According to a recently conducted survey, after a record 2006, Canadian businesses might be revving up for even more mergers and acquisitions next year. Statistically speaking, 43% of 180 surveyed companies said they could be looking for potential new dance partners or attractive takeover targets domestically, while 32% might be doing the same across the border.
Now, what businesses say they might do and what actually will happen are not necessarily one and the same. In other words, these percentages might be lower just as they might be higher. For example, last year, 42% of businesses said they would be looking into domestic M&A, but only 33% actually kept the promise. The situation was similar with cross-border M&A, whereby 30% of businesses expressed interest last year, but only 22% followed through.
Going deeper into these statistics, it turned out that last year, investment-grade businesses were actually much more active than originally anticipated. Only one-third of these firms said they would go for it, but 42% actually hired an investment banker. In contrast, non-investment grade companies thought that 63% of them would be active on the M&A front, but only 27% made good on their plans.
Putting statistics aside, what does that mean for Canadian investors? Well, Canadian companies have yet again demonstrated their faith in domestic market M&A, though less was the case with cross-border transactions.
In addition, two-thirds of surveyed companies have a market cap of over CDN$10.0 billion. This means that large-caps are running out of steam to grow on their own and need smaller players in on the game. That could spell good news for investors with stakes in potentially attractive takeover targets that Canadian markets are full of.
As far as specific sectors are concerned, watch for rumors of potential takeovers among non-bank financial, mining, real estate, telecommunications, and utilities companies. Once the rumors start, stock prices of potential takeover targets typically appreciate. Of course, this is far from a sure thing, both on account of price appreciation and takeovers actually materializing. However, in our experience, speculation in these circumstances has typically paid off.