Posted August 7, 2018


Canadian M&A activity hits $93B in the first half of 2018

Cannabis sector experiences surge in deal volume and value; 1,546 deals valued at CA$93 billion; Cannabis saw 48 deals in H1 2018 for a total disclosed value of CA$5.2 billion; Outbound deals from Canada into the US rose by 8% in H1 2018 from H1 2017; Current trade tariffs affect only 3% of Canadian exports

Mergers and acquisitions (M&A) activity in Canada hit CA$93 billion in the first half of 2018 primarily due to a surge in deals in the cannabis, energy, and real estate sectors, according to PwC Canada's recent 2018 M&A mid-year review and outlook report. Despite turbulent Canada-US trade talks and uncertainty around tariffs, sound underlying market dynamics such as available capital are likely to continue to stoke strong deal activity in the second half of the year.

According to the report, Canadian companies are looking outside the country for deals. Outbound transactions from Canada into the US increased by 8% in the first six months of 2018 compared to the same period last year. There have also been 161 International non-US outbound deals with countries like the Australia and the UK as Canadian dealmakers aim to diversify their portfolios due to trade uncertainty and tariff conflicts.

"The growth in international outbound deals demonstrates that Canadian businesses are performing well and will continue to pursue growth opportunities at home and abroad," says Dave Planques, National Deals Leader, PwC Canada. "Canada has had a solid relationship with the US, however, the global geopolitical environment is creating greater uncertainty for dealmakers. Diversifying portfolios or supply chains may help alleviate risk and expand market share."

The pending legalization of recreational marijuana for adults has significantly impacted the sector in the first half of the year. A total of 48 deals took place in the first six months of 2018 for a total disclosed value of CA$5.2 billion. With a large number of players and ample capital, companies are investing to create economies of scale, expanding their patient base, securing consumer-centric products and brands, entering new markets and acquiring protected distribution channels.

Following the legalization of cannabis on October 17, the deals landscape will focus on three main activities:

• Continued consolidation of the Licensed producers (LP) landscape within Canada, as growers continue to mature their adult-use businesses.
• A reduction in the number of players as expected oversupply takes its toll and forces undercapitalized players into bankruptcy (which may be an opportunity for well-capitalized companies to acquire prime assets).
• Increased focus on international M&A, as LPs look to fuel further growth by tapping emerging foreign medical markets.

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