal-making takes place outside of Canada.
“A lot of the assets acquired are often in foreign jurisdictions,” he said. “There’s a lot of deal-making activity in the commodity-driven space and a lot of deal-making activity outside of Ontario and outside of Canada.”
Knibutat noted there has been a decrease in activity in the shale gas sector, largely because of the weak overall economy and technological changes in gas extraction that have lowered the price of gas in North America.
Pipelines to the West Coast are the driver that would lead to an increase in M&A activity in the shale gas sector, he said.
“Certainly we are seeing a push to be able to get shale gas out to the Coast and to overseas markets where the pricing is different.
Knibutat noted that countries as distant as India have an appetite for shale gas businesses.
“I expect it will open that market up for some further M&A activity if they are able to resolve that particular challenge of getting the gas outside of the Canadian market.”
In B.C., the report states, 290 targets worth $8.7 billion have been acquired for the first three quarters of 2011. Values are down significantly from 2010’s $21.4 billion, when two of the largest mining deals in the world involved B.C. assets. That year, Kinross Gold paid $7.2 billion US for Redback Mining, a B.C.-based company with assets in Africa. Western Coal, which operates in B.C. was also taken over by Walter Energy for $3.3 billion.
Forestry, the report notes which has had “a conspicuously low level of activity” for some time, is going through a buying “renaissance” this year, led by the $1 billion purchase of TimberWest Forest by two Canadian pension funds, the British Columbia Investment Management Corp. and the Public Sector Investment Board.
On the buy-side, 500 transactions worth $6.3 billion have taken place in B.C. so far this year. Not surprisingly, 75 per cent of all deal volumes was in the resource sector.
The report ranks B.C. as fourth in Canada in terms of M&A activity, behind Ontario, Quebec and Alberta.
PwC also released its regular quarterly report on M&A activity Friday, which showed bank and pension fund buying dominated the quarter and sheltered the deal-making market from what would otherwise have been a dramatic slowdown. Excluding the institutional buys, the value of M&A activity was down 25 per cent from the second quarter.
There were 756 M&A announcements during the quarter worth $756 billion.
ghamilton@vancouversun.com
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